Jason revisits the Refi Till Ya DieT concept with new numbers, and a comparison of the other two common exit strategies for real estate investors.
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: Well, hello, and welcome to another edition of Creating Wealth. This is your host, Jason Hartman, and I’m glad to have you with us today. Thanks again for listening and also, thanks for sending in your questions on the Ask Jason part of the www.jasonhartman.com website. We’re going to answer a couple of those questions on the show today.
But first, I’d like to talk about exit strategy. What is the ultimate exit strategy? There are many ways you can exit an investment or business, depending on the investment or the type of business for that matter. Sometimes the best way to exit is, frankly, not to exit at all, and to illustrate this point, I’d like to talk about that old story that we all probably heard when we were children, about the story of the Golden Goose. And the story of the Golden Goose, and maybe for this example, we’ll call it the Platinum Goose, Platinum Properties Investor Network, the story of the Golden Goose is you can constantly have the goose lay the golden eggs or the platinum eggs and eat them. And that’s great and it can provide a lifetime of value in that way.
Or you can slaughter the goose and you can eat the goose, and that’s not as good a deal in my opinion when it comes to investing and being a real estate investor because what our ultimate goal here is is to provide a lifetime of substantial income from our investment properties. And if we can get this income without killing the goose, if you will, so much the better. Without actually selling the properties, that could be the best thing.
So there are really a couple different approaches I want to analyze here. The first approach would be to invest in rental properties, invest in income properties, let them appreciate, gain nice tax benefits, potentially gain cash flow from the properties over the years, and then sell them and take a capital gain and use that money to live our lives. The problem is when we do it that way we have two major problems. No. 1, we’ve slaughtered the goose. We’ve sold the properties and they’re no longer producing value for us. No. 2 problem is we have to pay taxes and we want to make our investments as tax effective and as tax efficient as possible.
So the best way to do this is to, if we’re thinking about selling them – now, this is kind of a sub-point of the selling concept – would be to sell them, but then to reinvest the money, to use a 1031 Tax Deferred Exchange. Now, one of the great benefits about real estate is we can buy it and we can sell it and we constantly throughout the entire course of our life, if we do it properly, never pay tax, always deferring the tax into the next investment because we defer the gain into a new property. Very good deal; very good deal. With stocks, we cannot do this. With a business, we cannot do this either.
I remember back in 2005 I sold my business and I sold it to a large real estate company, Coldwell Banker, and I had asked my CPA, I said, look, what can I do to defer my tax liability here? And he just said, you know, tough. You sold your business. Congratulations. You have a gain, a big capital gain, and you need to pay taxes on it. And I said is there anything I can do? Can’t I buy another business, buy stock in someone else’s business, buy some properties and exchange this and defer the gain? And he said no. When you sell a business, you pay tax, period.
Now, I know those of you out there who are in the financial planning world there are some sophisticated things you can do. Of course, you can do an installment sale and you can slow down the payment of tax in that way. You can do some creative things with annuities and so forth and some of this stuff is above my head, but essentially, you’re going to pay tax, bottom line, when you sell a business. When you sell a stock, you have the same problem. So you buy stock in Microsoft or Apple Computer or IBM or an oil company. Doesn’t matter who it is. You sell the stock; you pay capital gains tax when you sell it.
Now, it’ll either be long-term capital gains tax or short-term capital gains tax, but it’s still tax either way. When you sell real estate, you can defer the tax and pay zero tax just by reinvesting that capital into another property.
Now, we have a couple of podcasts. You can go back and look through the show notes and find them, and they are on the subject of 1031 Tax Deferred Exchanges, a very good deal.
By the way, I want to mention something else here. Some people are selling investment properties that they’ve owned for many years and they might be a little bit older and they might have been managing their properties themselves, which I think is a horrible idea. I don’t manage my own properties and I don’t want you to either. We’ve set up a very nice system here at Platinum Properties Investor Network that we call the Complete Solution for Real Estate Investors. And part of it involves the proper and prudent use of professional property managers so that you pass all that work onto them. None of my tenants know my phone number. None of my tenants know my name. They don’t where to reach me. They don’t even know who I am. They don’t make the check payable to me every month. They make it payable to my property manager.
In doing this, I really have virtually no management. I have to sort of manage my managers a little bit, but that’s a pretty easy thing to do, frankly, and we also have another show on that where we talk about managing your managers and how to make that real easy, so we won’t go into that here.
