Brad Weimert: Jason Hartman, I appreciate you showing up today. It’s great to see you, man.
Jason Hartman: Hey, Brad, it’s great to be here. We’ve been talking about getting together to do a show for a while, so here we are.
Brad Weimert: Yes, yes, we get real-life FaceTime, but this is the first time we’re getting to record something. So, I appreciate you carving out the time.
Jason Hartman: Absolutely. Well, looking forward to it.
Brad Weimert: So, you are a real estate guy. And I want to talk a little bit about real estate and sort of asset protection investment and all sorts of fun stuff because you have, I think, a unique angle in that space when you’re both investing and teaching about investing. Before we get to that, can you give me a little backdrop on kind of how you got into business and how you started down that path in the first place?
Jason Hartman: Yeah, sure. So, super fast, I mean, I grew up in Los Angeles, California. I was poor growing up. I didn’t like being poor very much. By the time ninth grade rolled around, I realized that all the cutest girls in junior high school were hanging out with rich guys. So, I wanted to be in that group.
Brad Weimert: In L.A., no way.
Jason Hartman: Yeah, I know. Imagine that, Los Angeles, not a shallow place at all. And so, I saw an infomercial about a year later, but I got really interested in business. And about a year later, I saw an infomercial. I was, I think, 16 years old at the time. And it was for Robert Allen. And he was talking about how he was buying real estate with nothing down and all this kind of stuff. And so, I got his book. I read three chapters of it. I put it down, I got bored with it, and my mom picked it up and she read the whole thing, got really interested in the topic.
And about two years later, I was about to graduate from high school. And I’m in Long Beach at this time, just south of L.A. And my mom says, “Hey, there’s a big real estate seminar by Disneyland this weekend. Why don’t you go? You got me interested in this stuff, and why don’t you go check it out?” So, I round up nine of my buddies from high school and get them all to come to the seminar. And it’s one of those sort of pitch fest seminars where there’s lots of speakers and they’re all pitching, at that time, books and tapes, and long before software and that kind of stuff.
And so, I didn’t understand what they were talking about, but I stayed the whole weekend and I saw all the speakers, my friends all went to the beach the next day. But I was motivated. And so, I enrolled in Century 21 real estate school the following week just so I could understand the basics of what they were talking about. I didn’t know what points were, for example, or anything. And then I got my real estate license my first year of college at Long Beach City College, and I started selling real estate part-time for Century 21 while I was going to college. And I did really well, really quickly as a real estate salesperson.
And I started working with investors, selling HUD and VA repos, these really terrible houses with boards on the window and really bad neighborhoods. But I had some first-time buyers as clients, a lot of Hispanic buyers, people that were just trying to get in the game. And then I had some investors who were interested and that was always my first love, investing in real estate. That’s why I got interested in it.
And about six months into my career as a real estate salesperson, one of my clients, his name was Jim Wall, I sold him a few properties driving around in my Volkswagen Jetta, and he said, “Jason, I really don’t like this one property very much. Why don’t you list it for me and I’ll buy something else from you?” And I said, “Jim, I don’t want to list it for you. I want to buy it from you.” And so, I bought that property from my client about six months into my career, I was 20 years old. And that was my first rental property. I still lived at home, but I had a rental property and it all really went from there.
Brad Weimert: Crazy. So, I mean, there are a lot of things that are interesting. The first for any new people in business is you took a bunch of steps that almost nobody takes, which are, first of all, you’re a high school kid and you rally nine people to come with you in high school.
Jason Hartman: Well, I couldn’t do anything alone at that age.
Brad Weimert: That’s amazing. And then you stuck it out. But I think, this is applicable to people way down the path in business, too, which is that if you don’t understand something, a lot of people eject right away. And they’re like, “Look, I’m so far behind the curve here that I’m not going to invest the time to understand the lexicon to even get there.” And that was the first thing that you go head first into, so I applaud you for that. That’s amazing. And it’s a good lesson for people. What’s confusing to me is you had who you presumably respected as an investor tell you that they didn’t want the house and then you were like, “Oh, I’ll buy it.” Did you find out why they didn’t want the house?
Jason Hartman: It was a one-bedroom condo. And one bedrooms aren’t the most ideal rental property. You really want a three-bedroom, two-bath. And he bought it from me and I bought it back from him about six months later. And it turned out to be okay, but there was another big lesson in the first property experience. I mean, I looked like a little kid, I had a baby face. At this age, I like that, but back then, it was definitely a disadvantage because no one would respect you.
