In this episode you’ll learn about software that Jason uses to evaluate his own investment properties. You’ll also learn why it’s important to look at all 50 states to find investment properties. There’s also more on the dangers of Adjustable Rate Mortgages (ARMs).
Announcer: Welcome to Creating Wealth with Jason Hartman, President of Platinum Properties Investor Network in Costa Mesa, California. During this program, Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing, fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible.
Jason is a genuine self-made multimillionaire, who not only talks the talk, but walks the walk. He’s been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason’s footsteps on the road to financial freedom. You really can do it. And now, here’s your host, Jason Hartman, with the complete solution for real estate investors.
Jason Hartman: Good afternoon. This is Jason Hartman. Thanks for joining us this afternoon on Creating Wealth. It’s great to be here talking with you. I read an interesting article from a Scientific American magazine a few months ago and it’s talking about the cover story. It was about population and it says that “rapid population growth will boost human numbers by nearly 50 percent from 6.5 billion now to 9.1 billion in 2050.”
And you know what I love about real estate? Everybody needs a place to live and that’s why I am so bullish on real estate. Not necessarily in Southern California and we’re going to be talking about that extensively today. Not necessarily in many parts of the nation, but there are still several markets that offer phenomenal opportunities, where prices are very reasonable. They haven’t appreciated a whole bunch yet, and we, as an investor, can get in and just create a lot of wealth in some of these markets.
Today’s Wall Street Journal, the Weekend Edition, right at the top, it says the U.S. economy grew at 4.8 percent annual rate in the first quarter. It’s the largest advance since the third quarter of 2003. And with that same paper, Wall Street Journal, home mortgage rates, because the economy is doing so well, home mortgage rates rise to the highest mark in nearly four years.
And you know even though they are at the highest mark in nearly four years, money is still on sale, so lock in as many long-term fixed-rate mortgages as you possibly can right now. I think that’s very prudent advice and as we go through time over the next few years, I believe rates will be higher. Most people do. There are a few that differ. But that fixed-rate mortgage becomes a tremendous asset to you as rates rise because it cannot be replaced. And you just so happen to get a house with the mortgage when you buy it or a property, an investment property of some sort.
I want to introduce my guest to you. We’re going to be talking on two subjects today. Before the break, we will be talking about the market in general. And after the break, we will be talking about a fantastic software program for real estate investors that can really organize your investing and get you on the right track. It can take out some of the subjectivity of your decisions as to what property you can buy, so that you’re a good analytical objective investor. And I think you’ll really like what you hear today. So welcome, Joel Grasmeyer.
Joel Grasmeyer: Thank you.
Jason Hartman: Joel is president of Property Tracker. I met him about a year and a half ago, maybe two years ago, and we use his product extensively. And he is quite an accomplished real estate investor as well and I just wanted to talk a little bit about the California market, which Joel has studied extensively, and then some other markets. What do your findings – oh, before I do that, though, I just want to say, if you want to call in, you’re welcome to call and ask a question, 949-640-0505. Again, that’s 949-640-0505. Feel free to give us a call. But Joel, what are your thoughts on the California market in its current state?
Joel Grasmeyer: Yeah, I think by almost any measure, the California market is overvalued right now. If you look at the Affordability Index, which is the percentage of people that can afford to buy the medium priced home, it’s at about 12 – 14 percent right now and that’s a record low. Back in 1980 and ’89, it hit 17 percent, and after that, the market went pretty soft. In the early ’90s, we saw it go down quite a bit actually. So we’re definitely in historic, unprecedented territory in that respect.
Jason Hartman: In terms of low housing affordability and it’s really true. I tell you, one guru, who’s quite well known in Orange County, he says that the market will continue to appreciate here and he’s got a tremendous track record. But this year, I’m just not sure he’s right anymore. Maybe I’ll get him on the show and we can hear what he has to say.
But he basically says that we are in a situation in Southern California especially, or any of these highly valued, highly appreciated markets where people are really just trading equities. And so as long as you’re trading equity, it’s really just relative. You’re in that market and you trade into something else in that market, so the affordability equation isn’t really that prescient for people doing that. But you have no new blood coming into the market because people can’t afford it.
Joel Grasmeyer: Right and certainly, if you’re buying your own house in California, that’s one thing, but if you’re looking for the best place to invest, we can invest in all 50 states, so why choose a market that’s overvalued when we can look at the data and find markets, like Texas, for example, that’s undervalued. Allied Van Lines did a study and you can look on their website to see a little article about this, but they keep track of all the inbound and outbound moves through the country. And California had the most net outbound moves and Texas had the most net inbound moves.
