A brief discussion between Jason and Gia about the all too numerous false claims made by investment promoters and how you can sort them out. Then a tele-seminar about investment markets that work in real life.
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: This is Jason Hartman and thank you for joining us for show No. 52, Creating Wealth No. 52. Glad to have you listening today. We here at Platinum Properties Investor Network in Costa Mesa, California, provide the complete solution for real estate investors through our innovative five-step process, investor education, individual consultation. Please feel free to call us or contact us through www.jasonhartman.com to set up an individual consultation.
Again, no charge for this whatsoever. And we’ll be happy to help you analyze specific investments, use the proper amount of leverage on your investments, actually acquire the properties, allocate your assets so that you are nicely diversified and you maximize upside potential, while reducing any downside risk. And then we will help you with the ongoing maintenance, management, and monitoring of your portfolio and have the overall goal of wealth accumulation and asset preservation.
So today, let’s talk about markets that make sense. Two parts to this show today, the first part I wanted to just share a talk I just had with Gia, our investment counselor here in the office, about false advertising and there is so much of it going on in our industry. It is something you really have to be aware of and be very careful of. A lot of false advertising; a lot of false claims out there.
We’re just going to address one of them today and then we will share with you a very recent conference call. Again, we have conference calls on a regular basis and occasionally, not always, occasionally, we like to just put them up on the podcast or put a part of them, edited, up on the podcast and have you listen to it because there were some really salient things there that I think you listening to our show would like to hear.
So first, let’s go to the discussion about false advertising and false claims. Buyer beware on this. And then we’ll go to the conference call. Thanks again for listening today and please contact us through www.jasonhartman.com or at our office phone number, 714-820-4200, and let us help you with any of your investment questions or needs.
I’m here with Gia and we wanted to talk about some false advertising that is going on in the investment and in the real estate industry. We see a lot of emails come across and a lot of ads and so forth where investment peddlers, people that are selling investment properties, are promising $.80 on the dollar or $.70 on the dollar or $.20 on the dollar or whatever it is, and these huge price discounts. And upon further investigation, we have found them to be pretty false, frankly, and Gia and I just wanted to kind of talk to you about that for a minute because a lot of our clients are asking about it. Welcome, Gia.
Gia: Thank you.
Jason Hartman: So what’s going on out there?
Gia: Well, it seems like we have a lot of our competitors around the area saying that they’re getting a big discount on the properties, but when we go and question it, basically, we’re getting a lot of discounted properties also, but we’re not saying that the property is worth the original price. So when we get a price from a builder that says it’s been discounted $20,000.00, we present the actual current price to our investor.
Jason Hartman: Yeah, that’s a good point. You know, Gia, a lot of these groups are quoting discounts as though the market hasn’t softened already. They’re talking about the price it was a year ago, a year and a half ago, two years ago even, at the very peak of the market. And now prices have softened. I mean we’ve talked about this a lot on prior shows about what we call the “perfect storm” for investing, softer market, lower prices; better deals, great interest rates, etc, etc, strengthening rents.
But a lot of these groups are just out there and I see these emails fill up my inbox all the time promising discounted prices and they’re really not discounts. But at first blush, clients think they are.
Gia: Right.
Jason Hartman: Why do they think that? I mean what’s going on that makes them think that that’s a real price and what’s happening when you investigate a little bit further?
Gia: We have a lot of our agents on the ground actually running comps, so we can easily do that. When we have a property come across, we’ll compare what’s sold in the neighborhood and usually when the builder gives us his property at a discount, you can actually see, yes, the homes that were sold were at the 20, 30, whatever, additional $20,000.00, $30,000.00 additional price.
Jason Hartman: Or discounted price you mean.
Gia: Exactly.
Jason Hartman: $20,000.00 or $30,000.00 price discount.
Gia: Well, the original sales price was sold at the higher price.
Jason Hartman: Right, okay.
Gia: Off the comps. So these are actually showing very well. But again, when we present these to our clients, we don’t say here’s a house for $130,000.00 and you have $30,000.00 in equity. We’re not saying that. What we’re saying –
Jason Hartman: That’s the other one I love. I get these. Thank you for bringing that up. I sort of couldn’t think of it exactly. But I get all of these emails that say instant equity.
Gia: Right.
Jason Hartman: $20,000.00 instant equity, $30,000.00 instant equity. Folks, look it, the market has some efficiency to it. If things were being sold that really had $30,000.00 instant equity, don’t you think the seller would just hang on to it themselves?
Gia: Exactly.
Jason Hartman: I mean there’s an old saying in real estate that the best deals never close. And what I mean by that is when the deal is too good for the seller, in other words, they overprice the property, the buyer figures it out before closing. If the deal is too good for the buyer and the seller undersold the property, they figure it out before closing. And so that’s a common old saying. The best deals never close.
Gia: Right, right.
Jason Hartman: That’s a good thing to know. So that instant equity thing is largely a myth. The other thing that’s interesting about it is we love the software that we use to evaluate these properties and we standardize everything for our clients. And one of the things that you can do on the software – and this is a real tricky thing that I don’t want clients to be misled by, and a long time ago, I told all of our people that they were not allowed to do this. If you’ll notice up in the upper left-hand corner of the first year projection sheet, the one we commonly use, it says Market Value and Purchase Price. And you can enter two different numbers there and I won’t allow any of our people to do that because it dramatically inflates the return on investment.
So even if the property does have $5,000.00 in legitimate discount in there, you could put the two prices differently and the rate of return might go from 30 percent to 120 percent. I mean it just makes a dramatic difference.
Gia: Right.
Jason Hartman: And we don’t do that, so when you see our pro formas, they have the same market price and the same purchase price in them. Any comments or thoughts on that?
Gia: We always say the price is what the house sells for.
Jason Hartman: Yeah.
Gia: And we just kind of go on that. But I did want to say that everybody right now is obviously looking for a deal with everything that’s going on in real estate and we are, too. And we also have our agents on the ground scouring for those deals. And they send us those as soon as they get wind of them. They have strong relationships with builders. We have a strong presence in these markets and we are very trusted by these builders because we have a strong investment network here.