And so, I would knock on the door, try to collect the rent from these tenants, young couple that was there. And they just knew they could just take advantage of me and they stopped paying. So, I ultimately had to evict them. My first experience as an investor was I had to evict a tenant, they trashed the house. And most people would have just given up then and they would have been perfectly justified to say, “Hey, this real estate investing thing, it’s not all it’s cracked up to be. I’m going to give up.” But I got the house fixed up after they moved out and another real estate broker-investor approached me and he wanted to buy it from me. He needed to do a 1031 exchange, so I sold it to him. I did make a profit on the sale, although I lost money on the rents and the eviction. But I did make a profit.
And then I bought my second property, which was a condo in Irvine, California, that I actually moved into. That was my moving out from the house. So, I never rented. I instantly bought my first property to live in, a little two-bedroom, two-bath condo in Irvine. And then I invested, did many investments over the years, made a ton of money in real estate investing. It is the most historically proven asset class in the entire world. You probably can’t hit home runs with any other. I’m going to call that an investment class. Now, you can do it in your own business, but your own business is orders of magnitude more difficult. You’ve got to have real skills and massive tenacity and ideally some startup capital for your own business.
But your own business is probably the highest return on investment potential, but it also has the highest failure rate. As far as investing though, single-family homes, income property, that is without a doubt the most historically proven asset class in the entire world, and also the largest expense any of us have in our lives are usually almost always taxes. And it’s the most tax favored asset class in America with really, really good tax benefits.
Brad Weimert: Yeah, huge. And I want to talk about some of those, but I want to talk about kind of the transition to business because Easy Pay Direct, I mean, we’ve worked with thousands of people that sell companies that sell information on how to invest in real estate or how to make money some other way. A lot of those companies make all their money teaching how to make money. And the differentiator– and by the way, some of those products aren’t bad. Some of those products are great. And they invested at one point in time and then they just leaned heavily into teaching because there’s so much money in it.
But I think the path is always interesting to listen, to learn from and hear about. So, how long before you started Empowered Investor and, I guess, there were probably other companies before that. But before you started teaching real estate investment, how long were you investing and what kind of stuff did you do? Was it all single-family home? Or was it something else?
Jason Hartman: Yeah. So, basically, I worked at Century 21 for a while, continued to sell real estate, did quite well with it. And my big secret of success, by the way, in real estate sales at the beginning was drum roll for this one but working, like that was my secret to success. I mean, it was shocking to me, Brad, how many people in my little real estate office, they kind of fooled themselves into thinking they were working by showing up at the office, chit-chatting with people, complaining about management. They weren’t working. I am going to go wash the car. I got to get ready for a showing appointment. It’s just unbelievable how so many people just don’t succeed at any endeavor and they just aren’t really working.
I mean, later, I worked for RE/MAX for years. At age 24, I was number 59 in the world for RE/MAX at a very young age. So, I did really well. And then I bought my own company in Southern California. And I thought I could duplicate myself. I thought every agent would be like me and they’d be motivated and long as I could teach them right and all that kind of stuff. And they just weren’t.
Brad Weimert: It’s adorable.
Jason Hartman: Yeah, I call it like the country club career real estate. It’s like going to a country club and hanging out and not really working. So, I later sold that company to Coldwell Banker, and then I got back into the investor only side of the business. And for the past 18 years or so, I’ve been in the teaching investors side of the business to kind of answer your question.
Now, there are certainly a lot of fakers out there. There are a lot of people who are teaching stuff they’ve never done or they have one experience with it and then suddenly, they’re a guru, right? So, I have a massive amount of experience in actually doing deals. I’ve owned properties in 11 states, 17 cities all over the country. Basically, through my companies, we’ve brokered almost 10,000 transactions now. So, I have a massive amount of experience.
But here’s the thing about the teaching and the info product and thought leadership business versus being an investor, right? Number one is you can’t blame people for getting into the teaching business too much because I used to be able to say that I made just as much money investing in real estate as I did helping other people buy real estate. But I can’t say that anymore because the teaching is so much more scalable than doing deals yourself. You can do deals, but they do suck up some time, right? And teaching is a one-to-many type of platform, which you know all too well because those are your clients.
So, it is more scalable and you can make a lot of money doing it. But what should you do with all that money you make? You should invest in real estate. So, you’ve got full circle there and you’ve still got the best asset class, right?
Brad Weimert: Yeah, I love that. I think it’s a really, really relevant thing to highlight is the leverage that is in the information product space versus real estate. So, the velocity of transactions and info when you’re selling air and you’re selling content is able to be so much higher than the velocity of real estate transactions. And you can only do so many real estate transactions. And by the way, if you are a super high producer doing dozens or hundreds of transactions in a year, there’s a lot of money and a lot of leverage that has to be there, right? There’s risk inherent in that, too.
Jason Hartman: Right. But I do want to say, though, the real estate investment itself offers more leverage than any other investment, and leverage, obviously, through the debt, but also, think about this for a moment. Are you an iPhone or an Android person?
Brad Weimert: iPhone.
