Jason Hartman and investment counselor Sara discusses whether or not they believe there will be a renter strike at the beginning of April. They go into recent headlines in the economy and in real estate. They also discuss housing inventory, interest rates, and the Fed. Jason explains trickle-down economics. The show ends with predictions on shifts inside the home.
Jason Hartman 0:00
just invest. It’s still a great thing to do. I know it can be scary to a lot of people. Jason’s been doing this a long time. He’s got a lot of knowledge. We’re in an age of technology and everything’s at our fingertips. You can do a lot of homework on your own. But in the end, make sure you’re talking to professionals like Jason.
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on Now, here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:10
Welcome to Episode 1422 1422. Sara is here with me and we have five items on the agenda for you. You know, folks, it’s been a very action packed news cycle. And we’ve been reporting on as much as we can get to, with the limited time we have the last few weeks. Sarah, we got some things to talk about, first of all, is interest rates. As most people know, by now, the Fed did a huge rate cut basically, it’s free money and mortgage rates did not follow right away. Which surprise some people usually they, you know, they do they react and, and mortgage rates decline, but they’re a little better than expected. Right, Sarah?
Yeah. Hey, Jason. Thanks for having me on. Yeah, it’s been interesting. So a couple weeks ago, I love For the trip with my son, and I had a call scheduled to do a rate lock on some investment refinances. And I missed that phone call because my flight left early. And by the time I came back Eight days later, I saw the Fed cut the rate. So I got even more excited thinking that the rates would be even lower when actually they went up slightly. Now, when I say went up, they just went back up to where they were, where they’ve been for the past couple years. They’re still relatively pretty low. But everybody was very excited. And we all thought, you know, we were going to be able to refinance our deal. And that just didn’t happen, unfortunately.
Jason Hartman 2:40
Yeah. But now Where are you on it? You’ve been talking to the lenders all week. What is your thinking now?
Yes. So I talked with one of our lenders yesterday, and what he quoted, and this is for acquisitions, I’m sure refinance could vary a little bit. But for new acquisition, he said with 25% down the rate, we’re at four Point 875 to 5%, which is great. But with 20% down, they were a little higher at five and a half.
Jason Hartman 3:06
So these, by the way listeners, these are non owner occupied investor mortgage rates which are higher, right? Yes. And you know, if you’re thinking, Oh, those rates are so high, I just refinance my house. It’s different investment property, they charge you a little more. Okay, so Yeah, go ahead.
Yeah. So if you’re looking to do something with a primary residence, they would be lower than that. So, you know, the discussion was, stay in touch with the lender. I’ve been telling my clients you know, if you work thinking about doing a cash out refinance, just wait, because chances are, if you bought the property A few years ago, the rates are not going to be lower than that. But if they do go down, there may be opportunities in the near future. I think everybody thinking that something’s got to get
Jason Hartman 3:50
something something will give. Yeah.
Yeah. The question is, I don’t know check back on with me or the lender. I would check in once a week and just see where things are at? And of course, you’ll be updating on the podcast as well. Yeah,
Jason Hartman 4:04
we will. This is a crazy time, things are changing very quickly, as everybody knows that, you know, the markets, the news, the mortgage rates, everything. But the ultimate trend is, obviously stimulus, the money printing is going to be just extraordinary inflationary pressures, low interest rates, you might buy a property today, and by the time to close the rates will be lower. You know, it’s just incredible time really, none of us have ever seen this at any time in history. So there’s not a lot to compare things to. But one of the other interesting things that’s going on is, and we’ve talked to you about this before, you know, many people come to us and I don’t know they get these funny ideas in their head, well, I’m going to be a big investor, I’m going to invest in commercial real estate. I wouldn’t mess around with this stupid residential stuff. That’s for like the little people you know, it’s just the But it’s just a funny thing I’ve noticed over the years, and as I’ve been telling you for the last 16 years, housing, housing, housing, it’s where is where it’s at housing, housing, housing. And I’ve been 100% right on that. throughout that time I’ve been saying that. But I’ve also been saying that I like single family housing the best better than apartments and Listen, I’ve owned apartments, I own one now, okay. And single family homes, nothing beats it. And I, I’ve done many episodes on that. You can go to Jason hartman.com. Use the search functionality and find that, but here’s the thing. One of the things I’ve told you when you compare to apartments when you compare single family homes to apartments, is that when you have an apartment, even if it’s a small 10 unit apartment or a 20 or 30 or, you know like I’ve owned 139 unit apartment buildings 125 unit apartment building, along with one of our clients, Steve, I’ve owned both of those. And the thing you gotta understand is when you have an apartment complex, you are running a business. It’s much less of an investment and much more of a business. And your business, just like every other business will have a Yelp page where people review it. It will have a Google review page, probably where people review it. And all of those tenants because they’re all together, will be talking to each other. And they can form little gossip groups and form mutinies and do rent strikes and all this type of stuff. Well, Sarah, you notice this on social media post about this that we want to share with our listeners is pretty interesting.