So people see what’s happening with prices. You can buy a house in Texas that’s about 3,300 square feet for $150,000.00, so people see that and they’re cashing out on California and buying into Texas.
Jason Hartman: I completely agree. I own properties in pretty much all the major cities in Texas now, myself, and Texas, by all of the studies, whether it be CNN Money or any of the other studies, seems to be the bargain state of the country. And there’s a big move. One of the downfalls of Texas is that the property taxes are very high and that’s the one sort of problem. But there’s a big move to change that that’s actually gaining some real momentum.
Joel Grasmeyer: Right. Yeah, so in June, it looks like the legislature’s going to make a decision to reduce it from about 3 percent to 2.5 percent, and that’s going to boost property values. More people are going to buy than rent.
Jason Hartman: Yeah, I agree. I agree. So back to California, though, can you share with us some of the other data that you’ve been looking at that makes you concerned about California?
Joel Grasmeyer: Yeah, the other big factor with California is a lot of people have been using adjustable rate mortgages to afford these properties and in another three years and five years, they’re going to see their payments go up by 50 percent, or in some cases, 100 percent.
Jason Hartman: Payment shock.
Joel Grasmeyer: Right. And that’s going to cause a lot of foreclosures in the market where properties are going to be selling for $.50 or $.70 on the dollar. Those are going to be competing with all of the other properties out there and increasing the supply. And actually, the other interesting factor is in the early ’90s, the big blame for the real estate crash was the aerospace industry and the end of the Cold War. Well, this time, it’s probably going to be the real estate industry itself. Look at all of the people who have become real estate agents or all the lenders that have hired tons of people to do refis over the last few years.
Jason Hartman: Wait a second. None of our listeners know anybody who has a real estate license or does mortgages, right?
Joel Grasmeyer: So yeah, I think we’re going to see a lot of lay-offs in those industries in California and a lot of those people are going to move out of state where they can afford to live, rather than search around California where they’re not hiring.
Jason Hartman: Yeah, in my opinion, that is something that very few people are talking about and that could the double whammy, kind of the one-two punch for the California economy because so much of the entire country’s mortgage business is based right here in Southern California.
Joel Grasmeyer: Right.
Jason Hartman: You know it’s unbelievable the number of mortgage companies here that aren’t even doing loans locally. I have a friend who owns a mortgage company in Irvine, very successful guy, and all of his business is virtually like Oklahoma, Texas, that’s where he – although he’s based here.
Joel Grasmeyer: Right.
Jason Hartman: So it’s just interesting. This is a very real estate oriented economy. The one thing that people say about affordability, though, Joel, is they say affordability doesn’t matter as much as it used to because of immigration and the immigrants aren’t really taken into account in the affordability index. Any thoughts on that?
Joel Grasmeyer: I think that’s a factor that’s always been there. It’s not something that’s unique to this particular time and we had immigration in the early ’90s, but the market still went down. So I think that alone isn’t a sufficient argument to say there’s going to be more appreciation.
Jason Hartman: Yeah, I would agree with you and that may be what’s kept us going as long as we have been now. Good stuff. Well, let’s take a quick break and we’ll come back and we’ll talk about Property Tracker Software. I think our listeners will really enjoy this. Stay with us.
Announcer: To attend a Platinum Properties Investor Network educational event, visit www.realtyinvestornetwork.com. That’s www.realtyinvestornetwork.com. Or call 949-640-0505. That’s 949-640-0505.
Announcer 2: Are you winning the rat race? Would you like to get off that treadmill and retire early with real wealth and some steady passive income? Well, here’s Jason Hartman, President of Platinum Properties Investor Network.
Jason Hartman: Everybody dreams of financial freedom, but how do you actually live that dream? The Platinum Properties Investor Network has the answer, the wealth-generating power of real estate. Our five-step process is your road map to financial freedom. The first step is Education and Consultation. Step 2 is Financial Analysis. We are the only financial planning firm for real estate investors. Next, we identify outstanding opportunities and make it easy to buy properties. Fourth is Portfolio Management. And the final step, Wealth Accumulation and Asset Preservation. We’ve helped hundreds of real estate investors achieve wealth through real estate.