Jason Hartman: And we bring strong clients that really close. Just so you know from the builder’s side of the equation, everybody, one of the things that’s important, you know we just leased our new office space, for example, and our broker was just telling me, the one who leased us the space, about another guy who was soliciting my business who was actually banned from this project where we moved to because of his sort of shady dealings.
And it’s really important that the company you’re working with has real credibility. And here’s what happens with the builder’s side of the equation. If you put yourself in their shoes, the way a developer thinks, they have a lot of these different investment groups coming to them saying we’ll bring you all these buyers. They make a deal with them and then what happens is they actually sell a lot of property, but a whole bunch of those deals fall through. And it really damages the credibility of the investment group when that happens.
And so we’ve taken very careful, painstaking steps to really make sure our clients understand what they get before they buy and that they are not oversold, they are not hyped; they don’t have inflated expectations that are just looking through the world with rose-colored glasses, so that when they see the deal, it’s what they heard on the podcast. It’s what they heard at the seminar and it’s what they hear from our investment counselors individually, so that they actually close on the deal most of the time. A few times, things fall through, but that really helps our credibility. It makes these builders want to work with us and want to give us good deals.
And the other thing I just wanted to mention is that this happened recently where one of our clients went and looked around online and looked for other properties, and there were two issues here. No. 1 is they found one of the same developers we were working with and they said, well, this developer is selling it for the same price Platinum Properties Investor Network is offering it. But what they didn’t realize is, yes, the face price was the same, but we had negotiated a rent-ready package in all of these properties. So that was about $5,000.00 worth of value; window blinds, the lawn being sodded and seeded, and appliances and so forth.
Gia: Exactly. Plus, they throw in closing costs for us that they may not do for other investment groups. But honestly, the real value is the fact that you’re buying with a network and that you have a backup plan as far as the property management company goes. You’re not alone now. So that to me is the hugest value, whether you get a discount of $2,000.00 or $3,000.00 on the home, it’s worth having a network behind you.
Jason Hartman: Yeah, and as a network, we are constantly exerting a lot of leverage over the service providers, the builders, the property managers, and especially property managers. What comes after the fact is that people really need our help, I think, most later on, after the investment gets started, getting the first tenant in there, getting the second tenant in there, and we exert a lot of leverage over the property manager to make sure they are doing a good job for you. And the reason is we tell you to diversify, your one account in each city with each property manager, we want you to spread it around in different cities, but we represent a very large account to that manager because we have many clients who are using them. And they really go out of their way to make sure our clients are taken care of.
Any other comments, Gia?
Gia: Just one other comment is to remind everybody that when we go into a market, we are very, very specific in the neighborhoods and –
Jason Hartman: Oh, the issue of the macro market versus the micro market, yeah. Thanks for bringing that up. Nancy was saying this morning at our huddle, she was talking about a client who found what they thought was a better deal, looking by themselves, than our deal, and yes, it was a project that was $20,000.00 less expensive than the properties we’re recommending. But this is a project we turned down because it’s junk.
Gia: Right, yeah.
Jason Hartman: You’ve got to go there. So many of these groups are out there. They’ve never been to these cities. They certainly don’t buy in these areas. We require every area manager to buy where they’re selling, and just a huge, huge difference there. But go ahead with what you were saying.
Gia: Well, when you contact an agent in one of these areas, the builder’s representative, they want to sell you anything and they know it’s a one-deal opportunity for the most part.
Jason Hartman: Yeah, it’s like a one-off deal.
Gia: Exactly, exactly. So once it’s done and they’ve collected their commission check, they’re done. We’re in a lifetime relationship with our clients, so we’re always following up on the property management. Once you purchase with us, you’re with us for life. So that’s where we’re sticking with it.
Jason Hartman: Good. Well, thank you, Gia. We just wanted to address a couple of these issues and if you have any questions for us and you want to shoot them over via the website, via email, or call any of our investment counselors here, please do that. We’d love to answer these questions on the podcast because believe me, if you have that question, so do 100 other people, okay? So we’re happy to take those questions for you and answer them on the show.
Gia: Absolutely.
Jason Hartman: Thanks.
Conference Call
Jason Hartman: Good afternoon. My name is Jason Hartman. I’m President of Platinum Properties Investor Network located here in our new office in Costa Mesa, California. And I’d like to welcome everybody to the call. We do these calls about every two weeks or so and they’re a good way for investors to learn about what we do. We have clients all over the world and definitely all over the United States who are interested in purchasing rental properties in markets that make sense.
And we’ll talk a lot about how the rental market is today. We have several guests on the phone call and I’d like to introduce them now. If we can just go around quickly and have everybody introduce themselves, we’ll start with Senior Manager and investment counselor, Karam.
Karam: My name is Karam and I’m an area manager here. Also, investment counselor and I manage about 15 different areas around the country and will be talking today about Austin, Texas, and Indianapolis rental market, as well as the real estate market.
Jason Hartman: Okay, great. And how about our next investment counselor?
Sara: My name is Sara and I’m an investment counselor here with Platinum. I’m here to help you build your investment portfolio and see you through the whole process. We really do have a streamlined process for investing here and we’re here to see it through.
Jason Hartman: Great, Sara, thank you. And the next one is Gia.
Gia: Hello, my name is Gia and I’ve been here for almost two years now, but I came to Platinum first as an investor because I was looking for a way to get into markets around the country and I was having a really hard time doing it by myself. So I checked it out first and it worked for me and now, I am happy to be working here and happy to help our investors do the same.
Jason Hartman: Great. Thank you, Gia. I want to introduce some of our guests from far away that aren’t in our office here in Costa Mesa, California. I wanted to introduce Mike from Austin, Texas. Great to have you on the call. Do you want to just introduce yourself briefly?
Mike: I’m a real estate agent in Austin, Texas. I help find the houses, help you get the house rented as well. I’ve lived in Austin for 43 years.
Jason Hartman: Mike, great to have you on the call. Angela and Sean, are you on?
