036: Jason Hartman on Overcoming Trial and Terror
Jason is no stranger to “trial and terror”; through these trials he has learned the difference between good investments and bad ones. He believes income property is the most reliable monetary investment, but relationships with people are what drives success.
As Founder and CEO of Platinum Properties Investor Network Inc., Mr. Hartman is a business expert. At the young age of 19, Mr. Hartman began his career by earning his real estate license; only a year later he bought his first property. Since then, he has been involved in thousands of real estate transactions and has owned income properties in 11 different states. For 13 years, Mr. Hartman has shared his investment wisdom on his podcast Creating Wealth Show.
Now it’s your turn to listen in and get first-hand coaching on how you can use real estate investments in a unique way that beats conventional investors hands down. When Jason explains exactly how you can take advantage of the current market conditions, you will know what to do when that perfect investment property comes along.
Jason Hartman on Overcoming Trial and Terror
My guest is a business expert who has spent his entire life working with real estate. Besides being involved in several thousand real estate transactions, he has owned income properties in eleven states. His company, Platinum Properties, helps people achieve the American dream of financial freedom. Ladies and gentlemen, meet Mr. Jason Hartman. Welcome to the show, Jason.
Thanks, Mitch. It’s great to be here.
It’s incredible reading your bio because besides the cool stuff you’ve done, I’m enjoying looking at the pictures of you and Britney Spears and Jerry Seinfeld and Richard Branson. You get around.
I try. It’s great to be here. Mitch, I’ve got to just first make a comment. The name of your show is a good one because a lot of entrepreneurs and a lot of sales people are out there thinking that they have to have a million clients, that they have to have 50,000 clients. Depending on your product, depending on your widget, depending on your service, you can make a lot of money and have a very successful business with 500 or 1,000 clients. There is this delusional belief system going around and it’s really promulgated by just the nature of the internet if you will where people are always talking about big numbers and big statistics. A lot of that stuff is just stupid. You think we would have learned from the first dot-com boom and bubble.
I have had many, many businesses over the years. I have arguably, depending on how you look at it, 23 businesses now. Some of them are just property holding companies but those are in essence businesses too. So many people talk about, “Our website got a zillion visitors this month. My podcast got a zillion downloads.” That is just absurd. The thing that counts is engagement. How much is your audience engaging with you? How much are those clients engaging with you? I just want to start by saying stop focusing on the big dumb numbers and stop comparing yourself to all the people out there that are bragging about them. What counts at the end of the day is how much money you’re bringing home. Those numbers matter. It doesn’t matter if your website had 87 million visitors last month unless you’ve really monetized it, unless those visitors are engaged. I don’t care how many Twitter followers you have unless they’re engaged. That’s what counts.
Jason, you couldn’t be more right about this. I’ve actually interviewed a guy who has only had 100 clients in his entire 30-year career. Every one of those clients are life-long friends and have generated millions in income for him every year as well. It’s not necessarily the number. It is the quality. It is the personal connection, as you talked about. More importantly, I think what we are doing today and what we’re doing with this show is we’re just simply here to share what we’ve learned in our journey to help others scale and grow their companies. To that end, Jason, I’d love to hear about how you started. Can you go back to the beginning for me and tell me a little bit about how you got into business?
I feel like I’ve repeated this story so many times. I feel like I’m boring people, but every audience is different. Basically, I grew up poor in Los Angeles, California. I didn’t like being poor very much. I saw an infomercial for a real estate guru when I was sixteen years old. I got very interested in the topic. Fast forward to my first year of college, I was nineteen when I got my real estate license, just to learn the trade. What I really wanted to do, was to be a real estate investor. Everybody wants to skip the hard stuff and the basics, and just go right to the main thing. I wasn’t any different than that. I basically got into real estate while going to school. I was just doing it part time. I had some clients, made some money. One of my clients came to me and wanted me to list one of his properties for sale. I was a ripe old twenty years old now at this point. I told him I didn’t want to sell the property for him, I wanted to buy it from him. I bought the property from him. That was my first income property at age twenty.
Since then, I’ve owned lots and lots of properties. I still own lots and lots of properties. I have one big apartment complex, another good-sized mobile home park, a smaller apartment building, several single-family homes. My main company basically helps people acquire income properties nationwide in markets that make sense. Very conservative investment strategy, the slow build but very, very reliable versus most system we hear in our culture that is the instant gratification quick buck, ‘your ship is coming in.’ Most of that stuff is just dishonest and it doesn’t work. That’s basically my story. I was in traditional real estate for many years. I had a traditional real estate company I eventually bought. I sold it to Coldwell Banker. For the past thirteen, fourteen years, I’ve been in the investment only side of the real estate business, just because I think income property is the most historically proven asset class in the entire world.
