Lessons from one of the industry's leading experts (Jason Hartman)

welcome to short-term rental riches we'll discuss investing in real estate but with a specific focus on short-term rentals quick actionable items to acquire manage and scale your portfolio I'm your host Tim Hubbard welcome back everyone to the short terminal riches podcast everybody could talk about invest in real estate but with a specific focus on short-term rentals and a big part of investing is making sure we know the fundamentals and today we have a great guest with us someone that I've been following for a long time

and that's Jason Hartman welcome to the podcast Jason hey Tim it's great to be here we're we're excited to have you uh you've got a lot of just industry wisdom and you've been investing in real estate for a long time do you mind just giving our audience just a quick uh elevator pitch snippet about some of your background sure yeah um I I've uh it's it's been really my only major career in life uh I got my real estate license when I was 19 years old

in my first year of college and uh I bought my first property actually from a client about six months into my career uh and uh so I was 20 years old owning a rental property while still living at home so it's kind of kind of did it backwards from the way most people do it and um then I was in the traditional brokerage industry for years I was one of the top Re Max agents in the world uh I um I had purchased a lot of

rental properties over those years and then I purchased a real estate company uh and I ran that for eight years turned it around it was a failing company turned it around sold it to Coldwell Banker and as I was negotiating this like one year long deal with Coldwell Banker uh I started another business uh which was the business of helping investors buy property is Nationwide and I'm still in that same business and in working with investors has always really been my first love so uh now

my businesses work with 100 Real Estate Investors uh we help them buy properties and build portfolios Nationwide we don't work with anybody who just wants to buy like a house for themselves uh you know it's it's a hundred percent investor business and uh in doing that we analyze different markets around the country we've looked at International markets so far we have not been that tempted to dive into them although you know it's always something to consider uh and um uh mostly our clients are buying long-term

Buy and Hold rental properties uh we have dabbled in the short-term rental market but it's never been our main thing and and you know of course you know this from listening to our podcast uh but um just so your audience knows too yeah and that's that's kind of the summary I also have a software company called real State Tools which helps people evaluate real estate deals and then manage them on an ongoing basis well you do you just have a ton of experience Jason and software

we talk about software all the time on this podcast because it's a big part of helping us manage properties remotely I know something that's something that you encourage as well even with the long-term rentals so before we talk about short-term rentals I mean short-term rentals are real estate and and so they're totally related and you have a unique way of breaking down real estate markets into to three cyclical linear and hybrid and um do you mind explaining that just a little bit for our audience yeah

absolutely so uh I will go ahead and just share my screen for those watching on video if not we'll just explain what we're seeing here but uh you know in a country as large and diverse as the United States there are almost 400 metropolitan areas there are over 30 100 counties and there are over 9 000 cities so it's a big country and uh it drives me crazy when I hear people talk about the housing market or the real estate market is if it's like one

thing you know I don't know where the housing market or the real estate market is if it's in Miami or LA or Seattle or Memphis or uh you know uh or Boston or what right the fact is all real estate is local and around the world it's the same thing so what I'll share right now is a way for people to break down the entire country and the entire world into three basic types of markets because these three types of markets do act differently and uh

well one is going poorly the other might be going very well and it can really surprise you so uh just to understand things the three types of markets are really important and the first type is the linear Market these are the markets we like to invest in they're pretty boring they're characterized if you're looking at a chart or a graph of appreciation levels over time they're pretty slow and steady they're pretty boring nothing too exciting happens and for this reason they don't really make a lot

of headlines they don't get in the news very much but they're characterized by lower prices lower land values and good cash flow and they also many times tend to be right wing leaning political markets why is that important why would I even mention that well it's important because in a right-leaning political environment landlords have more rights and tenants are expected to fill their contracts whereas if you're looking at a left-leaning environment like California or pretty much the whole west coast of the United States or the

northeastern markets then tenants have the upper hand and if they don't pay rent and you have to evict them it's very difficult to do so so we like to invest in markets that are friendly to our cause as landlords and also markets that perform very well the second type of Market is the cyclical market now these are the markets if you're looking at a chart of appreciation over the time they look like a roller coaster Big Ups big Downs absolutely crazy these are the markets that

get all the attention they're newsworthy they're the high-flying markets I grew up in Los Angeles California that is most definitely a cyclical Market they're much more expensive and they tend to have very bad cash flow and they tend to be left leaning politically so they're not landlord favorable markets and then the third type is the hybrid Market which as the name would imply it's just in between the two okay so let's go over some examples of these and we've got a chart up on the screen