Angela: I’m here. Sean is not. I want to introduce myself. My name is Angela. I work here in Indiana, help Platinum locate good investment opportunities in good areas of town, and then in addition, assist the property management company in making sure those get rented out quickly.
Jason Hartman: Great, Angela. Well, thank you for being on the call as well. And Jim, do you want to introduce yourself briefly?
Jim: Yes, my name is Jim. I’m a property manager based in Kansas City, Missouri. I’ve been in business for about 15 years and manage over a thousand units in the metro area and here to answer any questions anyone may have on the Kansas City metro area rental business.
Jason Hartman: Excellent, Jim. Thank you. What we want to talk to you about today is we don’t want to talk about real estate investing. We want to really change our vocabulary when it comes to what we consider to be an investment and we only like investments that produce income. So what we’re really into is two things. Rather than real estate investing, as you would typically think of it or typically hear about it, we are into income property investing. We are into rental property investing, not just real estate investing. And in our network, what qualifies as an investment has to produce income for us. So that’s a very important thing.
And the next thing we’ll get to a little bit later, if we have time permitting, we’ll talk a little bit about investing in commodities as they relate to real estate. And I know that may sound a little odd because you thought you were on a real estate call, but I think you’ll find our take on investing in what we call “packaged commodities” to be very interesting, time permitting later in the call.
I want to tell you a little bit about what we do here. We have been in business now for 11 years. We are located in Costa Mesa, California. We just moved to a big, new office. We were located for many years in Newport Beach, California. And we provide the complete solution for real estate investors through a five-step process where we help our clients do the whole thing as far as in investing. We educate people and then we help them choose markets. We help them allocate their assets properly. We consult with them individually and we don’t make any money off of education. We are in the business of arranging referrals, acting as a real estate brokerage firm that arranges referrals to any one of our 36 markets throughout the United States.
So we are with you all the way through the process and the way this really makes us very different from everybody else out there in the marketplace is that we actually have to live with our clients when they make the investment because what we say on this conference call, what we say in our live seminars, and on our podcast, have to actually come true in real life or you won’t invest. And if you don’t invest, we won’t stay in business. So all of our assumptions are extremely conservative. They’re below all of the historical averages and we’ll share those with you in just a moment.
The other thing we do that makes us extremely different than everybody else is we actually practice what we preach. Now, that may sound like a simple statement, it may sound like lip service, but it really is quite different. When we started doing this new part of the business three and a half years ago, the problem I had is that all of our area managers wanted to keep opening up all of these new markets all over the U.S.
And the first quality control, among many others in terms of due diligence, we do that we had to institute is we would just say, look, if you think this is a good investment, if you think this is a good area to be recommending our clients to, then you go buy a property there yourself. Do the three-page due diligence questionnaire. Fly out there, interview agents, interview developers, interview property managers, and get a real sense of the market and invest your own money, and then we’ll talk about recommending it to our clients.
And I tell you, being in this industry, that is really unique because so many people do not actually practice what they preach. They do not buy what they sell. We do. Our area managers are required to do that before they can recommend it to you.
Let’s talk for a moment about assumptions and then I want to talk to you about something we call sustainable investing. All of our assumptions on our properties are extremely conservative. If you look at the national rate of appreciation since 1968, one of the things that’s interesting, you turn on the media nowadays, you turn on the TV, you open up the newspaper or magazine, and everybody’s talking about the housing market and how bad the housing market is. Well, there’s an old saying in real estate that all real estate is local. All real estate is local. And in a country as large and diverse as the United States of America, there is no such thing as a national housing market.
And if you look at a chart that we share at our seminars, you will see that since 1968, there has never been a nationwide downturn in real estate prices. There have been a lot of local downturns. I mean I’ve been in the real estate business now for 22 years here in Southern California and I remember from 1990 to 1997 the market was terrible in Southern California. Huge downturn where properties lost about a third of their value, a very significant downturn. And of course, this market is going through that again and who knows. It may turn out to be even worse this time. We’re not sure yet. But time will tell.
So if you look at the nationwide average since 1968, on average, real estate nationwide has appreciated at a rate annually of 6.4 percent, 6.4 percent average nationwide. And if you look at the past 10 years, real estate has appreciated at a rate of about 7.29 percent nationwide. And then if you look way back and you look back to 1926, between 1926 and 1992, which was the longest sampling I could find, real estate actually appreciated with several wars in there, a Great Depression, gas shortages and lining up for gas and waiting three hours to get gas in the ’70s, etc, real estate appreciated at an average of 11.1 percent.
So all of the numbers that we will talk about on this call today, when we talk about return on investment, something we call ROI, we will show you how you can very conservatively get 30 percent ROI every single year on your real estate investments. This is a very conservative, simple approach to real estate investing. And the assumptions that we use to generate that return on investment or that ROI is an appreciation rate lower than any of those numbers I just shared with you. Only 6 percent annually; 6 percent annually.
And many of the markets we’re in around the country are still appreciating quite nicely, even in the midst of this downturn in so many of the formerly, very hot markets like California, Florida, and Nevada, Arizona, Hawaii, the Northeastern United States, many other markets around the country that are just in very, very bad shape. So 6 percent annually.
And then the other thing we assume is we assume a vacancy rate. Remember we’re all about rental property investing. We like income properties. We are conservative buy and hold investors. And so many of these groups out there, when they’re doing their projections, are telling people that the properties will basically never be vacant. Well, of course, that isn’t true. You will have vacancies in your properties. And we’re going to assume that your properties will be vacant one month per year or 8 percent of the time, one month per year, will be the vacancy rate.
We’ll also assume, and we have several of our property managers on the line who will be talking with you in a moment, telling you about the rental markets in several of these areas, that your property management fee is 10 percent, 10 percent of the rental income. And the last assumption is maintenance. All of our properties that we’re currently recommending are brand new, so you shouldn’t have any maintenance at all for the first three, four, five years even. But we’re going to assume that you will spend money on maintenance, that you’ll spend 2 percent of the income.
So if you want to jot those assumptions down, just to review quickly, 6 percent appreciation, 8 percent vacancy rate, 10 percent management fee, and 2 percent maintenance. Those are the assumptions and we use that as an apples to apples comparison when comparing different properties.