Jason Hartman: iPhone, okay. So, take Apple, right? Apple is the most successful company the human race has ever known. And every year, they come out with a new $1,500 phone. And if you look at how much money Apple is able to get, how much share of income of someone’s income they’re able to get, I mean, maybe you get a new phone every couple of years, maybe you get a new laptop every couple of years. You buy some other devices, an iPad, some ear things, whatever, AirPods. Maybe on average, someone, who’s got a few bucks, they’re spending $1,500, $2,000 a year with Apple. And that’s the most successful company the world has ever known.
But think about as a real estate investor, how much share of income you get from your tenants? I mean, talk about leverage. The first 12 to 15 days of every month, your tenants are working for you. You’re getting 33% to 40% share of income. Apple can’t do that. Apple’s not even close to that, right? If someone makes $70,000 a year and they spend $2,000 with Apple or $1,000 with Apple every year on average, I mean, they’re going to spend way more than that on their housing.
And you get to use the bank’s money to acquire the asset, about 75%, 80% of it. And then you get someone else to pay the debt. That’s a massive amount of leverage. And then you get tax benefits, inflation-induced debt destruction. I mean, there’s tons of leverage in the real estate asset. So, that’s why I like it. And I think that’s why everybody likes it so much. You can’t do that with stocks, bonds, mutual funds, crypto, precious metals, anything else. Nothing else has the unique multidimensional characteristics of a real estate investment, specifically in income property investment.
Brad Weimert: I love that frame. You used a term that I want you to explain, which is inflation-induced debt destruction. Is that the phrase you just used?
Jason Hartman: That’s it, yeah. I know it’s a mouthful. So, this is a strategy I trademarked many, many years ago, and I’ve been teaching it for almost 20 years. And it is one of the incredible characteristics of real estate because basically, think of it like this. When you buy a property and you get a mortgage on that property, you get financing to buy it, you’re essentially doing what all the Wall Street tycoons do.
So, back in the ‘80s, a strategy on Wall Street became very popular. And it’s still popular. It’s called the LBO or leveraged buyout. Okay. And basically, what these Wall Street tycoons, you’ve all heard of T. Boone Pickens, Carl Icahn, all the rest, right? There’s a whole bunch of them and all the private equity people. Basically, their strategy of the LBO is this, and it’s a killer strategy, it’s a home run strategy. They basically find a company they want to acquire and then they load that company up with debt. And they use the debt to purchase the company. And then they make the company pay the debt back that they used to purchase the company. And so, that’s called…
Brad Weimert: When you say they load them up with debt, can you give me an example?
Jason Hartman: Well, if they’re buying ABC Corporation and ABC Corporation’s worth $100 million, they all go raise debt. They all basically make ABC Corporation raise the debt, right? And then they will tell ABC Corporation to pay the debt back out of its own income. So, this is what’s called self-liquidating debt. And income property has this exact same characteristic. It’s incredible.
So, I would say I hate debt if I have to pay it myself. But if I can outsource the responsibility of that debt repayment to someone called a tenant, I love debt, right? But it’s better than that because, say, for example, someone listening or watching this, they go to their favorite website, JasonHartman.com. That’s my website. And they go and they look on the properties page and they identify three or four properties they want to buy. And so, they talk with one of our investment counselors. The investment counselors help them buy the properties and, say, they spend $1.2 million to buy these four properties for example, single-family homes, diverse markets, good linear markets around the country that we’d recommend. And they borrow $1 million to finance the purchase.
So, today, $1 million is worth $1 million. But in the future, because it’s extremely likely there will be inflation, inflation destroys the value of savings, stocks, bonds, and thankfully, debt. So, we borrow the debt at today’s value, which is $1 million in that example. But in five years, $1 million will probably only be worth, I don’t know, $900,000 or $850,000, or maybe only $800,000 or $750,000, depending on how bad inflation is. So, each of those dollars that we borrowed is now worth less. And we get to pay them back over time at a lower value. This is called inflation-induced debt destruction. I know it’s a mouthful, but this is an incredible characteristic that very few people understand.
Most people, Brad, when they buy a property, they think, okay, I’m going to buy low and I’m going to sell high. That’s my whole strategy, right? And they love that appreciation they get. But there is a hidden benefit. Like the iceberg, most of it’s below the surface of the water. And that benefit is that they’re actually paying the debt back in cheaper dollars. Well, they’re not even paying. The tenants are paying the debt. And so, the monthly payment is debased by inflation, so it gets lighter and cheaper to pay over time. And the balance of the loans gets cheaper and lighter to pay over time with inflation.