To go back to what we were saying earlier in the title of your show, we only have maybe a couple or a few thousand clients. We don’t have that many clients when you compare us to some of these other companies or customers, but we do very well. Our clients are very engaged, they buy multiple properties over and over, they keep coming back. That’s what really counts. It’s very deceiving to get focused on this large number statistical stuff. The comparison game and the bragging game, it’s just really not meaningful.
Like so many people, you had this desire to be involved in real estate. I bought income property when I was basically just getting started. I ended up having a couple of multi-family buildings in Boston as well. There was a point in time when my interest went into the software industry and I sold my properties to finance, the growth of my software company as part of that. Others who’ve tried have failed. What do you think the failure points have been for those people who’ve tried to get into this type of business but simply, for some reason, didn’t make it?
What type of business?
Real estate investing.
As an investor, basically there are a lot of traps. One of the things I did many years ago is I outlined my core philosophy and summed it up in what I call the 10 Commandments of Successful Investing. That’s just a good outline for people that can really help them. It would be very hard to make a mistake following the 10 Commandments. Just to share maybe a couple of them, one that resonates with people very, very deeply is commandment number three that says, “Thou shalt maintain control.” What that means is that most people, when they’re investing or in business as well because business of course is an investment too, they will relinquish control to somebody else. The vast majority of people relinquish control to what entity? Wall Street, of course. They give their life savings to a guy wearing a nice suit at Merrill Lynch who hasn’t gotten rich following his own plan. Wall Street is of course full of scandals from Bernie Madoff to Enron, WorldCom, Global Crossing, MF Global, all the rest. They make the mistake of believing in resumes. If you believe in a resume, you couldn’t have two people with better resumes than Jon Corzine at MF Global who ripped a lot of people off and Bernie Madoff who was the founder and president of NASDAQ. He had all sorts of feathers in his cap and almost became the SCC chair, just so you know. People believe in this resume power and it is a mistake. What you’ve got to do is unlearn yourself and exert control and do what makes sense.
The three major problems people leave themselves susceptible to when they don’t follow commandment number three, “Thou shalt maintain control,” are number one, they might be investing with a crook. I talked about the crooks. We’re all familiar with the Wall Street scandals. Number two, you might be investing with an idiot. Either way, a crook or an idiot will lose your money. Say they invest with someone who’s honest and confident, the third problem is they take a huge management fee off the top for managing the deal. What we say is be a direct investor. Only invest in things that you directly own and control. With income property, for example, you decide what to buy, where to buy, when to buy, how to structure the financing, who to rent it to, when to refinance it, when to sell it, when to do 1031 tax deferred exchange. It’s your thing and you’re in control of it. It amazes me that people work so hard for money, they will literally sacrifice their life, and then they’ll just give it away to somebody else and relinquish control. That’s a huge mistake. That’s commandment number three.
Another one is commandment number five, “Thou shalt not gamble.” I’m applying this specifically to income property, the most historically proven asset class in the world. Any investment though should yield cashflow. If it doesn’t produce an income, it’s not an investment. It’s just a speculation. It’s just gambling. The way you know something is an investment is whether or not it produces income. If it’s a dividend-paying stock, it produces income. That qualifies as an investment. If it’s a rental property, hopefully if it’s a good one, that produces income. That’s an investment. If it’s vacant land, that doesn’t produce income. That’s a speculation. You’re waiting for something great to happen and it may not happen. If it’s a non-dividend paying stock, that’s a speculation. That’s gambling. Granted sometimes you win on all these things, I get it, but it’s not an investment. It’s okay to be a speculator with a small portion of your wealth, maybe 10% depending on how much money you have. It’s not okay to define your entire strategy with speculation and gambling. I just think being a conservative investor, it must produce income or it’s not an investment, that’s the definition right there. If you buy gold, silver, platinum, palladium, and Bitcoin, what is that? It’s a speculation. It’s gambling. It’s not an investment because it doesn’t produce income. The definition of an investment, according to Jason Hartman, is it produces income.
Makes a lot of sense, Jason. I love what you said and I love the way you said it. I think we have a friend in common. You know Steve Olsher, don’t you?
Steve was lucky enough to buy Liquor.com, the URL, when the internet was just new.