Now, the next thing I want to talk about before we introduce some of the guests on the call is the concept of sustainable investing. We believe that in real estate, if you stay in the game and history tells us this over and over again, as long as you can stay in the game, you will always win as a prudent real estate investor.
So in order to stay in the game, you must manage cash flow correctly. You must only invest in the property that makes sense the day you buy it. If it does not make sense the day you buy it, you should never buy it because that means that you are a gambler or you are a speculator and we believe in long-term, very conservative buy and hold investing. Over the last 22 years that I’ve been in the real estate business, I’ve noticed the people that are the speculators and the gamblers, they make a little money here and there, they might have some spending money, but they never have sustainable wealth creation. So I say that the flippers, the speculators, those people, they have spending money.
But the people who buy, hold, and rent their properties, they have real wealth. And in order to play in that game, we’ve got to have sustainable investments that pay for themselves and sustain themselves. And if you look at people who have made money in real estate over the long term, it’s the sustainable investors. The people who have lost money are the people that tried to time the market, the people that were speculating, gambling, and were looking for a get-rich-quick scheme. That is not us. That’s not our philosophy.
Investing is the legitimate process of creating wealth over time and you must remember that anything without income or rent is not an investment, but rather a speculation. So one of the metrics we use, and for those of you who aren’t driving in a car right now, please jot this down. This is a key rule of thumb that we use and on this call, we’ll have people talk about this. It’s the RV ratio, otherwise known as the rent-to-value ratio.
Now, our ideal rent-to-value ratio is .7 percent. What that means is that a single-family home, for example, that is $200,000.00 in value should rent for $1,400.00 per month. That would be .7 percent of the value. So just think of it this way. For every $100,000.00, you would be getting $700.00 a month in rental income and if you do that, you are doing great. In fact, you are doing so well that you will generally, depending on other aspects of the property, generate a return on investment before tax benefits of 30 percent or more every single year. Don’t try that in a mutual fund, folks. It’s a lot better than the stock market and the reason it’s so much better is that real estate has unique characteristics that only apply to the real estate investment, the most historically proven wealth creator in America.
Now, an acceptable RV ratio – it’s not as good as .7 percent, but it is acceptable; it’s good enough – is .5 percent. Every $100,000.00 in value generates $500.00 a month in income, or the net example, $100,000.00 property, $500.00 a month; $200,000.00 property, $1,000.00 a month. That’s not bad.
In the overvalued markets around the country, like California, Arizona, Nevada, Florida, etc, etc, that I mentioned earlier, in all of the markets that don’t work and don’t make sense that we want to avoid, those markets are typically getting about .3 RV ratio. So if you had a $100,000.00 property, you would get only $300.00 a month. This is not acceptable to us and we believe that the investment must make sense the day we buy it, so we look at the RV ratio. It’s a very quick rule of thumb guide as to how it makes sense.
Now, of course, there are other factors. That’s a simple factor and we’ll allude to some of them during the call, but you can certainly call our investment counselors, Sara, Gia, or Karam, and talk to them afterwards to get more details on that.
Okay, so why don’t we go ahead and let’s talk about the rental market in some of these areas around the country now. And why don’t we have Mike talk a little bit about the rental market in Austin, Texas.
Mike: Well, the Austin rental market is very, very good I think because of some of the prices in some of the other areas in the country, such as the coasts and Austin being the No. 1 job market in the United States. We have a lot of people that are moving into the area that are not from Texas. And so right now, most of the neighborhoods that we actually target to our investors are actually 100 percent occupied as far as rental market. I just sent a house to Karam today that we’ve got available for sale. I sent in comps for the neighborhood for the lease market and there’s not a single active listing for rent in that neighborhood at this point. We’ve got one pending and then ten leased.
Jason Hartman: You know, Mike, the Chinese have that symbol for crisis and it’s the same symbol as opportunity. And literally, they say crisis is an opportunity riding the dangerous wind. And you hear all this bad news about the real estate market as if there is such a thing as a national housing market and people keep saying, oh, the market is bad and so many people are shying away from real estate. But the opportunity here is the fact that it is tougher to qualify for loans, so isn’t that improving the rental market? It’s really a great thing for landlords. Landlords love this kind of market.
Mike: Absolutely, and as a matter of fact, our property management team that works here in Austin manages approximately 350 properties and I talked to one of them a week or two ago and they had zero vacancies at this point. So 100 percent occupied in Austin. The rents are going up and there are still people out there. As soon as we get a house that one of our investors has purchased, it’s been within two weeks that the house has been leased over the past couple of months. We had a couple of them go in one or two days.
Jason Hartman: And talk a little bit about the RV ratio in Austin. What’s the typical property that we’re selling there, that our network is recommending and how much is it renting for?
Mike: Well, the RV ratio is right around 7 or 7.5. We’re probably averaging between 6.5 and 7.5 on RV ratio.
Jason Hartman: Okay, so in other words, you’re seeing a $200,000.00 property that will rent for between $1,350.00 and $1,450.00 per month?
Mike: That is correct. And because of the shortage of vacancies at this point, we’re actually seeing a bit of an increase in the rents just because you can ask for a little bit more in the beginning and possibly negotiate a better deal than you would have been able to a year to a year and a half ago.
Jason Hartman: Excellent, excellent. So what about the product there that you buy? When you buy it, what do you get and how much does it cost?
Mike: Our average price is probably between $175,000.00 and $225,000.00. Most of the properties that we’re selling right now are below $200,000.00.
Jason Hartman: Okay, so wait a second, Mike. I just want to confirm something to make sure we’re all fully informed. We’ve got callers on the line that are from Northern California and Southern California and all over the country. You mean now this is $175,000.00 to $200,000.00 for a whole house or is that just like a kitchen?
Mike: Yeah, it’s not just a basement. No, yeah, —
Jason Hartman: The whole house, okay.
Mike: The whole house and you’re getting three or four bedrooms, two to three baths, and that’ll be, usually, between 1,800 and 2,500 square feet.