But these people have owned property over many years and they’ve made a fortune on it and they will sell their property on a 1031 Tax Deferred Exchange and defer the gain into a TIC or a Tenant-In-Common investment where you’ll have a manager who’s frankly the one making all the money in the deal. This is not a good plan, if you ask me. I’m not a fan of these TICs. I always reserve the right to change my mind in the future if I find a good one, but so far, I haven’t found a good one. I believe in direct investment in property so that you’re the manager of the deal.
Now, differentiate the manager of the investment deal from the property manager. Property managers don’t make very much money at all. We are direct investors. We control our own deals, but we hire managers to manage them for us and that is a very low cost. But in these TICS or these Tenant-In-Common deals, it seems like the only people making the big bucks are the managers, the people that set the deal up, the manager of the fund or the investment, if you will, and so I don’t like these. I don’t think they’re a very good plan at all.
But they sell the property; they do 1031 Exchange to defer into new property. That’s one exit strategy. And it’s pretty good. It’s a lot better than stocks or owning a business because on those, you don’t get to do a 1031 Tax Deferred Exchange.
Okay, next exit strategy. This strategy also involves keeping the platinum goose or the golden goose, if you will, and basically, this is the strategy most people use. It’s the one my mother used and it’s not really an exit strategy. What it is is an income strategy. So the income strategy is this. You buy your properties. You own them for years, maybe seven years, ten years, 20 years, 30 years, whatever it is, and you let the tenants pay down the mortgage for you. You also let inflation pay down the mortgage for you. You let the properties appreciate in value and you constantly increase your rents.
Now, this on the surface is the plan most people use and it seems like a good plan. It’s really not a very good plan and I’ll tell you why. Let me just share with you my mother’s example. My mother retired, oh, maybe about six years ago or so and she lives a pretty good life. She has, well now, 15 properties, I guess, 14 rental properties. But the main primary 13 rental properties are properties that are all located here in Southern California. She did this the way that most people do it and there’s nothing wrong with it. It’s still a lot better than the stock market. It’s still a lot better than investing in pretty much anything. But it’s not an optimum investment strategy and so here’s her story.
She retired about six years ago or so, has about $211,000.00 per year in pretty much passive income in rents from these properties. All the properties are paid off. They have about $7 million in equity in these. They’re just single-family homes and in these single-family homes, they have a bunch of equity and since the properties are paid off, all that mom has to pay is the property taxes, if they had a homeowners association, maybe a small association fee, insurance on the properties, and she manages them herself. So there’s no property management fees.
So a $7 million portfolio that generates $211,000.00 per year in income. So just do the math here. What if you sold those properties and you put $7 million in the bank and you earned 5 percent on $7 million? Now, of course, you would have slaughtered the goose and have sold the properties so they would no longer be available to appreciate for you or produce income or whatever. But if you just put that money in the bank and earn 5 percent on it, that would come to 5 percent of $7 million, $350,000.00 a year. Not bad. Better than the rental income, but you would have slaughtered the goose by selling the properties.
But the problem here is if you put money in the bank, you know that’s a terrible investment. Here’s one of my favorite quotes: No one ever got rich saving money. No one ever got rich saving money. You put the money in the bank. You’ll be taxed on the interest income and then, of course, your asset, the bank account will be attacked by inflation. Very bad deal. By the time you pay the cost of taxes and inflation, you will be losing money. You’ll be losing a lot of money, so the bank is a very bad place to put money.
But I submit to you that it’s actually better than equity in a property. Why? Well, because equity pays exactly zero percent interest. The property will do what it’s going to do and perform as it performs, regardless of the equity in the property. So if you have zero equity or you have $7 million in equity in a property, it will appreciate or depreciate as the case may be at the same rate. It will produce a certain amount of rental income, regardless of how much equity. I never had a tenant who rented a property from me who said hey, what is your mortgage payment? I want to make sure you have positive cash flow. They never say that. They just rent it for whatever the rental market will bear at the time.
So the problem is this rental income from the property, just like the interest from the bank account, is taxed. It’s taxable income. So $211,000.00, you’ve got to pay taxes on that. Not a very good deal. Also, the equity in the properties, the $7 million we’re talking about in Mom’s portfolio here, is constantly being attacked by inflation. I mean think about it. If Mom sold these properties today and got her $7 million out – we’ll just use that for round numbers; of course, there are costs of sale, etc, but those are fairly minor – so if she sold those properties today and put that money in the bank, it would be attacked by inflation and constantly reduced in value.