That’s a speculation because he didn’t know it would go way up. What I was going to tell you is that unfortunately, Steve got caught up and made one of the mistakes that you’re talking about. I’m not talking about him in a negative way, but to use as illustration because he had some slick people who came along and told him that they were going to take his beautiful piece of property and turn it into a lot of money, which in fact they ran it to the ground and almost crash it.
The property meaning the domain name?
I’ve made all the mistakes too. How do you think I came up with the 10 Commandments? I wasn’t born knowing this stuff. I learned it through trial and terror.
Anybody who’s in business has to acquire what we now call wisdom, which is coming from the mistakes we make. Clearly, in listening to you speak, you’ve been through it all. You’ve seen it all. You talked about commandment three and you talked a little bit about commandment five, I’d like to see what other commandments you have as they apply not just to income property but to any business.
They don’t apply to every business. They are definitely geared toward income property because I just think income property is the best investment out there. Businesses that you work in and you’re actively involved in, even if they do produce income aren’t really investments in the same sense. I should actually expand my definition of an investment to say that it’s something that doesn’t require extremely active participation. This is a good point. This is covering some new ground. I don’t have a commandment for this but maybe I should have one. I actually released another ten, so there are twenty now. Maybe there should be 21. I don’t believe that there is any such thing as a passive investment and I don’t believe that there is any such thing as passive income. That is BS. People talk about this internet business is passive income. So far, even our friend Tim Ferriss, the author of The 4-Hour Workweek, he works a lot more than four hours a week. There’s nothing wrong with Tim, I’m just pointing that out.
Nothing stays passive for very long because the world is moving all around you. You don’t set up a website and it just works forever and produces this passive income for you. It just doesn’t happen that way. What happens is you work very hard to get to a plateau and then maybe you step back and it works for a little while. Then Google changes the search algorithm and then you work again and try to get your business back and your search rankings back. That’s just an example. It could be anything, a competitor comes in with another product, whatever. There’s no such thing as a passive investment or passive business. You’ve got to pay attention to everything, even a bank account. You shouldn’t have to work every day in it. A business is something that really consumes you. That’s all right. Just understand that you should have investments outside of your business because you shouldn’t have all your eggs in one basket like that. Businesses are very volatile. Income property is very stable. That’s certainly one thing.
Another one that I talk about a lot is, “Thou shalt diversify.” Diversification is a much maligned and misunderstood concept. If you go to a financial planner, they’ll give you the pie chart, it’s really pretty, it’s colorful, it’s a modern portfolio theory, it’s small cap-large cap, international, bonds, fixed income. Nobody has any original ideas in that industry, I don’t think. That’s what they do. Diversification, understand, in most cases perpetuates wealth. It does not create. With income property, I think you can take a nice middle ground here when it comes to diversification. You can take the most historically proven asset class in the world income real estate but then you can diversify geographically to reduce risk.
There’s an old saying in real estate that all real estate is local. It blows my mind every time I’m watching TV or read this in the media. If I’m watching TV I want to throw a brick at the TV because you have some idiotic talking head on there that is talking about how the housing market is doing this or that, or the real estate market is doing this or that. They’re referring to the entire United States of America. This giant country with 320 million people and not one real estate market but about 400 local real estate markets. In a little tiny country like the European country of Luxemburg, you have a national real estate market because it’s a tiny country. In the United States, there is no such thing. You have about 400 local markets and they have very different characters.
That’s fascinating in the sense that we all know that. We all live in local markets and we all understand that every market is different. In fact, you could get in your car and drive for twenty minutes in most cases and be in at least two, maybe more, separate markets when it comes to real estate. This is stuff, Jason, that you acquired later as you increased your ability to understand your market and grow your company and your investment portfolio. When things first started, how did you find this stuff out? Where did this come from?
I learned it through trial and terror, as I mentioned before. I was a local real estate broker and investor in Orange County, California. I had a company in Irvine. Before that, I worked for RE/MAX. I was very successful as an agent. I always invested locally. What I realized is I was actually never a real estate investor all that time. I was a speculator. Many times, I won as a speculator. I got lucky, not brilliant, just lucky mostly. My timing was good. I bought a property that violated commandment number five that did not make sense the day I bought it, that was gambling and I won. That happened to me a bunch of times. It could have easily gone the other way.