Jason Hartman: And these are brand new homes, right?
Mike: They’re brand new, three sides of brick or stone, with hardy plank siding on the back. Usually covered patios and then they come with a full rent-ready package of sod, sprinkler system, blinds, garage door opener, fridge, washer, and dryer. They are ready for a renter.
Jason Hartman: That I tell you, that is excellent. So the investor gets to start off with a totally clean slate. No repairs, no issues. They don’t have to spend any money to buy window blinds, washer, dryer, refrigerator included. The yard is all sodded, which is in California, you’d be lucky if they put dirt in the yard if anything else.
Mike: And the other thing, too, is we’re selling brand new homes, so you’re getting the warranties from the builder, which the one-year warranty is basically a bumper-to-bumper warranty, and then you’re still getting the 10-year structural and foundation warranty on the house as well. It’s a win-win situation.
Jason Hartman: Okay, great. And Karam, you had a comment on the market there?
Karam:
Yeah, the market over there is very good. Just like you described earlier, a year ago, last February, February of 2007, all of a sudden, this credit crunch, tightening of the credit market that brought a lot of people into the rental pool and since then, it’s been non-stop. In less than two weeks, we get places rented. Some of them are a day, two days, and we are getting higher rent. We’ve been in the Austin market since 2005 and we are going more than three years over there now and we have seen a lot of change. And just an hour ago, this property was sent to me and Mike has approved, and I asked Mike, what kind of rent are we going to get?
So just to describe the property, four-bedroom, two and a half bath, two-story house with a game room, covered patio, whole nine yards, and comes with a total rent-ready package, only $78.00 per square foot. The house in that neighborhood is $241,000.00 and the builder wants to move this house quickly so they discounted it to $209,900.00. And that is 2,680 square feet, brand new, two-story brick house.
Jason Hartman: And what’s the projected return on investment for that property, Karam?
Karam: That is 38 percent.
Jason Hartman: Thirty-eight percent annually.
Karam: Right.
Jason Hartman: Boy, you know I haven’t found a mutual fund that does quite that well yet.
Karam: That’s true and in that neighborhood, Jason, there is not a single house that is vacant. Nothing listed.
Jason Hartman: That’s amazing.
Karam: It’s going to get leased before even it is closed.
Jason Hartman: Okay, good. That’s an excellent property. How about if we go to another market? Jim, are you there?
Jim: Yes.
Jason Hartman: Okay, tell us about the Kansas City market, Jim, and by the way, thank you, Mike and Karam, for that update on Austin. Excellent market and I own there myself and I love it. And I also own in Kansas City, so tell us about that one.
Jim: Kansas City’s an extremely strong market right now. Actually, we’re kind of sitting back watching a lot of things going on around the country. There are foreclosures going on in the market, but we have not seen the prices take a hit like they have in other areas around the country. But at the same time, the area is being impacted by individuals not being able to get into houses the way they used to a year ago and two years ago. So consequently, the rental market is extremely strong.
Jason Hartman: Isn’t that – just like we were talking about, Jim, the crisis is the opportunity, so it’s much tougher to qualify for loans now, so you’re seeing a lot of strength in the rental market and that’s really what it’s all about right now. You can always make money in real estate or any investment for that matter. You’ve just got to adapt quickly and you’ve got to adapt correctly, and that’s the great opportunity here. Tell us more.
Jim: Absolutely, I agree with you. Actually, myself and my partner, we’ve been buying houses pretty much as quickly as we can get our hands on them. For one, the prices are right and two, they’re leasing just exceptionally well. You can get most of the properties in the area that your investors would probably be looking at are probably in the neighborhood of the $160,000.00 range, $150,000.00, probably in that neighborhood. Those types of houses are going to be three bedroom, two or two and a half bath, two-car garages, and they’re going to rent for $1,250.00 to $1,350.00 a month.
Jason Hartman: That’s excellent. I tell you, Kansas City is such a stable, conservative, what we call “linear market” that just chugs along and does its thing. And I have a four-plex in Kansas City and I just love it because I paid $495,000.00 for it and it rents for $4,050.00 a month. You couldn’t touch that in some of the other high-flying markets around the country. The Heartland is just the real dependable area that we really, really like. What else about Kansas City?
Jim: Well, actually, the one thing I wanted to point out is houses right now, of all the properties we manage and we manage over 1,000 units – actually, I think we’re approaching about 1,200 – houses are renting better than anything right now. And it goes back to that same dynamic you were talking about earlier is the demand for the houses has not changed at all. You still have the individuals out there who are wanting to get into houses. They simply can’t get the loans the way they used to and two years ago, if you were breathing and you had a 550 credit score, you could buy a house. Today, you can’t do that.
And a lot of these individuals are very good clients. They have simply had something happen in their life that has caused some things to change that not allow them to buy the house. Maybe they had an ARM loan and they had to have a bankruptcy. Yet, they’re making very, very good income. There’s opportunity.
You talked about opportunity. There’s a lot of companies out there in our area anyway, in the leasing business that would take some of these individuals and just simply turn them away because they have a poor credit score. We look at a variety of different things other than just the credit score to determine whether or not this is going to be a good potential tenant or not because a lot of these individuals have had things happen to them that have just put them into an unfortunate situation, like an ARM loan.
Jason Hartman: And a lot of them just overextended themselves, right.
Jim: Exactly. They may be making very good income and we can look at their payment history to see up until this happened, they were paying their mortgage on time just fine. But once the ARM adjusted and now, all of a sudden, they’re upside down on the house and they can’t make the mortgage. So we try to put those individuals in homes because we find they’re very good tenants. They take extremely good care of the property. They’re just needing two or three or four years to get themselves back in line.
Jason Hartman: That’s a good point. The other things that we didn’t talk about on this call is, of course, the interest rates are so low and so desirable and it’s kind of an odd situation right now because it’s harder to qualify for financing, which has the effect of strengthening the rental market, of course, but it’s also harder for the investor to qualify for financing. So those of you on this call, some of you will be able to qualify for the loans and some won’t, and for those of you who are able to qualify, you just have an incredible opportunity in front of you right now because as they say, the rich get richer, whether that be fair or not, but this is the time to be getting really, really greedy in terms of accumulating more properties.