Announcer 2: Call Platinum Properties Investor Network now and attend one of their nearby educational events, 949-640-0505; that’s 949-640-0505. Or visit www.realtyinvestornetwork.com. That’s www.realtyinvestornetwork.com.
Radio Break
Jason Hartman: Welcome back. This is Jason Hartman and you’re listening to Creating Wealth Radio. Just wanted to tell you about one of the properties that we have available out of state in North Carolina, Charlotte, North Carolina, which is just a fantastic town. I love it. I purchased a property there last year and it’s done very well. $186,000 buys you nearly 2,000 square feet. Projected rent is $1,300.00 a month and based on our very conservative assumptions for the future at just 6 percent appreciation, Charlotte’s been doing more than double that lately. That would return to our investor 76 percent and after tax benefits, 98 percent ROI, return on investment. So some fantastic opportunities there in many, many places, not just Texas, as we were talking about with Joel.
But I thought I would, before we get into the software, mention something that I think will be interesting. If you go on the U-Haul website – and it’s an interesting experiment to do this – you can plug in renting a 26-foot U-Haul truck to go from Irvine, California, to Austin, Texas, and that would cost you $3,182.00. The same exact truck going the other direction, from Austin, Texas, to Irvine only costs $866.00. Now, isn’t that interesting? It shows you where the demand is. The demand is the trucks leaving California. So it kind of dovetails what Joel said about Allied Van Lines.
Joel, welcome back.
Joel Grasmeyer: Thanks.
Jason Hartman: Let’s talk about Property Tracker. I have found this to be a tremendously valuable software. What is it?
Joel Grasmeyer: Well, Property Tracker is web-based software designed specifically for real estate investors. It came out of my personal experience and my software engineering experience and there are really two main tools: the Property Evaluator and the Property Tracker. So let’s talk about the Evaluator first. It helps you compare potential investment properties before you buy to find the best deal. So all you do is enter some basic information, like the purchase price, the square footage, and rental income, and the software creates some performance projects to show you how the property’s going to perform as an investment.
And you can also look at maps, satellite photos. You can get comps and this is pretty amazing because it wasn’t even possible to do this kind of thing five years ago and that’s why it’s web-based. We’re really taking advantage of the power of the internet to help investors do their due diligence for real estate.
Jason Hartman: That’s fantastic. You know when I just talked about that property in Charlotte, North Carolina, I was reading one of the Property Tracker reports and I love the fact that I can now analyze all of the deals that are thrown at me, that come across my desk, and it really takes to do the Evaluator and that first year projection just a few minutes, maybe five minutes, and you know if this is a good or a bad property, at least from the numbers’ side of the equation.
Joel Grasmeyer: Yeah, one of our mottos is fill in the blanks, find the best investment.
Jason Hartman: That’s a great motto because it’s that simple. You don’t have to be a rocket scientist. Now, I should mention that Joel’s wife, Debbie, is a rocket scientist. But you don’t have to be one to use this. It’s just a tremendous product. What are some of the things that investors should look for when they’re thinking about buying an investment property?
Joel Grasmeyer: Yeah, that’s a good question. The things I like to look at are cash flow, return on investment, and internal rate of return. Cash flow is pretty simple. It’s the difference between your income and your expenses. Return on investment is how much return do you get out of a property, divided by what you put into it.
And then internal rate of return is a really interesting one. It’s actually fairly difficult to calculate internal rate of return because with real estate, you have all these positive and negative cash flows during the time that you own the property, and then when you sell it, you receive this big lump sum cash distribution. And you also have to look at the time value of money. A dollar today isn’t the same as a dollar ten years from now. So the internal rate of return is really the best way to simplify all of this complexity down to a single number. And the definition is that the internal rate of return is the interest rate that you would have to have if you took your initial cash that you put into real estate and instead you put it into a savings account at a fixed rate.
So the IRR really helps you compare your real estate investments with other types of investments and if you look at the internal rate of return for several properties, you can compare those with each other to find the winners from the losers.
Jason Hartman: The IRR, Joel, is really the ultimate determinate of any investment, isn’t it?
Joel Grasmeyer: Right, yeah, it is.
Jason Hartman: And that’s something that commercial real estate people use. It’s the most sophisticated, most inclusive approach to determining the quality of the investment, right?
Joel Grasmeyer: Uh, huh.
Jason Hartman: Yeah, great. Okay, can’t you just ask the real estate agent to give you a cash flow projection?