What happened is when I was selling my company at the Coldwell Banker, I was more conservative by that time. I was older. I realized how hard I had worked and I didn’t want to have to earn it all again. I started looking at the real estate business from a national perspective rather than a local one. I started reading tons of book. You know all those places where you’d read in almanacs, the best places to live, the best places to retire, the best college towns, the best small towns, the best large towns, and the best urban areas? I read all those books. When I get interested in something, I dive deep and I get really compulsive about it. It may not be necessarily a good habit but that’s the way I am. I get very immersed in it. I got really interested in this topic for a couple of years. I thought, “What am I going to do with the proceeds from the sale of the company?” I had gone through a couple of cycles in Southern California and I didn’t want to do it again. I just thought this is too risky. After researching and reading and surfing the internet, countless hours doing that, I traveled to some of these different markets around the country. I went to all the major Texas cities. I went to the major Georgia cities and even one of the minor cities in Georgia. I went a whole bunch of places, Tennessee, Indiana, just a lot of places. I really started learning geography. I went to South Carolina, North Carolina, Florida and everywhere.
What I found is that it was so hard to do this myself. The realtors were just stupid. They didn’t know anything about investing most of them. I couldn’t get phone calls returned. I couldn’t get emails returned, at least not quickly. They wouldn’t line up the right properties. It was just so unbelievably difficult. I basically created the business I’m in now to be my own client. That’s where it came from, just typical entrepreneur story. I saw a need. I thought other people must be interested in this. I’m interested in it. I think other people would be too. I basically created a financial services firm for real estate investors. I’m in the same business today thirteen years later.
Tell me how that works. You’re a financial services firm, which means that you’re handling the money side when you work with the clients.
If you’ve got a $1 million or $100,000 or $25,000, whatever the number is, why is that you can go to Merrill Lynch and they can put you in a bunch of crappy investments? Stocks, bonds, mutual funds, you have all these choices, 7,000 stocks or whatever, all these different funds at one place. Why is it that you can do that? Yet with real estate back then, the way you would buy it is you would probably just live in your house and you’d be getting post cards in the mail and notepads hung on your door by the local realtor that farmed your neighborhood and you’d say, “Local realtor, I want to buy a rental property.” They’d take you around the neighborhood and say, “This is a good one.” You’d say, ” I guess so.” It may not be the right time in the market cycle for that market. It may not be the right market at all. It may not be the right price range. It may not be the right type of property segment. Certainly, even if you lived in the best market and were investing in the best market at the right time, if you just so happen to live there, then the next problem is that even if you did, you wouldn’t be diversifying. You’ve got to diversify into at least three markets but not more than five. That’s part of my commandment on diversification; at least three, not more than five. If you’re going to own nine houses, buy three in each of three different markets and make sure they are good, solid, conservative markets where the properties make sense the day you buy them, commandment number five.
It makes a lot of sense and it’s very straightforward too. This is very informative to me because I buy real estate through other people. I put money into real estate investments through other people. We do something very similar but on a much smaller scale of course. What I’d like to hear more about is you say that you’ve created a financial services firm for real estate investors. Describe how that works.
People learn about real estate investing usually on my podcast. It’s called The Creating Wealth Show. I’ve been doing the podcast for thirteen years now. When I started podcasting, nobody even knew what a podcast was. I’ve got listeners in 164 countries. There go those big numbers again but really that’s not the thing. I don’t really have this ginormous audience like some podcasters love to brag about, but way more money than a lot of them. That’s the key, having engaged audience and be able to actually offer something to them. Basically, we do three things. We educate, we offer properties that they can actually buy through our referral network and then we offer on-going support in software. I also own a software company that I acquired two years ago with a client of ours. This software can help you evaluate and track your real estate investments.
I may have mentioned that I’ve been a software company founder and grew that and sold my company. Using software and applying it in the right way is enormous productivity gains. Someone would come to you first to learn and they do that through your podcast. Then at that point, you would help them select properties in different locations.
I have investment counselors that work for me. They help the clients analyze their risk tolerance, their time horizon, their investment goals. They actually match clients up based on personality. Admittedly, that’s not empirical. It takes a human touch. They match them up with the right sellers of properties and the right markets based to some extent on how they view the client’s interest and temperament. That’s what they do.
If somebody is interested in maybe starting with some real estate investments from scratch, they’ve never invested in real estate before and they wanted to get educated, do you have a specific podcast or a specific website they can go to?