And really, you’re doing a favor for other people because you’re providing them good rental housing. All of our properties are nice. They’re brand new. They’re in Master Plan communities. These are good quality properties we provide, so it’s really just a terrific opportunity. Don’t be sitting there five years from now saying, gee, I wish I had purchased more properties because the mortgage is really part of the asset, right? I wish I had purchased more properties when rates were only 6.5 percent or whatever you can exactly qualify for. Then rates will be 9 percent.
When I got in the real estate business in 1985, interest rates were 14 percent and everybody thought that was a steal compared to the 19 to 21 percent that the Jimmy Carter era left us with. So this is really just an incredible opportunity. That mortgage is a real part of the asset. You lock in a fixed-rate loan for three decades. Think about that.
We may be at a time right now and in the near term where rates are the lowest we will see them in our entire lifetime. Who knows what the future will hold with interest rates? They’re just very, very good.
And the second part of it is that the population is dramatically increasing in this country. In fact, I think it was 2006 was the highest birth era in the United States since one of the main big years of the Baby Boom, post-World War II. So the birth rate is increasing, the population is increasing. The interest rates are low and the rental market is strong. We call this the “perfect storm,” the perfect storm for real estate investing.
Excellent. Well, just get in touch with one of our investment counselors here and we’ll put you in touch with Jim and also, our Kansas City agent, as well.
Angela, are you there?
Angela: I’m here.
Jason Hartman: Well, great. Good to have you on the call. Talk to us a little bit about what’s going on in your market in Indianapolis.
Angela: We have seen an increase in our rental market. Our average price that we’re selling with you is around $165,000.00, 2,400 square foot home, four bedrooms, two and a half baths. Very, very nice upgrade and we’re looking at about $1,350.00 a month in rent and we’re having no problem renting them out. We actually had a couple just close that were rented out within a week. Our market right now is unbelievable. There’s been a lot of growth in Indy. Our economy is booming and we’ve had places like Honda move their factory here. We have Lilly here, Subaru. It’s a great economy right now. While other areas of the country are struggling, we are growing by leaps and bounds.
Jason Hartman: One of the things that’s happening around the country in so many of these markets that we are now recommending, and by the way, for everyone on the call, one of the terms we commonly use, if you go to www.jasonhartman.com and you listen to any of our podcasts, those are all free. We have 50 shows up there now. We interview all sort of experts about every investing topic under the sun, whether it be inflation, monetary policy, organizing your real estate business, etc, etc.
But one of the things we’re finding is that so many of these markets, the 36 markets we recommend around the country, are so darn healthy, Angela, because the employers are leaving places like California, where it’s so expensive to employ people, it’s so difficult to employ people, and the whole climate is just unfavorable for business. And they’re moving huge corporate headquarters or expanding their corporate headquarters in places like Kansas City, Indianapolis, and all of our markets around the U.S. So that’s very understandable as to what’s going on right now.
What other comments do you have on the Indianapolis market, Karam?
Karam:
The Indianapolis market we went into about two years ago and it’s continuously surprising us. Every month, this rental market is strengthening and we used to get properties, brand new properties, from anywhere from $120,000.00 to $150,000.00. Now, their market has such a short of inventory that we have to wait 2 – 3 months before we can close the contracts. The houses they’re building it right now and we’re selling faster than they can build over there. And like Angela mentioned, the rental market is very strong. Even during the wintertime, during the holiday period, average rental time was 20 days only. So all these houses, anywhere from $140,000.00 to $165,000.00, $169,000.00, brand new, four bedrooms, two and a half baths, upgrades, tons of upgrades in it, 2,390 square feet, for $165,000.00 to $169,000.00. Best school system.
Jason Hartman: Excellent. So that’s almost 2,400 square feet for that price. That’s really amazing, Karam. It’s a whole different world. It really is, and again, a very good economy. Okay, do we want to move back to Austin for just a moment because we now have our property manager from Austin on the line? Angela, any other comments on Indianapolis before we move to Austin again?
Angela: Not really about Indianapolis, but I would like to tell anyone that’s interested in investing in there, I would definitely say that they should invest with Platinum Properties. I do not work with Platinum Properties, but their agents are very responsible and very conscientious. And you just don’t see that. I’ve seen other groups come into town and it is amazing to me that you send your agents here to look at the areas of town. Karam comes out two times a year and it’s great. It’s a great opportunity for people because you are very responsible and very conscientious and I just want them to know that.
Jason Hartman: Thank you very much. I appreciate that and the one thing you didn’t mention is that all of our area managers have to buy in the markets they recommend. So they’re putting their own money on the line with our investors. We practice what we preach and I appreciate the nice words there, so thank you. Okay, Marissa is on the line. We heard from our agent in Austin. That was Mike. But now, let’s talk to our property manager in Austin – they’re just doing a terrific job for us – for a couple more quick comments on the rental market. Marissa?
Marissa: Hi.
Jason Hartman: Hi, Marissa. Tell us what’s going on with the Austin rental market just quickly if you would.
Marissa: Absolutely. Our Austin market is doing very well. Things are leasing very fast. It’s very hard for us to even keep them on the market. Usually within a week, we’re getting applications. All the homes are completed, rent-ready packages. Platinum and you all give rent-ready, which is nice, with all appliances. And it’s a very good rental market here. The sales market has slowed down a little bit, which is good for property managers because it tightens up on rents a little bit and keeps our rent rates high.
Jason Hartman: Excellent. Any other comments on that?
Karam:
Austin happens to be, if you look at last year’s Men’s Journal, 50 Best Places to Live, Austin is No. 1 in the entire country. Same with the job growth and it’s just awesome. People who have been to Austin know what we are talking about, the boom going on in real estate and the business environment over there. Capital of Texas and smart workforce, University of Texas at Austin with 50,000 plus students there.