here that shows Memphis this is a market that I've invested in for many years you have property there as well and this is a very linear boring market like nothing too exciting happens in Memphis okay ever since Elvis died I guess right so um it's just slow and steady it's got good cash flow large renter population it's the logistics Capital the U.S it's got Federal Express there and another example would be Indianapolis this is a market we've been involved in for many many years slow steady

boring good cash flow I've owned a lot of properties here over the years um great Market not too exciting except for the Indianapolis 500 okay but here is a cyclical Market this is where I grew up Los Angeles California and you see on the chart here the appreciation and depreciation is all over the board it looks like a you know it looks like a roller coaster yeah and uh so UPS down pounds and what happens in these markets is if you get lucky or if you're

somehow some timing genius and can time the market you can really hit a home run in terms of appreciation but it can also go very badly for you if you get it wrong and it is very hard to predict those appreciation and depreciation Cycles so for our investors and for my personal portfolio I like things that I can just invest in put my money on it and let it ride and create wealth over time that's what investing is it's not speculation it's not gambling it's a

pretty conservative approach and uh and it's very reliable so that's why I like it right right yeah awesome explanation and something I've Incorporated in my own personal investment philosophy in fact I I sort of so first of all short-term rentals exist in all these three different Market types right oh of course and they sort of have some there there's some other fundamentals with short-term rentals right there's we need to know why people are going to stay there and so people are visiting all these cities a

lot of times when people think about short-term rentals they think of the Los Angeles they think of the Miami they think of Seattle and they don't think of the places like Memphis and Indianapolis but those are sizable cities that have lots of people visiting and one of the things that I found interesting is that you can invest in these linear markets in properties that make sense as long-term rentals but they can also make sense as short-term rentals yeah they think they both so if if really

bad I mean I mean first thing people cut out is vacation right because that's very much optional so they'll tend not to spend money on that if money is tight if we're in a recession and um you know in in a in a linear Market you'll pretty much always be able to turn that property into long-term rental and and the numbers will be pretty good uh whereas in Los Angeles you're not going to be able to do that in a cyclical Market yeah by the way

I should give your listeners uh examples around the world of cyclical markets yeah so uh in the US they're pretty much the whole west coast of the US from from San Diego to Seattle and everything in between is pretty much cyclical um the expense of Northeastern markets Washington DC New York Boston cyclical right expensive markets um where I live I live in Palm Beach Florida and just south of me is Miami so uh Miami Florida would be a very much a cyclical Market however Florida has

gotten a special pass because during the covet era everybody really fell in love with our government here and our governor uh DeSantis uh so um a lot of people have moved to Florida the other thing that characterizes linear versus cyclical markets is that linear markets tend to be much more business friendly whereas uh cyclical markets tend to be business unfriendly so businesses are leaving those markets and they're going to the linear markets in most cases most of Florida's linear or hybrid but it has changed a

bit because of all the migration uh after the coveted lockdowns ended um uh around the world though let's think about cyclical markets okay around the world just think of all the trophy markets think of London Paris Dubai Hong Kong cyclical markets okay very expensive trophy cities that everyone's talking about paying attention to uh but most of the country in the U.S and most of the world is a linear Market okay the vast majority of real estate is in linear markets uh whether it be in the

U.S or around the world so that's just important to understand um the the famous cities tend to be cyclical yeah yeah another thing that's interesting too is these cyclical markets like you said a lot of times they're less landlord-friendly I'm from California myself as well originally and one of the things when it relates to short-term rentals is that a lot of times these less landlord-friendly markets are also more strict with short-term rentals uh yeah I just found out that's true and so we have people moving

to more affordable places that also happen to be a little more landlord friendly one thing Jason and I we see these lists all the time like best markets to invest in and especially those lists are so amateurish you know they totally I I always read those things and they're just so shallow it's on you know the media does not understand investing don't expect to look at a list and get the idea or listen to a sound bite on CNBC I mean you'll just make so many

mistakes you know it's it's ridiculous but sorry we're gonna no no I agree I mean a lot of times the lists are the exact markets that that you're trying to to turn people away from and with short-term rentals it's like we'll see this list very often for example it says best markets invest in short-term rentals Miami Los Angeles Seattle and all these places if you look at it they're also that most highly regulated so while they might have the highest average nightly rates it might be

because they're only allowing you know who knows like a thousand properties in that market so the supplies limited so how do you go about sort of deciphering between good and bad data with so many sources out to choose from these things you know look I mean I've been doing this so long that it's just sort of second nature now but I I'd say for people who this is not your main thing and you're not going to spend you know years and years studying it like I