I did I’ll read this the heading here it says please help in all caps. My cannons organized and are saying they won’t pay rent this month. All That what can I do?
Jason Hartman 7:01
Yeah, and all of those all capitals? Yeah, she’s obviously you can tell this person is worried, okay, because they have all done a coordinated rent strike. Now, think about it. If you own a bunch of single family homes, your tenants won’t know each other, and they might be right next to each other. Even if they were next door to each other, your tenants wouldn’t necessarily know they have the same owner. Okay? Or they might be you know, many of our clients purchase a few properties on the same street or in the same neighborhood, these tenants are, it would be a total incredible fluke that they would ever figure out that they have the same landlord. Okay, but in this case, but
if you had to put this in perspective, this is a 32 unit apartment building in Texas. Yeah, so this lady’s freaking out. But you know, we’ve been saying for years and years at our conferences and on the podcast, not to have all your eggs in one basket and you know, again, if you’re going to buy say a 10 unit apartment, Building, why not buy 10 single family homes and diversify and be in different markets and I feel really good about that message given the current environment where you feel really good that it didn’t happen to you.
Jason Hartman 8:13
And I feel really good. It didn’t happen to me or a lot of people listening, right. But listen on balance apartments do have some advantages in single family homes have some advantages, okay. It’s just that like everything in life, you’re always making trade offs. And the only question is, is are those trade offs worth it? Is there a compensating factor that makes it worthwhile? Okay. So I mean, you can just, you can just really read the stress in this landlords post, right? Please help my tenants organized and are saying they won’t pay rent this month. All of them. What can I do? Someone please tell me this is going to be okay. I have no idea what to do. I own an apartment building in Houston with 32 units. This is my sole capital’s sole source of income. tenants have apparently been talking to each other. And this morning they delivered a letter signed by every single unit, saying they will not be paying rent for April and will continue refusing to pay rent until this coronavirus is over and they go back to work. Huh? wtf Am I supposed to do? She said that. I didn’t abbreviate that just so you know. We all know what it means. Okay. Okay, I can’t possibly evict all of them at once. And especially right now, how am I even going to find new tenants if everyone is out of work? Is this illegal? What do I do Someone please give me advice. I’m seriously freaking out over here. That’s the post from social media. That’s exactly what it says. So folks, this is the thing. Look at you don’t want to ever get it Look, in the old days, when Christopher Columbus sailed the ocean blue in 1492. If those men on that ship formed a mutiny, he would have them walk the gangplank they’d be executed, okay? Nowadays, he can’t do that. So the best thing to do is to not have all your tenants together talking to each other like that, because they can do run strikes, they can gang up on you, and you’re outnumbered. Okay, so that’s something to think about. Any other comments on that one?