Jason Hartman: Excellent, Karam, well, that’s good to hear. Okay, great. I’d just like to have a couple of our in-house agents just kind of talk a little bit on the call also, if you will. Sara, why don’t you tell us a little bit about what you do in terms of investment counseling and then maybe a little bit about rental coordination, too?
Sara:
I’m here to see you through the whole process. Like I said before, I’ll sit down with you one-on-one or we can do it over the phone and help you create a portfolio that makes sense for you. But from there, once you start acquiring these rental properties, you might start to feel overwhelmed or anxious to get them leased and so I’m also here to do some additional marketing. I use several different websites that I can list your properties for rent on, so should you get that anxious feeling and you’re excited about getting leased, I’m here to help you. You can just send me a copy of your appraisal report. We can pull the pictures from our end and do some extra advertising and it’s free of charge to you.
Jason Hartman: Excellent, Sara. That’s great. Gia, I’d just like you to maybe make a couple of comments. Tell us about what you do here.
Gia: Sure. I am an investment counselor as well, so I kind of help you figure things out and place you in different markets depending on what your goals are. But I do want to say, a lot of people ask us, well, what is your motivation for staying in contact with us and giving us service even after we close the deal?
And we always say a lot of our business is referral and repeat business, so we want to do a good job for you. We’re in this for the long haul. We have clients call us three to four years later asking a question on their property or maybe the property management company’s not responsive. None of the property managers we have on this call, of course. They’re extremely responsive. But every once in a while, somebody might not call them back. They have a bad email address, that sort of thing. So we are always here sort of in the background, watching over everything, making sure that everything’s going well. So it’s a relationship that never ends.
Jason Hartman: Excellent, Gia. Well, that’s a good point. Just remember everybody, we provide the complete solution for real estate investors and we will help you through the entire investment process and make sure that this actually works for you in real life. Again, we’ve been in business for 11 years. It’s all right here in the local, same community and that’s what we do. We really depend on good referral clientele and a lot of referral business.
One other area that wasn’t talked about on the call that I just wanted to briefly mention is an area that I visited a few weeks ago and it’s Biloxi and Gulf Port, Mississippi. This is an area that really surprised me. We’ve been dabbling in it for a while, but in the post-Katrina market, it really got interesting. There is just a booming economy there in terms of tourism and casinos, $1.1 billion went in there in 2007, and we’ve got huge new casinos opening up. Jimmy Buffet is building a $700 million Margaritaville Casino. Most of the big Las Vegas casinos have a major presence there, whether it be MGM Grand or any of the others.
It is in the GoZone, which is an area you may have heard about. That was not the topic of this call, but if you are interested in the GoZone and have heard about that, talk to any one of our investment counselors about it. You get some great tax benefits there.
There are many displaced families in the Gulf region and this is a high appreciation area from 2006 to 2007. We saw 16 percent appreciation in Gulfport and Biloxi and 67,000 homes were destroyed by Katrina. Ninety-five percent of all the residents are living with friends or family or in FEMA trailers. And 19,000 FEMA trailers are going away soon. So demand is expected to exceed supply for the next 3 – 5 years in this area and that’s a great position to be in as a landlord providing rental housing and it bodes very well for the rental market.
So we’ve got several other markets that we did not have time to discuss on this call. Go to our website at www.jasonhartman.com and download our free CD. There’s just a whole bunch of great, free content on our website, whether they be podcasts, they’re all free, educational videos, our free audio CD that you can download on the website. It takes about 30 seconds to do that or it can be mailed to you, whichever you prefer. Just take advantage of some of the resources. We really believe in educating our clientele and helping them get all the information they need to make a smart, prudent, conservative investment decision for an investment that works in real life, rather than the hype and the overselling that you’re probably used to from other groups out there.
So if we have any questions, why don’t you just go ahead and call us at our office directly. Again, we moved just about a month ago to a new office. It’s about three times the size as our old one. And our direct line here is area code 714-820-4200. Again, that’s 714-820-4200. And our investment counselors are standing by and would be happy to discuss your specific personal situation, answer any of your questions, or help you with whatever you need as far as your investments. So thank you so much for being on this call. We really appreciate it. Visit www.jasonhartman.com or give us a call for more information. And happy investing.
Jason Hartman: I’m here with Nancy and wanted to talk to you about two of our fantastic markets. One is our tried and true market that we’ll talk about in a moment that is strengthening and has gotten better. And one is a newer market. Nancy, welcome.
Nancy: Thank you.
Jason Hartman: Tell us about Gulfport/Biloxi area and Long Beach area. That’s Long Beach, Mississippi, not California. We were there a few weeks ago. What’s the scoop?
Nancy: Yeah, we had a great trip. Jason always talks about out of a disaster comes an opportunity and I really believe that’s what’s happening in Biloxi. The economy there via the casinos and the major boom on the ocean, they are now allowed to build on land. Biloxi is now the third largest gaming revenue area in the country, behind Atlantic City and Las Vegas.
Jason Hartman: So what you’re saying is that before, the casinos had to be built on barges.
Nancy: That’s right.
Jason Hartman: And when Katrina came along and wiped them out, the city said, hey, let’s let them build on land. Let’s change the law. And that made the casinos so much more substantial. They’re huge now. They’re like 50 – 60 percent the size of a big glamorous Vegas casino.
Nancy: Right and there are 11 casinos currently up and running and they’re employing about 17,000 people. That’s about 2,000 more than all the casinos that were open pre-Katrina.
Jason Hartman: Tell us some of the big corporate names in the gaming business who are in Biloxi. I mean it’s amazing.
Nancy: Yeah, Harrah’s is there right now with the Grand Casino in Biloxi and they’re also building a $700 million resort with Jimmy Buffet, the new Margaritaville Casino that will be open in 2010. MGM Mirage is there with the Beau Rivage, which is the sister casino to the Bellagio in Las Vegas.
Jason Hartman: These are all big corporate names and those casinos, we were there on that trip, and they are unbelievable how swanky and glamorous they are.
Nancy: The Hard Rock is there. Interesting tidbit about the Hard Rock: it was there before Katrina. The whole casino got destroyed. The guitar remained standing. It was the only thing on the beach that remained standing.
