Jason Hartman on Why Real Estate Works so Well as an Investment (CFFL 0013)

Jason Hartman on Why Real Estate Works so Well as an Investment

Jack Butala:                   In the world of real estate investment, Jason Hartman needs no introduction. But just in case, Jason Hartman has been involved in several thousand real estate transaction and has transactions in his own income properties in 11 states in 17 cities. His company Platinum Properties Investor Network, Inc. helps people achieve the American dream of financial freedom by purchasing income property in prudent markets nationwide. Jason’s complete solution for real estate investors is a comprehensive system providing real estate investors with education research, resources and technology to deal with all the areas of their income, property, investment needs.

Thanks so much for joining us. Jason, it’s an honor to have you. For those of you in real estate who live under a rock, Jason Hartman is kind of the institutional investor at least in the podcasting world, I guess, I saw. Make sure-

Jason Hartman:                 Well, its great to be here. Thank you for having me. Institutional investor, that’s funny. Maybe I should be institutionalized. I don’t know, some days … No, I’m kidding. I love real estate. It’s the best thing ever at least since slice bread.

Jack Butala:                   Continue my attempt at your intro and kind of fill us in or fill our listeners in about who you are in the industry.

Jason Hartman:                 Yeah, sure. Basically, I started my career being interested in real estate investing. I was only 16 years old. I went to my first real estate seminar at age 18. Got my real estate license my first year of college at age 19. Then purchased my first income property in Huntington Beach, California at age 20. Since then, I have just fallen in love with real estate investing. I spend many years in the traditional real estate business. I worked for RE/MAX. I was a very successful real estate agent, traditional real estate agent there. Then I purchased a real estate company and, years later, sold it to Coldwell Banker.

Then about a year before that deal closed which was actually 10 years ago, just about now … Actually 10 years ago today. Wow, didn’t even realize that until I looked at the date.

Jack Butala:                   Wow.

Jill DeWit:                            That’s cool.

Jason Hartman:                 Today, 10 years ago, that deal closed. Many would say my timing was perfect. I think it was more lucky than good. Then I started … About a year before the deal closed with Coldwell Banker, I started this real estate investment business where I became very interested in nationwide real estate investing in approaching the most historically proven asset class in the world, income property, from a nationwide perspective, from the perspective of the way a financial planner would do that, a financial advisor, a financial services firm.

We’ve got … It’s always struck me as odd, Steve and Jill, that we’ve got these companies like Merrill Lynch, and Ameriprise, and all of the other firms that pedal the Wall Street garbage. We’ve got all of them out there, and they have such a mediocre to lousy product frankly yet they have a very good sales force and a very good system of selling their product. You look at real estate, which is the most historically proven product, it’s the best product out there for investment and wealth creation, and it isn’t sold very well. It’s a very fragmented, inefficient market, a bunch of people doing things in their little local area. There are just a lot of things wrong with it, so I created my business to solve that problem.

Jack Butala:                   Now, that’s a great description. I’ll tell you there’s a lot of similarities between the two of us. I started my company in the late ’90s the form that it has now. I looked at it for some of the very similar reasons. It’s a rock solid asset to invest in. It [throws 00:04:20] up an asset based … It’s an asset based return. We’ve always looked at the product that we sell kind of like an investment vehicle and not so much look at the actual real estate itself, and it’s treated us really well.

Jason Hartman:                 Well, I agree with you. It’s amazing to me and unfortunate that so many people just take the easy way out when it comes to their investments. They want to just walk in to one of these Merrill Lynch type firms and hand over all their hard earned money, and they almost never do well with that plan.

Jack Butala:                   Yeah, that’s true.

Jason Hartman:                 The financial services industry does a great job of separating people from their money.

Jill DeWit:                            That’s true.

Jason Hartman:                 And absolutely does.

Jack Butala:                   What made you see the light? What do you think … What makes you so successful or different in this industry?

Jason Hartman:                 Well, I just think that it’s … You got to approach it from an investment perspective. I have something that I call the 10 commandments of successful investing. They basically boil down to several ideas, but I’ll share a few of them with you. I don’t want to sit here and bore you with all 10. I’d say the first one that I’ll share is commandment number three. That’s one that’s been very popular. It really resonated with my audience and many, many people on my podcast. It is thou shall maintain control. What we do is we help people as do you become direct investors so that they actually own and control the asset in which their money is placed.

When you compare it to Wall Street or even any other pooled type investment class, you always … When you relinquish control of your money, you leave yourself susceptible to three major problems. The first problem is you might be investing with a crook. The second problem is you might be investing with an idiot. The third problem, assuming you overcome the first two hurdles, they’re honest and competent, is they take a huge management fee off the top from managing the deal.

We say be a direct investor so that you have a control over your investment. You decide what to buy, where to buy, when to buy, how to finance and structure the deal, who to rent it to, when to sell it, if you want to do a 1031 exchange, if you want to refinance, if you want to pull cash out, leave it in. It’s all up to you.

The thing that comes with that control is it does create a little more responsibility. I just thought if I could create a business that helps people alleviate some of that responsibility … That’s what I was looking for as a customer myself. When I sold my traditional real estate company in Irvine, California to Coldwell Banker 10 years ago today, I had a big check. I had to invest and deploy that money. My history before that was I always a local market investor the way the vast majority of people approach real estate investing even now.