Well, all I can say is at least this is in Texas, you know, they say don’t mess with Texas. I don’t think this is gonna work out very well for the tenants. Now if this were in California, and it might be a little weird. You didn’t
Jason Hartman 10:51
know the landlord in you see there’s a compensating factor. For example, right. Texas is landlord friendly. California is tenant friendly. Okay, so at least you’ve got that going for you, right where rent strikes are probably illegal in Texas. But in the current environment, the tenants do have an upper hand now what this owner should do, and she says it’s her sole source of income, which leads me to believe, although I don’t know this from reading her her post on social media, it leads me to believe that she’s either paid this property off and it’s free and clear, or it has a fairly low mortgage balance. And she’s put herself in a position where she unfortunately, unfortunately, has lots of positive cash flow. I know that sounds weird, folks. It’s not weird. Okay. The better thing would be to have minimal equity and moderate cash flow, because the first thing she should do if I were able to respond to her posting on Facebook is I would say, call your lender and tell the lender Look, this is exactly what happened during the Great Recession. 10 to 12 years ago, okay, is that we had basically Trickle Up economics where the first party in the supply chain gets hit. In this example the tenants losing their jobs. Okay? Then they go to the landlord now the landlord gets hit okay hot potato tenants problem are well, first of all, it’s the employers problem that had to lay them off right? employers problem, then tenants problem then apartment owners problem. Now apartment owner passes the hot potato to the lender and they say lender your problem and then the lender. What do they do? They go to the government and get a bailout for $2 trillion. Okay, so it’s not going to be their problem. So pass the hot potato. If you own this property free and clear. Or if you have a whole bunch of equity. You can’t pass that hot potato. Okay, listen to my episodes last week on the returner two weeks ago when you hear this on the return policy for real estate Okay, put yourself in the position of power. That’s what we’ll help you do. All of our investment counselors are trained to consult with you on this stuff. Okay, Sara, enough about that. Let’s look at some actual properties where your tenants can’t gang up on you and do a rent strike.
Yeah, so we’ve got a couple properties that went out on my hot sheet last night. One is in Mobile, Alabama for 95,000. rent is 950. And I actually just put under contract a similar property to this one. And we just found out today that it actually did rent for 950. So that is a very realistic rent. You’re at 1%.
Jason Hartman 13:39
This This makes me jealous, because I have a property in the mobile area myself that I’ve had for many, many years and my numbers aren’t as good. Yeah, you got 1300 and 48 square feet $95,000 $29,000 in change to acquire the property with 25% down 950 rent You’re exactly at 1%. That’s, you know, these are the projections. Of course real life can vary a little bit, and to 18 a month positive cash flow projection. And Sarah overall return on investment here projected at 32% annually. Very nice. And that’s a nice looking house.
It’s a nice looking little house and it could go to just traditional tenant, it could go to section eight type tenants. Oh, and this one is actually already leased. I’m sorry, this one’s pre leased. So renovated. It has new roof, new vinyl windows, new water heater, all new doors better. So yeah, this one’s nice and ready to go. And, you know, I want to just mention one thing, because we were talking about the fluctuation with interest rates when I sent this property out. My client who contracted on the other mobile property about a week and a half ago or so, emailed and said that, you know, unfortunately, he didn’t get the initial lower rate that he was hoping for, he said, but all things considered, even though the rate went up slightly. He’s still at initially it was a 14% cash on cash projection. And now it’s 11% cash on cash. I mean, Bill, phenomenal numbers, even with just a little uptick in the interest rate. So, yeah, there’s those great deals out there.
Jason Hartman 15:11
Yeah, good stuff. Okay. You alluded to it, we might as well talk about it. Now, section eight. One of the things that I have predicted out of this crisis is the very real possibility of a massive expansion of section eight or some similar Housing Assistance Program from the government. We look at folks, we are all socialists now, like it or not, okay? The whole economy is becoming socialized, not just a view of the globe. Okay, it’s just, it’s just happening around the world. So I’m not going to argue the philosophy of that. I don’t like it, but it’s where we are. I’m a realist. We’re going to see this massive expansion of some sort of government housing assistance program, maybe like section eight, maybe with a little different flavor. Who knows but Many of our owners listening to this have chosen not to put their properties into a section eight program. And you know, that’s certainly their choice. Of course, there are advantages and disadvantages to section eight. When I was growing up, as I’ve said many times before, my mom had several section eight rentals. And I used to say that or I would always say she complained all the way to the bank. Okay. And, and, you know, it is bureaucratic, you know, you’re dealing with a little bit of government red tape, but in some ways, it’s really beneficial to So it just depends on your style. And that’s why you have Sarah and our other investment therapists to help you. Yes.