have uh get a good advisor okay uh you know listen to your podcast listen to my podcast uh check out my YouTube channel um you know just look up Jason Hartman and you'll find all our stuff I mean this is what we do we we we go really deep on this stuff so you don't have to right that would be the first thing um but uh just understand that there are a lot of cross currents right like I remember seeing one of those lists years ago

um and this was maybe I don't know 18 years ago I saw some article on um I think it was Yahoo or Money Magazine or one of these completely shallow sources okay and it said uh it said like it was talking about the lowest and highest rents and it said that the lowest rent of of the markets that they surveyed was Oklahoma City and it and the market and the article basically said you wouldn't want to be a landlord in Oklahoma City the place you'd want

to be landlord is Los Angeles because it has the highest rent but what it didn't tell you is it also has the highest prices right what's important is the ratio we call it the RV ratio the rent to Value ratio okay so ideally you want to have your rent to Value ratio somewhere around one percent per month what does that mean if you pay two hundred thousand dollars for a property you want to get about 2 000 a month now it's pretty hard to do that

lately um you know but if you can get 0.8 or 0.9 or even as low as 0.7 you're you're okay all right um but in in Los Angeles you'd be lucky if you get like point four okay uh you know you you'll pay a million dollars for a property you'll get four thousand a month that's point four okay okay so that that's an example and that's why that ratio is so important not to mention the landlord friendliness uh aspect and and all of the other things

right right yeah that's that's one of the things that I've you know I always look at as well is how much money I'm going to give back based on the purchase price and that's one of the reasons I went to short-term rentals but of course short-term rental rents are not as stable as long-term rents their fluctuations like you said when we're in a bad economy people cut out Vacations so how would you say that that short-term rentals are affected by these markets I mean we have

markets like Medellin Colombia for example which is outside of the US and it's being flooded with people because of it's affordable it's being flooded with people from the U.S they can work remotely and so that's been a huge sort of wave especially after covid how do you see that playing into these three different types of markets and maybe as it relates to short-term rentals well uh you know be careful because if people actually end up moving to Medellin like uh you know I I totally noticed

this trend in the post-covered lockdown the first time it happened all the short-term rentals just were fully booked they could command really high rates because what people would do is they would go and live in a short-term rental for a month to go find a house in a new city because they wanted to leave the urban areas and move to the Suburban areas which is by the way I have to Pat myself on the back I predicted this in February of 2020 before anybody was talking

about it I said that would happen and it did uh it's exactly what happened because in high density Urban environments not only are those markets really expensive and if you can work remotely you Arbitrage you geo-arbitrage your high paying job with a low price city to live in right so why would you live in a one-bedroom apartment in New York City and pay you know four well really 4 500 to now maybe six thousand dollars a month for that tiny little apartment versus you could live

in a three bedroom two and a half bath brand new house with a two-car garage and a Suburban Market with a yard you can do the same work from either place right so um one of the things and you've heard me say this I've been saying on my podcast since 2012 is geography is less meaningful than it's ever been in human history geography is less meaningful than it's ever been in human history now look geography still matters it just matters a lot less than before I

mean think about it if you were uh you know living in the olden days uh go back even to caveman days right you needed your cave to be near food and water okay that geography was like really important and um you know over the years that's always been true and that's what caused this Mass migration to urban areas uh in the industrial revolution because that's where the jobs were right geography was very meaningful okay you had to live in a city and then after the in

the sort of the post-industrial Revolution um in the information revolution because people were exchanging ideas they were mostly doing that in person right until the Telecom Revolution came and then they were doing it electronically and digitally uh but what's interesting about it is we have the technology to do what we're doing right now essentially back in the early 2000s yet kovid forced the adoption of it so you know Zoom was there Skype was there right it's not a new technology um you know but people really

weren't forced to adopt it you know there's an old saying necessity is the mother of invention well these things weren't invented because of the necessity they just started to be used more widely and accepted and so now that people can work remotely um they're taking advantage of that and um and so uh that you know long answer but you know you typically rent a place for a month in the city so you'll get a short-term rental and then you'll buy or rent a permanent place so

that changes the demand equation so just be careful of that I would say be mindful of it yeah I think um there's a lot of that you know you know testing out a new market it's just an easy way to do it now with all the short-term rental options myself and a lot of my friends we've kind of been living this lifestyle for a long long time and so for us or for digital Nomads or what you might call the remote worker these days which could

be someone from any level profession you know someone that's backpacking to someone that's making millions of dollars a year uh one thing that we're seeing with short-term rentals is that the average reservation length is continuing to get longer so for air just with Airbnb for example 20 of all of their reservations are for a month or longer and they're still getting longer and so I've sort of seen I like to invest in markets that have the good fundamentals but that also have the most amount of