And the asset itself, the real estate, that’s a commodity. I mean, I’m in my house, right? Behind me is a wall. And that wall is made up of lumber, drywall. Inside it, there are copper wires. Below me is concrete. In front of me is glass and steel. And all of these commodities are hedged to inflation. They’re indexed to it. So, when we have inflation, the value of the property goes up and all those, what I call packaged commodities that are the ingredients of the house – petroleum products, energy, labor, etc., all those things I mentioned. And those go up. Well, the value of the debt goes down. So, this is an incredible set of characteristics that really nobody has access to these multidimensional characteristics like they do with income property.
Brad Weimert: Yeah, most people don’t think about that. I love that. I love that concept. So, while we’re on real estate and it being a good investment tool, why single-family homes? Are you stuck in that asset class? And I want to talk about a couple of other things here, too, because you diversify geographically. And I’m terrified of that proposition. So, I’m very geographically fixated on areas that I know thoroughly and ideally, I’m present in. So, let’s start with single-family home, and you can take it where you want, but why that versus others? And do you play another spaces?
Jason Hartman: Yeah, I do. I mean, I’ve owned some big apartment complexes myself. We’ve sold some apartments to some of our clients over the years, or I should say they purchased them through our referral network. I own a mobile home park currently. I’m okay with other assets, but for the vast majority of people, the humble single-family home is the best asset class. It’s got the best financing, it’s got the best tax benefits, better than the commercial properties. And it is something that you can buy as an investor, but you have two different ways to sell it. You can sell it to another investor or you can sell it to an owner occupant, and it appreciates the best. It’s just the best asset class of all of them.
The downfall of it is that it doesn’t scale as well if you have a lot of money to invest, although we have clients that purchased hundreds of homes through our networks over the years. And you know, the big institutional investors are now buying tens of thousands of single-family homes, well, hundreds of thousands altogether, maybe millions. So, it can scale. It’s not quite as easy to scale as buying one apartment complex, right?
But one apartment complex, number one, multifamily is experiencing some real pain right now because it’s oversupplied where single-family, there’s a shortage. So, those are at opposite ends of the spectrum. But even in the multifamily space, in a few years, that’ll probably work itself out. I mean, overall, I’m bullish on housing in general, whether it be multifamily or single-family. But single-family has the best characteristics and it’s the most accessible for most people. You don’t have to be a rocket scientist to figure it out, and you can scale it in a big, big way if you want to. So, it’s my favorite.
Brad Weimert: Yeah, I think that it’s also understandable, right? So, everybody lives in a residence, so everybody has some intimate connection with just the basics. When you talk about getting into mobile homes, apartments, and then you can introduce all sorts of different types of commercial – retail, warehouse, hotel, etc.
Jason Hartman: You can make money in anything. Look, I mean, there’s lots of ways to make money in different real estate assets. I’m just saying, for me, I think the single-family is far and away the best for the vast majority of people.
Brad Weimert: Yeah. Where I was going with that was the operational overhead. So, you, Jason Hartman, as a business person and an investor, how do you think about introducing a new asset class knowing that there’s going to be additional operational overhead? Do you step and then run it? Do you hire a management company to run it when you do something like the mobile home park? How do you approach introducing a new asset class? Even though it is inside of real estate, which is your wheelhouse, it’s still a new thing and totally different operational structure.
Jason Hartman: Yeah. So, this kind of ties in with your prior question that we didn’t talk about yet, too. For my single-family homes, we certainly vet and recommend property managers. However, our biggest recommendation is what we call hybrid self-management. And Brad, if people told me I could do this 15 years ago until I was proven that I could do it really quite easily, that you could manage a single-family home or a portfolio of them remotely, I would have said you’re crazy. But it’s really quite easy. And we provide all the tools that help people do that and all the education.
So, we recommend people self-manage their properties. It actually takes less time than managing a manager. But that’s a rabbit hole that takes a little while to go down. With another type of asset class, like, for example, my mobile home park, so I have an onsite manager that manages that, but myself and my client that I partnered with on that deal, we manage the overall park remotely. Neither of us live near that park, but we manage it. We just have an onsite person who does day-to-day type stuff.
Brad Weimert: When you say you manage the overarching, what elements are you managing?
Jason Hartman: Well, the bookkeeping aspect, the decision making for bigger decisions, things like that. I mean, it’s 120 units, so.
Brad Weimert: That’s not a small mobile home park and they are managing the tenants.
Jason Hartman: Yeah, it’s not the biggest, but it’s not the smallest. Yeah.
Brad Weimert: There are a lot of tiny ones out there. So, they’re managing the tenant relationships. And mobile home parks are interesting because there are kind of two different models, right? You can rent the pads and people can come in and out with their mobile home parks, even though there is a cost of that and there is a huge transition. Or you can rent the actual units. You can own the mobile homes and rent the units.
Jason Hartman: Most investors don’t want the park-owned homes, mostly. They just like to rent the pads.