But the $7 million today would be worth more than $7 million next year, right, because inflation constantly decreases or attacks the value of that equity or the value of that savings account, or the value of that mutual fund, or the value of that stock portfolio, or whatever it is. So our plan, as you know from listening to prior shows, is take those evermore-worthless dollars and use them to buy commodities in the form of rental properties that produce income. Use as much borrowed money as possible because the borrowed money will be decreased, the balance of the money you owe will be decreased by inflation. And then sit there and wait and let time be on your side and then for the first time in your life, get really excited about inflation and get really excited about time passing because time will be on your side.
Okay, so we’ve covered a couple of strategies so far. One strategy is invest in real estate, let it appreciate, trade it, really, or sell it and get other properties with it. Do 1031 Exchanges; defer the gain. Second strategy – and by the way, that first strategy is very common. Second strategy, buy the properties, invest in them, let the tenants pay for the cost of owning them. They pay for your mortgage, your property taxes, your insurance, etc, most of it, at least. They pay for that. Properties appreciate over the years. You don’t refinance them. You let the equity build. The equity is built by inflation appreciating the price of the property and also reducing the loan balance. You win two ways, not one way.
And then rents go up, of course, over the years. Rents don’t go down historically. They go up. And you receive income on the properties, just like Mom’s example. This is the plan that most people follow. You pay taxes on the income, of course. You have equity in the property and the equity is being attacked by inflation and you get exactly zero percent interest on your equity.
For those of you who have equity in your properties, if you’re receiving a check every year or every month for the equity you have in that property that is not called rent, which you would receive anyway, let me know. Go to www.jasonhartman.com, click on the Ask Jason button, and let me know your thoughts on that. You have a lot of room in there to write comments and so forth and we’d love to hear from you.
Okay, the third plan, this is the best plan. This is the most tax-effective plan. It is the most tax efficient plan. It is the most wealth efficient plan as well. And we’ve covered it before, but I want to revisit it now. It is called Refi Till You Die. Yes, I made that up, Refi Till You Die. It’s kind of funny.
Anyway, there are some updated numbers on the Refi Till You Die plan. Why? Well, mostly because the mortgage market has changed a lot and it’s a little harder to get financing. This has had the effect of strengthening the rental market and it’s good news for landlords. If you can qualify for loans right now and buy properties, you are in the catbird’s seat. You are in the seat of massive wealth creation because you’ve got a lot of good things going your way now if you are a qualified borrower and a qualified buyer.
So let’s review the Refi Till You Die plan with some updated numbers and some updated thoughts. Our typical client, we recommend they buy what we call a six-pack. We kind of jokingly call it that. And the six-pack just means six properties in diverse markets, spread around the United States of America. We still like the U.S. as our best investment. We’ve looked at a lot of international markets. They continue to capture our interest. We’re going to be looking at more. We’ll be talking about those on future shows. We’re going to profile Panama and Brazil real soon. Brazil has one of the fastest growing economies in the world right now.
It’s kind of interesting, but still, all things considered, tax benefits, lending, legal, and regulatory environment, we still like the United States the best. Just got back from Argentina, looked at rental properties there. I was not too impressed. I thought I would be in Buenos Aires, but not impressive like the U.S. So six properties, six diverse markets in the United States is a pretty simple example.
Let’s say the average price of these properties – and they’re just single-family homes. If you’re a wealthy investor and you need to place $2 or $3 million and invest it in real estate, we can help you, too, but just for purposes of this example, six properties. If you’re only going to buy one property, that’s fine, too. Whatever you can afford. The important thing is to get started, get your money into these packaged commodities, into rental properties. Someone else pays for them. Most of the part, the tenant is paying, the bank is paying. You just sit there and broker the deal, if you will.
Six properties; six diverse markets. Average price: $166,000.00 times six is a $1 million portfolio. So $1 million in portfolio value, 10 percent down subject to qualifying for the loans. Ten percent down is $100,000.00. Closing costs on average are 3.5 percent, so that’s $35,000.00, 3.5 percent of $1 million, and then we say you should have a minimum reserve of 4 percent of the portfolio value. So 4 percent of $1 million is $40,000.00, total needed for a six-pack, a little mini real estate empire, something to get really excited about. You own properties all over the country in six diverse markets, so you’re nicely diversified to take advantage of maximum upside potential because they’ll be the good markets, the markets we’re researching, the markets we’re recommending, the markets we’re suggesting.