Yes, JasonHartman.com. In 27 minutes, they can watch a free video on the front page of JasonHartman.com. If you do nothing else, that will tell you how to analyze a real estate deal. Maybe it will save you hundreds of thousands or maybe millions of dollars. It’s basically all of my mistakes that I’ve made over the years and the things I’ve done right, because I’ve certainly made a lot of money in real estate. I don’t want to act like I haven’t. I’ve done very well with real estate investments. They’re basically summed up in that 27-minute video and it’s totally free. Just go to JasonHartman.com and you can get that. Listen to The Creating Wealth podcast. You can just type my name in iTunes or Stitcher radio or whatever podcast platform. It’s all there for you. I always say it’s an amazing time to be alive. One of the great things about the world today is you don’t have to spend a bunch of money for education. You certainly don’t need to go to college and spend $200,000 and have student loan debt all your life. Borrowing the college debate, there’s a lot of shysters out there offering massively overpriced education programs and usually they have no experience themselves or very little. All of our education stuff that I’ve mentioned is free, so just take advantage of it and see if it makes sense to you. Reach out to us through the website and one of our investment counselors will be happy to help you.
Even MIT to this day has incredible engineering courses online that you can download and take for free. Fortunately, we’re finally at the point where some of the large companies like Google, for example, are not requiring college degrees anymore. That’s changing. Admittedly, it’s a slow change but the trend is in the right direction. College is a scam. I love education. I’m a life-long learner. I just think college has become massively disgustingly overpriced. They’re giving people degrees and things they can’t jobs in and student loan debt is the only type of financing that is not dischargeable in bankruptcy. They have literally created a generation of debt slaves, of debt that can never be discharged to the tune of $1.2 trillion. It’s insane.
On the flipside of that, these people basically have a mortgage but they don’t have a house to go with it. What they’re going to be doing for many years is they’re going to be renting. Serve that audience, Gen Y, the largest demographic cohort in American history. 80 million people strong, marrying at the slowest pace at the latest age in all history of the country at least. I’m not talking about every culture on earth here, but in the US. They’ve got this massive amount of debt. They love mobility and the sharing economy. They’re renters. Let them rent from you. The demographics coming at the rental real estate market for the next decade are nothing short of phenomenal. It is a tsunami. It is a tidal wave. Get in the game. It’s the slow very reliable method. You’re not going to make $1,000 your first month. That’s all for the infomercial shysters. This does work and it’s just a really nice reliable investment opportunity.
That’s great advice, Jason. I hope people will take Jason for his word. This is a man with incredible experience. Jason, I have two questions for you before I let you go. The first question is a fantasy type of a question. Who, in all of space and time, would you like to have one hour to enjoy a walk in the park, a quick lunch or an intense conversation with?
Nikola Tesla. I’m now on my second Tesla car and it’s a piece of junk. I hate it. Nikola Tesla and Elon Musk have nothing to do with each other. I just wanted to clarify that. The first one was okay. It wasn’t great. The second one sucks. Tesla is terrible. I am so disappointed. I can’t even tell you. It’s $117,000 rip-off. The car has so many problems and they just deny, deny, deny. We are going on a tangent. Don’t buy a Tesla.
Don’t buy a Tesla but study Nikola Tesla’s life because he was an amazing individual.
He didn’t get credit and that’s why I said that because Edison got all the credit. I think it’s really too bad.
There are things that he invented that are just now coming to light.
He was an incredible inventor.
Second question, and really this is the grand finale. I call it the change the world question. I want to ask it to you this way: What is it that you were doing or would like to do that truly has the potential to literally change the world?
I’ve got a little startup I’m working on. Of course, my real estate business is awesome. I’ve got a startup called FreeCourt.com and that is an online dispute resolution platform. If I play my cards right, that really could be a world changer, a huge disruptive business. The big hairy audacious goal, as Verne Harnish likes to say, for that one would be that it basically decentralizes the global legal system. How’s that for a big goal?
They used to call that disintermediation, remember that word?
Yeah. That’s on a huge scale. FreeCourt.com, the website is up. I started a podcast around it. I started interviewing lots of legal scholars. The website is just about to launch in terms of the functionality of it. A basic website with some content is up there now.
That’s absolutely incredible. That is a change the world mission. I wish you the most success with it. Everybody who’s listening, why not go there and check it out. This sounds like an incredible project.
That could be a game changer. I obviously need help to do it. It’s definitely a passion project. I just want to get the website up there, see if I can get some celebrity and lawyers to endorse it, and go from there. That’s where we are on that one.
Jason Hartman, you’ve been so generous. Thank you so much for sharing your wisdom. Thank you for taking the time to help others. That’s what I believe is my mission and it sounds like it’s your mission too.
Thank you, Mitch. Happy investing to you and your listeners.
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