Brad Weimert: And why is that?
Jason Hartman: It’s just easier. And you can make money running the pad. In fact, there is a book called Deals on wheels by Lonnie Scruggs, which made famous the idea of Lonnie deals. So, if someone is listening to this and doesn’t really have much money and they want to get started in the real estate game, buying a mobile home and renting it out or turning it into a lease option or rent-to-own deal is a pretty good strategy for someone who’s a beginner who just doesn’t have any capital. Because to buy a single-family home through our network, you’re really going to need a bare minimum, about $30,000, $40,000. And to get a better one, you’re going to need more, right? 20% to 25% down. And so, with very little capital, the Lonnie deals is an interesting strategy.
Brad Weimert: What’s the construct of a Lonnie deal? Because I’ve heard of a Lonnie deal, but I don’t know what it is.
Jason Hartman: Yeah, basically, it’s this idea of buying a cheap mobile home for very little money and then putting a tenant buyer into that home. And there are different laws in different states. So, you’ve got to know what you’re doing, obviously. And basically, selling to them on a rent-to-own type of arrangement. I mean, look, you’re not going to make much money with this. It’s a very small deal. But I just mention it because sometimes there’s someone listening who doesn’t really have much money at all to get started, and it is a way to get started.
Brad Weimert: Good entry point. Okay, so the other question that I asked that I want to hear about and want to know some of the nuts and bolts on are, you mentioned earlier that you have own properties and I think you said 11 states and 17 cities. You’ve mentioned a couple of different asset classes. That is a mildly terrifying proposition for me. Mostly because I’m a control freak, but also because real estate is so geographically specific. If you’re off by a couple of blocks, it can be the difference between a great asset and a very difficult to manage asset. So, can you tell me your mental approach and then also tactically how you do that and why it makes sense?
Jason Hartman: Yeah, sure. So, basically, the reason I got into this business is that 20 years ago, well, I was in negotiations to sell my traditional real estate company in Southern California to Coldwell Banker. And that deal took about a year to negotiate. So, it was like a one-year deal. And I knew that I was kind of thinking as I was doing that deal, negotiating that deal, I was thinking about, “What’s going to be my next step?” I could just retire. I didn’t need any more money. I had made a lot of money. But retirement, as you could probably tell from listening to me is just not of interest. I like business too much.
At some point, mostly, you get to the point where it’s just a game, right? And it’s just challenging and interesting and stimulating. And you’re not doing it for money after a while, hopefully. And so, I thought, I want to start buying properties nationwide because my whole life was in Southern California and I had gone through a couple of recessions and I thought, “I don’t want to have all my eggs in one basket. I’m a little older now. I want to diversify, be a little more conservative, and I want to buy inexpensive properties that have really good rent-to-value ratios.” You couldn’t get those in California. California’s just overpriced. So, nothing works in California.
But there are a lot of less expensive, what we call linear markets around the country where you can get very good deals. So, this idea of I’ve got to live near my property was really fixed pretty well for me when I had a property that I lived near. I had this property in Irvine, California. And I turned it into a rental property. I had lived there for a little while, turned it into a rental property. And I had this tenant that had rented it for three years, three and a half years, something like that. And the tenants said they were moving.
And I went over to inspect the house after they were out. And I realized, even though this house is 10 minutes from my office and maybe 15 minutes from my house where I live, I hadn’t been there in over three years. So, it didn’t matter if it was here or 2,000 miles away. What’s the difference? And the problem with having a property near you is it pollutes your mind and makes you a bad investor. It usually turns you into a handyman where you’re going to start going over and dealing with the property yourself. And that’s no longer investing. It’s being a property manager or it’s being a handyman. It’s doing things you shouldn’t be doing if you’re an investor. A true investor is arm’s length. And I have many properties that I’ve never seen tenants I’ve never met, that I have purchased and sold and owned for six years and never went to the property, never met any of the tenants, worked out great. So, there are tools nowadays that we provide for people, for our investors that make it very easy to be a remote control investor.
Brad Weimert: Okay. So, these are really good points. And definitely, technology has gotten better to be able to do some of that stuff. And you’re right. I have properties in town. I actually just went to a property that I have in town that I haven’t been to in a year, and I only went because it happens to be empty. And I was like, “Now, I should, I don’t know, go look at it,” which there was no reason to. I just had a friend in town and I thought we would go do it. But what I don’t know and what I’d like to get a little clarity on is how you assess these things and how you’re confident in the– and we don’t have to go super deep on this, but what are the bullets for making sure that you don’t misfire on buying a property, buy in the wrong area, etc., etc.?