And you’ll be eliminating or drastically reducing, I should say – not totally eliminating – any downside risk because you’ll be nicely diversified and you’ll be investing in the right markets. So the total cash you need is $175,000.00. It’s very typical to have our clients walk into our seminars, listen to the Creating Wealth show, and have about $300,000.00 equity sitting in the house they live in and it’s doing absolutely nothing for them. It’s being attacked by inflation. They’re getting no return on that equity. So we want to put that into properties and put it to work. Very important.
So there’s a lot of numbers I’m going to talk about here and they will be posted at the www.jasonhartman.com website in the podcast section in the show notes for this show. So just go take a look at that. If you want to print this off and review it, there’s a lot of numbers here.
Okay, so let’s look at how the Refi Till You Die plan works. Show me the money. How do you create wealth out of these properties? Okay? Remember you started with a $1 million portfolio and that portfolio was purchased for $135,000.00 – 10 percent down, $100,000.00, 3.5 percent closing costs, $35,000.00. And then you’ve got another $40,000.00 sitting in the bank in reserves. So $175,000.00 total available, but all you need to buy it is $135,000.00.
Your loans will total $900,000.00 or 90 percent of the value of the portfolio. Your equity is $100,000.00. If you’re 40 years old today and you let 12 years go by with the rule of 72s, which just is a rule, a mathematical formula – you can look it up on the internet – that basically, just tells you how long it will take to double your money. So at 6 percent appreciation, and remember the average appreciation since 1968, around the United States of America, has been 6.4 percent. We’re going to go below that number and we’re going to only assume a very modest 6 percent appreciation. In 6 percent in 12 years, your properties will double in value. That means that your $1 million worth of six properties will now be worth $2 million. Your gain on your investment will be $1 million.
Now, folks, I don’t know about you, but I’ve noticed that the older I get and I’m not that old, the older I get, the faster time passes. Remember when you were a kid and 20 minutes seemed like a year? And remember when you turned 25 and you know time starts to go really fast. The weeks go by, the days go by, the months go by, and before you know it, it’s your next birthday. And now, when you’re 35, it goes faster and faster, and the older you get, the faster it goes.
So 12 years will pass before you know it. If you look back at what you remembered five years ago, ten years ago, it seems like yesterday. At least that’s my perception of it. So by the time you’re 52 years old, if you’re 40 today, 12 years have gone by. You’ve been sitting back. You’ve been enjoying nice tax benefits and appreciation in your properties. You’ve gained $1 million and I’ll tell you how to accelerate this soon.
You’ve gained $1 million and then you go back to the bank and you refinance your six properties. You tell the bank I want an 80 percent loan on all six of my properties, and so the bank says okay, 20 percent equity. That’s pretty easy to refinance, at least in today’s climate, and it always has been historically pretty easy as well. And so they give you a loan for $1, 600,000.00.
Now, remember you put down $135,000.00, down payment and closing costs, to acquire this portfolio and now you’re getting loans for $1.6 million. Your original equity was $100,000.00. Your equity now is $400,000.00. So in 12 short years that will go by in the blink of an eye, your equity has quadrupled, but you’re going to get a nice other benefit here.
You’re going to take cash out in a cash-out refinance here of $700,000.00. So think about that. Your wealth has gone from $135,000.00 investment to now $700,000.00 in cash and $400,000.00 in equity in your portfolio, and that means if you divide that $700.000.00 that you took out in cash by 12 short years, and you roll the cycle over and you still own the goose, and the goose is still laying those golden eggs or those platinum eggs, you have got $58, 333.00 a year, tax free.
Remember there is no tax on borrowed money. That is a beautiful thing. I mean think about that. I don’t have the exact calculation. It’ll depend on your tax bracket and so forth, but in today’s world, $58,000 tax free, I don’t know. What’s that equal? About $90,000.00 taxable for most people? Probably somewhere around there. It’s pretty significant.
Now, you’re 52 years old now in this example. Let’s let the cycle repeat itself for 12 more years. You’re only 64 and remember 60 is the new 40. In the new world, the problem is going to be that you’re going to outlive your money. Sixty is middle age in today’s world, okay, folks? So when you’re middle-aged at 64, still one year before the traditional retirement age of the old industrial era of 65 – I mean nobody retires at 65 nowadays, right? You’re 64. You now go and you look at your portfolio again and it has doubled once more. One million dollars that went to $2 million is now $2 million that went to $4 million. Your gain is now $3 million.