I invested in the Southern California market: Irvine, Newport Beach, things like this. Those properties are very expensive. They don’t make any sense at all. They’re pure speculation frankly. They certainly don’t cash flow. They also are very subject to the roller coaster ride of returns where they have these peaks and valleys. I just didn’t want to go through that again. I was becoming more conservative with my money as I was a little older. Just didn’t want to have to earn it again and lose it, you know?

Jack Butala:   Yeah.

Jill DeWit:                            Right.

Jason Hartman:                 I like these linear markets. Commandment number five, that’s a good time to weave number five in. We’re skipping number four here. Commandment number five is thou shall not gamble. One of my rules is the property must makes sense the day you buy it, or you don’t buy it. It makes sense means that it has cash flow. It’s got the cash flow from day one,

Jack Butala:                   That’s right.

Jason Hartman:                 … so that nothing extraordinary i.e appreciation should have to occur to make a nice return on your money. You should be able to make anywhere from 9 to 13 percent cash-on-cash return just from cash flow. Now, in all my years, over 20 years in the business, I’ve never met anybody, I’d love it if you guys want to chime in here and maybe you’ve met them, but I certainly haven’t, who can reliably predict market cycles with appreciation and depreciation. I said reliably. Lots of people make predictions. I’m just saying they don’t come true.

Cash flow is very reliable. [inaudible 00:09:43] a property and, by golly, [inaudible 00:09:45]. Occasionally, they don’t. It’s pretty reliable.

Jack Butala:                   I was an investment banker before I started this company. I actually started the company while I was an investment banker. I was actually really good at it and made a really good living. I got out of it for a lot of the reasons that you’re saying. The biggest one being control. I was on the phone all day talking to private equity funds to see if they wanted to buy or sell some of their companies. There was absolutely no control. We had no control over anything. That always … That never really sat well with me. Buying and selling land for cash where you’re not involved with anybody except you and the seller is just … It streamlines the whole process. Wow. I really identify with what you’re saying. Our returns are really good like that, too. We’re in the solid double digit returns cash-on-cash returns on every deal we do or we don’t do it.

Jason Hartman:                 No, it’s got to make sense the day you buy it or you don’t buy it. That’s commandment number five. A couple more of them. I’ll just touch on a couple more of these commandments. I actually have 20 now because I had 10 for years and then I started noticing. Yeah, [inaudible 00:11:09]. How arrogant. Just make more 10 commandments.

Jill DeWit:                            [inaudible 00:11:12].

Jason Hartman:                 I heard that Moses flopped one of those clay tablets coming down from that mountain, right?

Jill DeWit:                            That’s right.

Jason Hartman:                 There were actually 10 more commandments we just never [inaudible 00:11:22]. Oddly, there’s a YouTube video on that because I think Monty Python did some songs.

Jill DeWit:                            True. I remember that.

Jack Butala:                   [inaudible 00:11:32] I think was one of them.

Jason Hartman:                 There you go. Just a couple more here that I think are good rules to live by as an investor. Now, your type of investing … Although we share many of the same philosophies, your type of investing in land differs from mine quite a bit. Yet interestingly, we share some of the same philosophies. It’s kind of interesting.

Another one of them is thou shall diversify. It goes along with the commandment that immediately follows it is thou shall be area agnostic. Let’s just blend those two together for a moment. In the United States … Now, on my podcast the Creating Wealth show, I have listeners from 164 countries. One of my goals is to have listeners in more countries than the [US Empire 00:12:24] which, by the way, I think this is ridiculous and I’m completely not in favor of [inaudible 00:12:29] military bases in other countries. I think it’s 172 according to Ron Paul. Suffice it to say, global audience. They buy US real estate. The American real estate market is a pretty special market in many ways. I’m happy to talk about that if you like to.

Jack Butala:                   Yeah, I have a lot to say about that, too. I love to hear your opinion.

Jason Hartman:                 Yeah, let’s talk about that in … Let me just … I’ll make this point, and we’ll talk about that. Here’s what bugs the heck out of me is I’ll turn on CNBC, the mouthpiece for the vast Wall Street conspiracy.

Jack Butala:                   That’s right.

Jason Hartman:                 I call Wall Street the modern version of organized crime. I’ll turn on CNBC and I’ll see some talking head there. He’s talking about the “housing market” or the real estate market.

Jack Butala:                   Cracks me up.

Jason Hartman:                 I can never figure out if that guy is talking about Miami, LA, New York, Seattle, Memphis, Atlanta or Charlotte or Indianapolis. I never can tell.

Jack Butala:                   I’ve been saying the same thing for years, exactly.

Jason Hartman:                 It’s ridiculous.

Jack Butala:                   It is.

Jason Hartman:                 Yeah, it’s ridiculous. In a country as large and diverse as the United States, there is no such thing as a national housing market.

Jack Butala:                   That’s right.

Jason Hartman:                 There are really about 400 local markets, and they all act quite … Well, not all of them. Some act in [inaudible 00:13:58]. There’s a variety of them. I divide them into three categories which probably the next thing I should mention. They act differently, these markets. The old saying in real estate is that all real estate is-

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