Jason Hartman: Yeah, well, the first thing is buy through our group, through our referral network because this is what we do. We’ve been in this business with different companies and so forth for like 20 years almost. And you can’t. Oh, I guess that’s the origin story. I didn’t tell you I was leading up to that before. I tried to do this myself and I was flying around the country. I was researching markets and I just wanted to buy some of my own properties as I was exiting my other company. I knew I was going to have a ton of money that I had to deploy. And it was so difficult, Brad, I mean, I was talking to these random one-off realtors and sellers and trying to research markets and I just couldn’t do this myself. And I thought, there are probably a lot of other people like me that would like to be nationwide investors. So, they’re diversified. So, they have all the advantages of being in the better markets.
And if I need this and I find it hard to do this myself, why don’t I just create a whole business and provide this service for other people? So, I was basically my own first client when I got into this industry of, we’ll call it real estate investor referral network industry. I was the first client and I kind of just figured out how to do this successfully. I mean, look, we’re still figuring that out every single day, of course. That’s why I got into this business because I just thought there’d be other people that needed this same problem I had solved. And that’s the way a lot of businesses start.
Brad Weimert: So, though what I heard there, one answer to that question of how do you vet properties remotely where you don’t really know the area is buy from somebody that’s already vetted it.
Jason Hartman: Yeah, yeah. So, basically, what we do is we sign bulk referral agreements with different sellers in different markets that we like, right? And so, we’ve helped many other clients go into those markets. And so, that’s what happens when we get another client that wants to go into that market. We have a track record in that market. We have lots of experience with our teams on the ground, our boots on the ground, and with that market. And we like to say we are area agnostic. So, when a market stops working, we stop recommending it and we just go to another market, which is one of the benefits of not having a physical office in that city or in that neighborhood because we have no cost of leaving. We can just move around and do what makes sense.
Now, what makes sense for a new buyer is not necessarily what makes sense for someone who bought a year ago because someone who bought a year ago has already got a stabilized property. It’s probably performing great and they just stay put and keep running their property. And we help them and support them for a lifetime, basically. But a new buyer may not have as much luck going into that market anymore because things do change. It’s very dynamic.
Brad Weimert: For sure. So, let’s shift and talk about that business because we’ve got, I think, a number of interesting stories behind this. But you did a bunch of investing, you sold a brokerage, had a bunch of money to deploy, moved into investment. And at some point…
Jason Hartman: I mean, I was already investing. It was just all in Southern California before that.
Brad Weimert: Got it. And at some point, that evolved into or, like, was the conduit for educating people around it. So, how did the education business start? Did you start with a network is a tough thing to build, right? That’s generally, to get that network effect where you have two sides for the transaction, it’s not a simple thing to do and a lot– so how did that happen?
Jason Hartman: The nice thing is I started in this industry of the investor, the real estate investor industry in Orange County where I was based, where I was already a pretty famous local realtor, okay? And I already had lots of clients and they were in that Southern California market and they thought the same thing I did. It’s too expensive. Nothing works. You can’t make the numbers work on expensive rental properties. They’ve got to be entry-level houses.
So, basically, I just started hosting little seminars at my office in Newport Beach, California, and that’s one of the offices, I had a couple of them, the Coldwell Banker didn’t buy because they had just purchased another company there. So, I still have that lease for another couple of years. So, I just kept it and used it for my investor business. And I started hosting these seminars and then I started a radio show that turned into a podcast. And my podcast is now one of the oldest real estate investing podcasts out there. It’s been running for, what, 18, 19 years even now, back since nobody knew what a podcast was.
Brad Weimert: So, it sounds like the launch of the information product company wasn’t really a launch of an information product company. It was sort of an extension of investing in real estate and connecting with other investors.
Jason Hartman: Yeah, yeah. I mean, it was always an information company or an information business in the sense that we were teaching people things, right? We just weren’t doing it en masse until later.
Brad Weimert: How long did you go before you leaned heavy into that? Because we know each other from the largest real estate investor education mastermind. And I mean, it’s basically every real estate educator in the country as a part of the mastermind. So, it’s a huge industry and there’s a ton of money to be made there. When did you say, “Hey, you know what? I’m doubling down on the info product company and leaning in heavy there”?
Jason Hartman: So, I started podcasting in 2005. And so, yeah, I know it was very early and nobody knew what a podcast was, hardly anybody was listening back then. And it all kind of grew out of that, I’d say, that one-to-many type of teaching.
Brad Weimert: Got it. So, where I want to take us here is as you grew this, eventually you ran into a rather significant challenge with a competitor. Can you give me an idea of, and I’d love to hear the story, but can you give me an idea of size and scope of your company at the time and lead us into that?
Jason Hartman: Yeah. So, myself, personally, and two of my companies were attacked by a competitor who was trying to gain market share by stealing our market share. And basically, they were posting all sorts of falsities online and telling lies about me and emailing my vendors and interfering in those relationships. So, we took them to court and, unfortunately, it was so delayed because of COVID and the trial kept getting postponed and it kept costing us more and more money to wait and just do nothing before we could actually get to court.