You go back to the bank and you tell them you want to refinance again my six properties. And this is assuming you only bought six and you never bought anymore in 24 years. Of course, you will because this investing becomes very, very addictive when you start to look at the map of the U.S. and you see your little real estate empire. You own properties in all these cities. You can travel to them tax deductible. Go visit your properties and so forth. Pretty cool thing.
So you go back to the bank. You say now I’m 64. I want to refinance 80 percent loan-to-value ratio. Give me loans that total $3.2 million. You’re going to pay off the existing $1.6 million and that means you get $1.6 million in cash, tax-free cash, and your equity has now doubled. It went from $400,000.00 to $800,000.00, whereas it was only $100,000.00 in the beginning of this process.
So you now have $800,000.00 in equity in your properties. Your equity is increasing and your cash-out is increasing every time, too, $1.6 million. Let’s divide the $1.6 million over the next 12 years. We’re assuming we earned zero interest on that $1.6 million. Of course, we will earn interest on it because we will invest it. At the very least, we’ll put it in the bank and earn – I don’t know – 5 percent in today’s world maybe. So there, if you divide it with zero interest, you have tax-free income of $133,000.00 a year, tax-free. No tax on borrowed money.
Now, remember we’re not tax advisors. I do want to make that disclaimer. Check with one of the enrolled agents or the CPAs that we’ve interviewed on this show. Their contact information is in the show notes. Chat with your own tax preparer and get more detail on this.
But this is an incredibly good deal. Think about it. Your exit strategy here is to not exit. Now, if you want to know how to do this a lot faster, you can. But this is getting to be rather long, this explanation, and I want to get to a couple of those questions. You can actually speed this up by almost double. You can do this plan on a 7-year plan, the Refi Till You Die plan. So if you want to see the 7-year plan where the numbers will just blow you away, in seven years, you can have a gain of $1 million. You can have $600,000.00 in equity, $600,000.00 in proceeds, and about $86,000.00 per year in tax-free income in just seven years.
How old are you now? Are you 25 and you’re listening to this? You’ll only be 32. Are you 30? You’ll only be 37. Isn’t this exciting? If you’re 40, you’ll be 47. If you’re 50, you’ll be 57. This is pretty darn incredible. This is unmatched in any other investment vehicle I know of. And there will be a recap of where you’ll be in 12 years or seven years on the website. So if you want to see that, just go to www.jasonhartman.com, click on the Podcast section in the Education section and you can learn all about this fantastic opportunity. All right? And if you have questions, just go to the Ask Jason section of the website and we’d love to hear your comments and your questions.
One of the comments and questions I frequently get on this is this one, and I just want to run this one off at the pass here because I know you’re probably thinking. If I keep refinancing, don’t my mortgage payments go up? Well, actually, your mortgage amount, as a percentage of your portfolio value, will be lower by 10 percent. Initially, you’re putting 10 percent down and you only have 10 percent equity. But in future years, as you do the Refi Till You Die plan, you are going to have 20 percent equity, okay? So keep that in mind.
And your rents are traditionally, historically tied into interest rates. So when you refinance, if interest rates go up, remember people only have two choices. They need to either buy a house or rent a house. Everybody needs somewhere to live. So if they have to rent a property because they can’t afford to buy because rates are too high, they’ve got to rent from you. So rents and interest rates, historically, at least, follow a similar path, okay? So the Refi Till You Die issue of payments changes and interest rates changing shouldn’t be any problem whatsoever.
And again, there’s more detail on our website and if you have questions, just go to www.jasonhartman.com, click on Ask Jason; we’ll be happy to answer those for you on the next show or we may just email you back right away and give you an answer as well.
All right, let’s go to some of these questions and I love these questions. This one comes from Michael Van Tassle and Michael, how are you doing? You’re probably listening now. You said, “I want to create a business entity to start investing in real estate. I’m looking to buy properties and then rent them out for the long term.” That’s great to hear and it’s an exciting plan for you, so I’m glad you’re interested. “What type of business entity should I use to protect myself personally, but take advantage of tax advantages? A sole proprietorship, an LLC, or a corporation?”
Great question, Michael. We get it all the time. Now, first of all, I need to tell you, of course, we’re not tax advisors. We’re real estate advisors. We’re also not legal advisors. So consult an attorney, consult a tax advisor for details on this. But I just want to make some general comments on it. Consult with your appropriate professional. No. 1 comment, there are a lot of scams out there that I have noticed in the asset protection world. There’s a lot of alarmism going on out there where people would like to sell you LLCs and corporations and family limited partnerships and all these crazy entities. Now, some of them are not crazy. Some are just prudent business and I would recommend you do them.