We had a client make us a T shirt one year that is less than therapy.
Yeah, that’s great.
And, you know, section eight can be for really nice housing too. I remember years ago, our clients Villa posted a picture of his house on social media. And it was a section eight tenant, I want to say they were paying like 1195 or 1295. And it was beautiful, you know, 2000 plus square feet brick home nicer than the house I had lived in at the time. And it was section eight. So you know, it’s, um, it could be a great thing. Exactly. I had a beautiful property in Austin, Texas. It’s not on section eight now, but it was at one time, and that’s a great property. I would totally live in that property.
Jason Hartman 17:34
You know, and someone living there. The government’s, you know, free lunch, so yeah, it’s philosophically it’s, it’s very annoying, but that’s the way it is. Anyway, consider section eight as an option. Now, one more thing I want to say about that immobile property. That’s a three bedroom, one bath. So think about what that’d be perfect for. Right? It that’s, that’s maybe a couple with one kid or a single person. One or a couple with no kids dual income, no kids stinks, right and dual income, no kids, and it could be any of those kind of makeups or you know, maybe two kids. But what you’ve got there is maybe a situation where two of those bedrooms people are sleeping in them and one is a home office. Okay. And nowadays with a push toward working at home, that’s a great deal. We’re going to see employers giving people allowances to work at home. Don’t get any ideas, Sarah, Okay. Great. Yeah, cuz I know that I knew that’s coming. Okay. But you know, we’re employers are maybe paying them $200 a month bonus to work at home. Right. So now their effective rent is 750 per month. Okay, in that exact house. There’s just going to be all kinds of opportunity. Maybe they lived in a little condo or apartment before or a smaller house, maybe a two bedroom house and they need to move up to that house. They need that extra bedroom for homeowners. Maybe if it’s a couple both people are working at home, maybe their kid is studying at home. Okay, so they got to have some extra space. And what this what this changes is the the ratio of bathrooms to bedrooms needed, right? So what you’re going to see here’s another thing investors really need to think of is that the ratio of bathrooms to bedrooms is no longer the same with this new world in which we live. Here’s what I mean by that. Before that three bedroom house or maybe a four bedroom house like the one we’re going to talk about next. Needs more bathrooms because it’s got more occupants more people sleeping in it. And now you can have less people in the house, fewer people in that house, so you don’t need more bathrooms as much what you need as an extra bedroom for a home office or maybe a home gym because exercise equipment. People are working out at home. Things are changing.
Okay. I just I just have to say something about number of bathrooms real quick because we have two and a half bathrooms. And my union lady. Yeah, we have clean my cleaning ladies are social distancing. And so now I have to clean the bathroom. I wish I had one bathroom, right? Yeah.
Jason Hartman 20:23
Yeah, it’s funny. I’ve I’ve wondered, you know, my housekeeper comes every week. And I was kind of thinking of paying her to stay home. She’s coming last couple weeks, and we’re both super uptight about everything. And you know, she’s disinfecting everything, but I don’t know, maybe one of us has it. I’m just gonna give it to the other, you know, so.
Oh, yeah, I got a text message just saying that, you know, they’re protecting themselves and they’re not coming
Jason Hartman 20:47
to understand because if they come, they can’t collect unemployment. So you know, it’s an incentive to work now. Great, wonderful. Hashtag moral hazard. Okay, so let’s talk about this next one. This is in the longest running market we’ve been in Indianapolis Now think about it. You could live in New York City or some downtown somewhere in the country. Or you could live in a nice suburban area in a place like Indianapolis or any of our other markets. You’ll find at Jason Hartman calm slash properties. And after the lockdowns go away, there’s going to be a mass migration to the suburbs. Mark my words on that people want to live in lower density environments where they can socially distance. So this 115 hundred square feet for 120 to nine, with 25% down. You need about $37,000 to acquire the property. It’s only 82 bucks per square foot. And is this one rented or is that rent projected, Sarah?
This is projected rent of 1150 and it’s an adorable all brick a single story home in Anderson which is a suburb of Indianapolis.