So, we finally got to court and we went to federal court in Fort Lauderdale, Florida. I live in Palm Beach, Florida now. And after an eight-day jury trial, the jurors deliberated for about a day over this case and they awarded me and two of my companies a $56 million jury award against six different defendants that were basically trying to destroy my business and destroy my life. Brad, it was so incredible. They actually hired a marketing agency, a digital marketing agency to ruin my reputation. I mean…
Brad Weimert: Wow.
Jason Hartman: You’ve got to give these people credit. They scaled up. And it was very tough for me. It was very depressing because I had never had any client complaints, never been sued by a client in almost 10,000 deals. That’s like unheard of. I mean, real estate is a very litigious industry, people get sued all the time. I’ve never been sued by a client. And we just really take care of our people and we provide them with service and answers and assistance forever.
And so, they were trying to say we were just bad apples and we’re doing all kinds of bad things. And so, they were telling all these lies and we didn’t know who they were. They were doing it anonymously. And so, we had to hire cyber investigators. And let me just say something to people, if you think you can go online and be anonymous, think again. It’s really not that easy to do that because there are little breadcrumbs that are always left behind. And so, these people left breadcrumbs behind. We finally found out who they are and we named them in the lawsuit. And they denied it, denied it, but then we proved it. And so, we finally got them to be accountable.
Brad Weimert: How was it six different parties doing this? Was it six competitors?
Jason Hartman: Well, there was the digital marketing agency and the digital marketing agency’s owner. There was the company that was trying to gain market share, which was a man, his wife, and the company. So, that’s three parties. And then the digital marketing agency and the owner is two more parties. And then there was an employee that also was found liable in the lawsuit and she was helping them do this, all of this stuff. And actually, during the case as we were litigating it, we actually offered her a way out. We said, “Look, if you just cooperate with us and give us information, it’ll reduce our expense and we’ll release you from the case.” And she wouldn’t do it. I mean, it was such a good offer. We were just going to let her off the hook if she would just tell us what happened behind the scenes. But she didn’t.
So, now, she has part of this $56 million judgment that, by the way, it was later reduced because the court found some of the items in the judgment from the jury what they called duplicative. And so, they later reduced the award to just over $30 million, which still isn’t bad, obviously. But she’s now liable for part of that, I think, $32 million judgment.
Brad Weimert: Wild. So, well, I want to ask a lot of questions around this. But the first is, would you have done anything differently earlier on to help protect against this, preempt it, tackle it faster? What are the lessons you got from the onset?
Jason Hartman: Oh, God, there’s a million lessons and we don’t have time to go into all of them. But I’ll tell you, one of the things people need to do is have an online presence because if you don’t have an online presence, and I know probably everybody listening has one to some degree, but you want to have a big one, right? Because when you don’t have one, it’s a vacuum and all the negative stuff is going to show up right away at the top of the list. But if you have an online presence, your older online presence will help knock down the lies and the stories and the negativity. So, that’s one thing I would definitely learn.
Also, keep your vendor relationships to yourself on the down low because that’s what this competitor attacked. They knew who a lot of our vendors were and they would send them these false emails with these lies. And it did ruin some of our relationships. So, this definitely cost us money. I mean, now we got a big judgment, we’re going to collect on, at least some of it. So, hopefully, we’ll get some of that back.
Brad Weimert: And for context, a vendor for your business is what kind of company?
Jason Hartman: Well, all kinds of vendors. I mean, any company has lots of different vendors but our referral partners, whatever, there’s many vendors.
Brad Weimert: Yeah, but I think that those are relevant considerations because some things, in different businesses, some of those vendors are more public than others. Some would be considered IP, stuff that nobody would know otherwise. And some are going to be public and you can track down. So, like, what ones do you think, when you say keep your vendors close and don’t disclose them?
Jason Hartman: Any of them. I mean, it depends what kind of business you’re in. I mean, you can share them with your friends and refer people around but don’t paste them on your website, for example. And we didn’t do that, by the way. I’m just making a general comment for the benefit of the listeners and viewers.
Brad Weimert: Yeah, I think that’s relevant. So, you mentioned you’re going to collect some of it. So, once you have a judgment like this, what is the path to collection? You got two companies and a bunch of individuals.
Jason Hartman: Yeah, it’s an extremely– litigation is a very high burden and it’s a very expensive thing. And I think these folks thought I wouldn’t follow through. But if there’s one thing I am, it’s persistent and I’m also idealistic. So, I’ll keep going and I’ll keep devoting resources and whether they’d be money or time, to something I believe is just cause. And so, I did follow through. It cost about $1 million to do all of this. And it took a ton of time, probably a couple thousand hours of my own time. So, yeah, you’ve got to do that.