Joel Grasmeyer: You would hope so, but in my experience, most real estate agents either don’t know how to create a cash flow projection or they give you an incomplete or inaccurate projection. Many times, they don’t have the tools to do a good cash flow projection and a lot of times, they leave out some important numbers, like the vacancy and maintenance costs. And a lot of times, I’ve found they’re a little optimistic about the potential rental income.
Jason Hartman: I agree with you completely. One of the things I love about this software in using it is that it allows my to standardize all of my looking and evaluating, whereas I don’t have to take – one person does the cash flow projection this way, another person does it that way, and it’s so inconsistent. I want data standardization.
Joel Grasmeyer: Right, yeah.
Jason Hartman: To be efficient.
Joel Grasmeyer: It makes a true apples-to-apples comparison, so it takes all the guesswork out of it, and when I look at a property, I try to do a very conservative projection that’s as close to reality as possible. So the Evaluator is really a systematic way to help you go through your due diligence before you buy. It creates the apples-to-apples comparison and we also give you a bunch of links on Property Tracker to go out on the internet, find out comparable sales in the neighborhood, figure out things like the vacancy rate and the appreciation rate for that area, and the other thing I always encourage people to do is run several “what-if” scenarios. What if you put 5 percent down or 10 percent down? What if the appreciation is 5 percent? What if it’s 10 percent? You can really kind of find the upper and lower bounds of a particular investment and really see how it’s going to pan out.
Jason Hartman: And be conservative in those assumptions.
Joel Grasmeyer: Yep.
Jason Hartman: And let me just give the listeners an example of these assumptions we always use. This is our standardization again of assumptions. We assume only 6 percent appreciation. We assume an 8 percent vacancy rate, essentially one month per year. Sometimes, you might get a tenant, once you get them – it might take a couple of months to get them – but they’ll be there for many years straight, so this is an average year-over-year. Management fee of 10 percent. A lot of times, the investor can get a better deal than that. A maintenance percentage of 2 percent and if the property’s brand new, really no maintenance issues for the first several years. You have a warranty on it, etc.
Joel Grasmeyer: Yep, yep.
Jason Hartman: Good. Go ahead. So what else does it do?
Joel Grasmeyer: Well the other part of the software is the Property Tracker, so once you own some properties, you need to stay organized and track the performance of those properties you already own. So the Tracker really shows you all of the same financial indicators that we discussed earlier, but now they’re based on the actual income and expenses for every month that you’ve owned the property. So the way you use it is you just enter the income and expenses into Property Tracker when you get your statement from your property manager and pay your mortgage, and it does everything else. It creates your Schedule E at the end of the year for your taxes, your Schedule of Depreciation, and it also shows things like your loan-to-value ratio so you know when you can remove the PMI, and it shows the amount of money that you could pull out of a property using a cash-out refi.
Jason Hartman: Okay, great. And what else?
Joel Grasmeyer: Well, a few other things that we have that most management software doesn’t have are things like a contacts database, a correspondence log so anytime I talk to my property manager, I can take some notes.
Jason Hartman: Or your mortgage company. Yeah, that’s very handy.
Joel Grasmeyer: Yeah, and that protects you in case you told them to do one thing and they do something else, or if you ever get audited, you’ve got a record of all your correspondence. We also have a calendar for your leases and your insurance policies and your management contracts.
Jason Hartman: I find that very handy. If you’ve got several properties, 15 – 20 properties, and all of the leases start and expire at different times, you can control, well, gee, I’ve got four or five leases expiring all in the same month, and you might want to do something about that.
Joel Grasmeyer: Yeah, you don’t want to be surprised by a big negative cash flow situation. Actually, one thing we just added this week is an email reminder system.
Jason Hartman: I see that on your list here and I didn’t know about that myself. What does that do?
Joel Grasmeyer: So basically, you can tell the software five days before each of my leases or insurance policies expire, send me an email to let me know, to give me a heads up.
Jason Hartman: Very, very convenient.
Joel Grasmeyer: So, one of the other challenges as you own a bunch of real estate is that it becomes more difficult to apply for the next loan because the lender wants to know the value of your properties, the loan balance, and things like that. Property Tracker automatically assembles all of that information into your loan application. You can print that off or you can actually apply for quotes and loans online. And then one other thing we’ve added recently is online document storage. One of our investors was actually in Indonesia on a scuba diving trip and he needed to get some information to his lender or he wouldn’t be able to close on a property when he returned to the U.S. next week.