Jason Hartman: Long live rock and roll.
Nancy: And they are – they have rebuilt the Hard Rock and it’s just amazing inside there.
Jason Hartman: I mean that Hard Rock Casino is gigantic, five, six levels of parking outside. I remember going through that parking garage. It was packed. I mean it’s just huge inside. It’s amazing how much money they have dumped into this area.
Nancy: Right. They have actually inked about $1.3 billion in casino revenues last year. Prior to Katrina, the gaming revenues were about $800 million. So they’ve just almost doubled the revenues in just a couple years. They’re also, because of the casinos and the tourism, they do $100 million in golf each year. There’s 20 golf courses there. This industry is just spurring all kinds of job growth, not just from the casino workers, but also construction workers to build these places. There is a major military installation there with Keesler Air Force Base, the CB naval base, a couple Army and Navy National Guard installations and also the Stennis Space Center, which is NASA’s backup space shuttle installation. So there’s just a ton of activity there that we really think is going to make this one of our booming higher appreciation areas, and we’re very excited about that.
Jason Hartman: And a shortage of housing because we had to look around a lot for that, Nancy. That’s excellent. Tell us real quickly about one of our tried and true markets, the market where I own and the market where many, many of our clients have invested, and it’s actually improving in terms of the rental market being very, very strong. Stronger than before, and this has just been a real dependable market. What’s the name of it? Everybody’s wondering.
Nancy: This is Kansas City, Missouri, and Kansas City is the 13th largest metro in the U.S. The statistics in Kansas City are just excellent. This is a strong, stable rental market. We talk a lot about our rent-to-value ratios and it’s .7 percent being ideal. All of the properties that we have in Kansas City, we get at least a .8 percent RV ratio.
Jason Hartman: On my property, my four-plex in Kansas City, I’m getting about a .82 percent RV ratio, so it’s phenomenal. It’s just a great property.
Nancy: There are some positive cash flow opportunities in Kansas City, which we haven’t seen for a few years. So if you’re looking for a market with some positive cash each month and a .8 rent-to-value ratio, Kansas City is your market.
Jason Hartman: Excellent. Thank you, Nancy.
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.
I’m here with a previous guest, Randy, and we are excited today to announce a new joint venture, a new seminar that we are offering for pre-retirees and retirees, entitled “Fatten Your Golden Goose.” Now, I kinda think we should call that the Platinum Goose, but we’re going to call it “Fatten Your Golden Goose – Real Estate Strategies for Seniors and Pre-retirees.” Randy, tell us more about this exciting new seminar.
Randy: Jason, thank you. Yeah, we’re very excited about this opportunity to talk to people that are about to retire. They’re in that area, maybe five or ten years at the most away from retirement, or they just entered retirement, and they’re looking at all of these opportunities, or I should say stresses, in their life of what to do in terms of making sure that they’re minimizing their taxes, that they have enough money to last their retirement. They’re looking at things like the IRAs and the 401ks that they put together over these years and they’re wondering what’s really the best way to plan and use that money effectively as they go into retirement.
So what better to do is utilize real estate strategies to help these people minimize the taxes, increase their safety and liquidity, and help them to increase their income that they’ll have when they get into retirement.
Jason Hartman:
Excellent and this is on May 27. It’s a Tuesday evening here at our office in Costa Mesa and it’s from 5:30 – 9:00 p.m. What else can you tell us about this event?
Randy: Well, aside from the ideas that we just mentioned, I think a big thing that people need to understand is that 2010 is going to be a very special year. In that, it’s going to be an opportunity for people to convert their regular IRAs and 401ks into Roth IRAs. And you know the benefit of a Roth IRA is that the money can continue to grow income tax deferred. But now, because it’s in a Roth, you can pull that income tax-free. The challenge is how do you move it from your traditional IRA or your rollover IRA to the Roth IRA without paying a bunch of taxes, and we’re going to give the people that attend this seminar some strategies to help them potentially eliminate 100 percent of that tax.
Jason Hartman:
And you know, Randy, that is a great strategy and folks listening, this is a big deal, very unique strategy Randy has come up with and I think you’ll really like hearing more about it. So be sure to join us on May 27. We will look forward to seeing you there. Go to www.jasonhartman.com to get registered. Thanks, Randy.
Randy: All right, Jason.
Jason Hartman:
So hopefully you can join us for some of those events.
I wanted to mention to you that we have a new offering, a free CD, a free audio CD, that you will really, really like. We’ve had so many people that have given us really good comments about them, and you can go to our website at www.jasonhartman.com and just fill out a little quick web form and you can either download it or you can have the physical CD mailed to you in the postal mail. But get the free CD, especially if you are a new listener. You need this. And if you are a regular listener and you’ve listened to all the other old shows, you don’t need the CD so much, but it will be a nice review for you either way. But if you’re a new listener, you definitely want to go to www.jasonhartman.com and request the free CD.
Remember that Platinum Properties Investor Network has moved. We are in our beautiful new office in Costa Mesa, California, 555 Anton, Suite 150, in Costa Mesa, California, 92626, and we’re right by world-famous South Coast Plazas. So come in for a visit and a little shopping.
Also, we just uploaded another video podcast and I’d highly recommend that you subscribe to that. There’s some stuff that just lends itself better to video than audio. If you want to see what’s on that, subscribe to it, you can go to www.jasonhartman.com. If you use iTunes or an iPod and you’re an Apple person, then you can go to the iTunes Store, type in Jason Hartman, and two podcasts will come up, the video podcast and the audio podcast. And you’re probably already, if you’re listening, a subscriber to the audio podcast, so make sure you get yourself a free subscription to the video podcast as well.
And this particular one that we just loaded in the video podcast is about Naked Short Sales and what goes on with this short sale and manipulation of the stock market. It’s a very interesting report from Bloomberg News and I think you’ll really learn a lot from that. So be sure to tune in and watch that.
Be sure to see appropriate disclaimers and disclosures on our website at www.jasonhartman.com. Remember that we are not tax or legal advisors.
Anyway, we’ll talk to you next week. Thanks for listening.
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: 62 minutes