Part of being in business, once you get successful is, if you don’t hold bad players accountable, they’re just going to take advantage of the next guy. And I think that’s part of our duty, is to keep our industry clean and to help the next person. I love it when people say, maybe someone rips them off, for example, which happens all the time, right? Of course, you got to pick your battles. But someone rips them off and they’re like, “Oh, I don’t care. I just let it go.” Well, that may be great for you, but that’s kind of selfish if you think about it. It’s like that person, now that they’ve never been held accountable, they’re just going to go screw over the next person. I mean, help the next person. That’s kind of the point of doing this. That’s an act of contribution to the community. It’s charity work. I mean, it’s a giving thing.
Imagine if law enforcement just let every bad guy go because they didn’t want to deal with it, it’s too much hassle to go catch the bad guys, I mean, what kind of world would we live in? It’d be a disaster. So, in a civil sense, since you don’t have criminal law behind you, helping you with this stuff, you’ve got to hold bad players accountable. It’s our burden. It’s incumbent upon us to do that, to just make the world a better place.
Brad Weimert: I know you’re pressed for time here. Before we wrap, when we were talking earlier, we were talking about tax strategy and we are recording in November of 2023. I am an active real estate professional and buy commercial, which gives me cost segregation benefits. And I’ve done several episodes in that.
Jason Hartman: Yeah, we do cost seg on residential properties.
Brad Weimert: Oh, okay, so I want to talk about this. So, this is something that’s been a heavy part of my investment strategy and tax strategy over the years. In 2023, the benefit of that has been reduced from 100% to 80% and will continue to get reduced until presidential change, probably. But tell me today what good tax strategies are. If you want to talk about residential cost seg or whatever else, what’s a good strategy for somebody that’s making, let’s say, several hundred grand a year or a million plus a year? What are the advanced tax strategies that you’re leaning to?
Jason Hartman: So, there are many. Income property is the most tax favored asset class in America, but one of them is the– and it’s really the best of all, and it is depreciation because depreciation is a phantom write-off or a non-cash write-off. And you’ve got to qualify for this depreciation. Now, of course, I’m not a tax expert, I’m not an attorney, I’m not a CPA. So, check with the appropriate professional, of course, that’s my disclaimer.
But one of the great things is, is that if you can qualify for all of these benefits, when you look at purchasing a property, most people think of that as a singular thing. It’s really two things. It’s the land and it’s the improvement, the house or the apartments sitting on the land. I don’t know why that does that. That’s an AI.
Brad Weimert: That’s hilarious.
Jason Hartman: I got to figure out how to turn that off. It also does this, like when you do a thumbs up, it does a thumbs up too.
Brad Weimert: For those just listening, we just had a series of balloons. Don’t go across Jason’s screen. We’re being attacked by AI.
Jason Hartman: Yeah, the AI overlords are taking over. You can’t turn this stuff off. I don’t know how to turn it off, anyway.
Brad Weimert: I love it.
Jason Hartman: So, when you buy a property, you’re buying these two components. Okay. And the IRS treats the two components differently. The land, the IRS just does not allow you to depreciate it because it will always be there. But the structure sitting on the land, the IRS allows you to depreciate it if it’s residential over 27.5 years, if it’s commercial over 39 years. So, the residential property has a 25% better tax benefit. I alluded to that earlier.
And essentially, you can make money on the property. You can have positive cash flow. It could be going up in value. But the IRS, and because of all the lobbyists that have lobbied Congress over the years, they’ll let you treat it as though you’re losing money. It’s a beautiful thing because most tax benefits, if you want a tax write-off, you’ve got to write a check or spend some money. This one, you don’t have to spend any money. You could be making money and you get the write-off. It’s a phantom write-off or a non-cash write-off. So, it’s an incredible thing. And there are many other tax benefits as well. But depreciation is the Holy Grail, and you have that with income property.
Brad Weimert: I want to poke on that a little bit, so.
Jason Hartman: And Brad, I do need to run to jump to my next appointment, so I apologize, but…
Brad Weimert: Oh, got it. Okay, well, then I won’t poke on it. Where do you want to point people if they want to find out more about depreciation or real estate investing, Jason Hartman?
Jason Hartman: Yeah. So, my website is JasonHartman.com. That’s my main website. And then, you can find my podcast on any podcast network, just look for Jason Hartman. And that’s H-A-R-T-M-A-N. And also on YouTube, just look up Jason Hartman and you’ll find me.
Brad Weimert: I love it. Jason, always good to see you, man. I appreciate you carving out time.
Jason Hartman: All right. Hey, thanks, Brad. And sorry, I have to jump, but it’s great talking to you.
Brad Weimert: No sweat.