The typical vehicle that I see most of our investors using is a simple LLC. They have something called a Series LLC, which actually is one LLC vehicle – limited liability company is what LLC stands for – that is segmented into several parts. I believe 16 parts. And different states offer different types of LLC vehicles. Again, we will have an attorney, by the way, on a future show talking about this stuff in depth.
But again, this is a good plan. It’s a simple, prudent plan. But the thing I want to say to you is don’t fall for a lot of this alarmism that’s going on out there about this stuff. There are so many companies that are like these big mills that just want to sell you all these entities and they charge you a lot of money to form them. In 21 years of being a real estate investor, knock on wood, I have never been sued. I’ve never had any liability stemming out of my ownership of properties. But of course it could happen tomorrow. Insurance is your first line of defense and it’s pretty easy to insure around this stuff. The old idea of slip-and-fall, just not really a big concern.
Now, the reason it’s not a big concern in my opinion, and again, I still think you should form an LLC and take smart steps to protect yourself, but I think first, you should worry about having something to protect. Most people are putting the cart before the horse here. They’re worried about all these elaborate asset-protection schemes, when they should just be buying some properties, getting adequate insurance, reviewing their insurance policies, talking with their insurance broker, to make sure that they’re covered. Get an umbrella policy. It’s very cheap to do this. A couple hundred dollars a year and it gives you a lot of additional protection on your properties.
But if the tenant or your property manager because you won’t be talking to your tenants, if the tenant tells you there’s a big crack in the walkway up to your property and I keep tripping over it every day, you had better be a responsible landlord and fix it. Okay? When you are notified of a problem on your property, like a security problem – say the tenant, through your property manager, says to you the door lock is broken, and you don’t fix it, you are a negligent landlord and you have the responsibility to be a responsible landlord, to fix things on your properties as you know about them.
So if your property manager tells you, hey, the lock on the front door is broken, you better fix it right away, okay? If they tell you there’s a big crack in the sidewalk and someone could trip over it and hurt themselves, you better fix it, okay? You better be reasonably aware of what’s going on with your properties because if you are negligent and do not fix these things – say someone breaks into the house and robs your tenant. That will create liability for you. Someone slips over that crack in the sidewalk. That will create liability. So obviously, you need to take care of business.
So my answer to this question is don’t get caught up in elaborate asset-protection schemes. Don’t get ripped off by a lot of the promoters that promote this stuff. There are solid, legitimate things you should do, probably the first one of which is form a simple LLC; inexpensive to do that. Shouldn’t be very expensive at all. There are a lot of do-it-yourself ways to do that on websites and so forth, or you can get an attorney. We’ll interview one on a show that will be reasonable. Not one of these overpriced mills that sell this stuff.
Get adequate insurance. Review your insurance policy. Talk with your insurance broker. Make sure it has landlord coverage, okay? And just do some smart things. Get an umbrella policy if you’re wealthy and you have a lot more to protect. A simple umbrella policy will cover several properties and also extend the coverage. So this is simple stuff to do. Just make sure you do the simple steps and be a responsible landlord.
There’s one more area of significant liability, I think, when you are a landlord and it is discrimination. Remember there are Fair Housing laws in this country, fortunately, that protect people and make sure housing, the opportunity for housing is open to everybody, regardless of their race or their family status or their gender, sexual orientation, or whatever it is, okay. If the person can afford to rent your house and they’re a qualified tenant, you need to make your properties available to everybody, as it should be.
So one of the nice things about having professional property managers is they put some distance between you and the tenant and you are not talking with your tenants personally. And you can never give your property manager instructions that you don’t want to rent to people that are in one of these protected classes. You need to obey the Fair Housing rules. And no insurance that I know of will protect you from disobeying these rules. So you’ve got to be a fair landlord. You’ve got to be a responsible landlord and this is as it should be, okay?
So good question, Michael, about the legal entities. Thank you for asking and please, again, give us your comments, give us your questions. Go to the Ask Jason section on the www.jasonhartman.com website. We have many more of these coming up. We have a lot of great shows coming up for you and this is going a little long so I want to say thank you very much for listening and 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.
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 or 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, a 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.
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. 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: 49 minutes