Jason Hartman: It doesn’t work under water, does it?
Joel Grasmeyer: Well, it works south of the Equator. We found that out.
Jason Hartman: Okay, that’s good.
Joel Grasmeyer: So what he did is he got onto Property Tracker and he was able to email a .pdf to the lender to help it close on time.
Jason Hartman: Okay, great. So is it easy to use? I mean I know that the Evaluator portion is really easy.
Joel Grasmeyer: Yeah.
Jason Hartman: What about the Tracker side?
Joel Grasmeyer: Really, if you can order a book on Amazon.com, you can use Property Tracker.com. It leads you step-by-step through the whole investing process. It just asks you questions, you fill in the answers, and we even have a checklist that you can use throughout the process of investing for each of your properties to make sure that nothing falls through the cracks. So this is really a huge confidence builder for new investors.
Jason Hartman: I agree. It’s just been terrific for so many of our clients and for our use as well. How much does it cost, Joel?
Joel Grasmeyer: Normally, it’s $24.95 per month to the general public, but members of the Platinum Investor Network can get a discounted rate of $19.95 per month or we have an annual option for $199.00 for the year. And you can get this by going to PropertyTracker.com/Platinum, or you can go to the Resources page at www.realtyinvestornetwork.com and click on the link to Property Tracker there. And we offer a free 30-day trial because really the best way to appreciate the power of Property Tracker is to set up an account for yourself and try it out.
Jason Hartman: Great. Do you teach any classes if people want more in-depth study on this? Frankly, I’ve been to the Property Tracker class and I don’t think you even need it. I mean it’s so simple to use. It’s just fill in the blanks.
Joel Grasmeyer: Yeah, we have online tutorials that you can download and walk through if you want to. But also, we do teach workshops about once a month around Southern California and San Francisco, and in the workshops, we walk you step-by-step through evaluating and tracking an example property. We actually bring 15 laptops to the class, so you actually log into your own account on Property Tracker so you can really do hands-on learning. And even if you don’t use PropertyTracker.com, you’ll benefit from the class since we discuss how to do your due diligence, we go over tax saving tips and general investment strategies.
And also, if you attend a workshop, you get two free months of membership and you can get more information about our schedule by going to PropertyTracker.com and clicking on the Seminars button.
Jason Hartman: Great. You know one last thing. How is it different from Quicken or QuickBooks? If I have that, do I need this? You’ve just got like 30 seconds.
Joel Grasmeyer: Yeah, that’s a good question. So Quicken and QuickBooks do a great job of recording your raw income and expense data, but they don’t really tell you what that data means. Property Tracker is really the instrument panel that shows you what all of that income and expense data means. So just like a pilot wouldn’t go flying an airplane without an instrument panel, you shouldn’t invest in real estate without having an instrument panel, and really, real estate investing is a business and to be successful, you have to run it like a business.
Jason Hartman: Excellent, excellent advice. Thank you, Joel. I appreciate you being with us and we look forward to having you back again at a future show. Folks, I just want you to really, really be sure that you are diversifying your equity and you are moving your investments into diversified markets all around the country. If you’d like to know more about how to properly diversify and about what we do in general, attend one of our events. We have two events at our Newport Beach location this week. Tuesday night, we have Robert Kiyosaki, Rich Dad’s Cash Flow Game. It’s like the advanced version of Monopoly. It’s a fantastic product. And that’s Tuesday evening.
And then we have our core event, Creating Wealth 101 seminar on Wednesday evening. Go to our website and see all of our events at www.realtyinvestornetwork.com. Thanks for joining us. Happy investing.
Attention agents, brokers, and mortgage people. Do you know that we cooperate? Do you know that our network is an open system that you can refer clients and outsource your investor clients to us and receive passive income? It’s a really great opportunity. All you have to do is register your clients at www.jasonhartman.com and tell them to attend one of our live events, our live educational seminars.
Listen to our podcast, go to the website, and request our free CD at www.jasonhartman.com. And if they invest with us per the terms listed on the website, you will get a referral fee. We have lots of agents, brokers, and mortgage people that receive surprise referral fees that they weren’t even expecting. They get a check in the mail and they are just happily, happily surprised. It’s a nice extra supplement to your income. So be sure to take advantage of our broker cooperation. Agents are welcome. We cooperate with outside people and we’d love to help you with your investor clients.
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: 36 minutes