Jason Hartman 21:58
Great good stuff. Rent 1150 are almost at the 1%. They’re very close cash flow projected it positive to 59 per month, or 30 $100 per year. Gosh, you got a 9% cash on cash projection, and the performance has 33% return on investment. Remember, all of our performance have our assumptions in there one month vacancy per year, management fees, maintenance expenses, just go to Jason Hartman comm slash properties. And you can see all these numbers in great detail. You know, in fact, I’ve never counted them. But how many numbers are on this page? You know, how many? I really don’t know. There’s only you would wonder that Yeah, we need to count that through all these years. I’ve never I’ve never counted that. But there’s a lot of analysis deep analysis on these properties. You can see those all on our website. All right. Um, okay. Oh, we wanted to clarify a comment I made you know, I’m famous for sticking my foot in my So I told you last week, I believe it was. I said, if you are a newbie investor, don’t do anything right now. Just wait, okay, things are changing so fast. You might only have to wait two or three weeks and then we’ll tell you if it’s time to enter the waters and get your first property or two. clarification. Okay. clarification on that remark. The assumption in the saying that was a new investor only has 25 or $50,000. Right? Some new investors come to us and they’ve never invested in income properties before and they’ve got, you know, a million dollars. Okay. So let me clarify the comment. We just don’t want you investing in this environment. If you are stretching, okay to invest, if you want to buy two properties, and you say, Look, I’ve got $60,000 so I can buy two from you and That’s all you’ve got. don’t invest right now. Okay? It’s not the time for you just just wait, just be patient, okay and watch things. But if you’ve got $300,000 to invest or you know, $600,000 to invest, and you want to get in the game, go right ahead. It’s fine for you to do that. We just don’t want anybody stretching and you know, just scraping the last penny to buy properties right now. Okay, because there are I
had, I had somebody the other day who, you know, had about that much. Well, I’ve had a few people. And they said, Well, I want to allocate five to 700,000 for real estate, and I want to put the rest in the stock market and I’m thinking, catching the falling knife. Yeah, I can hear your voice in my head over and over again. I’m like, I wouldn’t do that the real estate, you know, good, but I don’t know about the stock market. The important thing and I’ve been telling investors this for years, don’t over leveraged keep a good cash reserve. You’ve always recommended 4% of the entire portfolio value, I’ve gone a step further and I recommend on your primary residence that you should have 12 months of your your mortgage payments. Now I know you think that I’m super conservative, but I come from a totally different walk than you do. So at the end of the day, it depends on each individual investor, their risk tolerance, you know, do they have a family? Are they single, you know, there’s many factors. So just don’t overextend yourself, you know, you know what you need to survive. You know what your situation is, you know what your liabilities are. Don’t overextend yourself. Don’t buy one too many properties. You think your whole ship?
Jason Hartman 25:32
Yeah, yeah, exactly. Exactly. So good advice. Now I say the minimum should be 4% of the value of the portfolio. So if you’ve got $100,000 property, and that’s all you’ve got $4,000 in the bank, if you’ve got a million dollars worth of properties, and maybe that’s 10 $100,000 properties, that means 40,000 in the bank, that’s the minimum, but you know, and feel free to go over that. Just don’t go too far though. Because remember, when that money’s not in the market. It’s not working for you. It’s definitely getting attacked by taxes and inflation always when it’s in the bank. Okay, so, you know, just strike your own balance what you feel comfortable with, and I think you’ll be in good shape. Alright, Sarah, thanks for joining us today. I’m glad stuff and anything else before we don’t
know, I appreciate you having me on reach out with any questions or concerns anytime and we’re here to help.
Jason Hartman 26:25
All right, folks, and I guess that’s the whole show for today. We were thinking we might have time for a guest but you know what happens when we get to talking? So, we will be back and we’ll have a guest on tomorrow after the intro portion. But if you need us one 800 Hartman or Jason Hartman, calm reach out any of our investment counselors can do a portfolio makeover for you and help you position your assets for pandemic investing. And make sure that you are in a good position in the position of strength as we are living In uncertain times, so until tomorrow, happy investing. Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out the show’s specific website and our general website Hartman. Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice and any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.