reasons for someone to want to visit that City for for short-term rental I think that makes it a little less risky but what would you say to someone that's looking to invest in in a market and or what do you think about the idea of maybe the the normal one-year lease and a three night short-terminal stay sort of like merging do you think that that's going to continue merging and well I don't know what you mean by merging but the thing you kind of alluded to

but didn't quite say is midterm rental exactly yes right that's it yeah yeah you know there's there's always been a thing of traveling nurses right and there are websites that cater to this and Airbnb I know does it a little bit too um but this this whole idea of like a midterm rental and I guess that means different things to different people to me it might mean like three months okay uh maybe one to three months I don't know what does it mean to you is

that I would say over 30 days because a lot of times you're not regulated as a short-term rental and pretty much all the cities in in the US if you're over 30 days right yeah uh you know that's another interesting you know I think people have just discovered a newfound freedom and they want to use it they want to just experience some different cultures and different places and uh you know I think that's great so yeah Jason the markets are they're constantly changing we got to

keep an eye out on all the demographics and how people are living and working where people are moving to I think one of the things in today's market that's maybe intimidating people are the prices of properties and everyone thinks properties are really high and now we also have interest rates that are really high but one thing that a lot of people don't consider is inflation and you may be better than anyone explain inflation just really well so you mind breaking that down for us and how

it relates to real estate sure sure so on the screen for those watching on video uh I put up our uh logo for a strategy that I created many years ago called inflation induced debt destruction I actually trademarked this and um uh it's a technique that basically allows people to borrow money at the value of today's dollar but pay it back at the value of tomorrow's dollar and that doesn't just have to be a dollar it can be any currency unit it can be a peso

a Brazilian Real uh a Euro a Yen it doesn't matter right it's just a concept of inflation and this is the hidden wealth Creator uh with income property that is so great now um the U.S has a very special real estate market because of the Fantastic financing after the Great Depression in the 1930s the government was looking for some solutions to pump into the housing market and they created a whole bunch of programs and entities not the least of which is Fannie Mae Freddie Mac so

we have the secondary mortgage Market in the U.S that allows for these beautiful wonderful incredible 30-year fixed-rate loans okay so that's inflation-induced debt destruction but before we go into that in too much detail I want to just explain another aspect of inflation and that is just the more maybe the simpler aspect of negative interest rates so uh basically if you can borrow money at below the rate of inflation you're getting paid to borrow that money right out of the gate okay so you know now inflation

has been really high in the US lately and usually high for for the US World and um at one point it got to about nine percent officially that's the official rate the official rate is determined by by the Consumer Price Index the CPI and that is a complete lie I call it a CP live okay because that's what it is it's manipulated through weighting substitution and hedonic indexing and we don't have time to go into all that but even if you agree with the CPI and

think it's accurate that's fine you know if if inflation is nine percent yet you can get a 30-year fixed rate mortgage at seven percent right there you're getting paid two percent to borrow because you're paying the money back in cheaper dollars and borrowing them at the value of today's dollars so that's a beautiful beautiful thing um but one of the things that happened to millions and millions of people uh throughout the last several decades is they actually implemented this inflation-induced debt destruction strategy uh unknowingly and

it made a lot of people very very wealthy uh so I'm gonna put a chart up on the screen and uh this is going to be pretty mind-blowing to people for those who are are not watching this we'll just explain it to you in audio format but this is a real life example and I'll just go through it super quickly okay um in 1972 one year after Nixon took us off the gold standard uh where dollars were no longer Tethered to any real asset it was

really Fiat money and you hear that term thrown around by gold bugs and Bitcoin people and so forth and and Fiat the word just means by Authority or by decree right that's all it means is you know we tell you a dollar has value so you have to listen to us right that's based basically what it is and um it's about eighteen thousand dollars so if you went and got a mortgage on that house and borrowed uh 80 percent you'd borrow just over fourteen thousand dollars

back then in 1972 the mortgage rate was a just over seven percent and uh that works out to a payment of a hundred and one dollars per month that's what the check says a hundred and one dollars but by the time you have some inflation happen and you fast forward 12 years to 1984 down here that dollar that you borrowed in 1972 is now only worth 40 cents so it's lost a lot of its value to pay your mortgage every month you're still writing a check

that says 101 dollars whoops 101 dollars per month but the value of that check is a lot lower it's only forty one dollars now okay so it feels a lot lighter to write the check for 101 dollars than it did 12 years earlier well that's because of inflation-induced debt destruction and by the end of this loan that dollar from 1972 that you borrowed is now only worth 24 cents so that monthly payment of 101 dollars is now only equivalent to twenty four dollars so it feels

like it's almost free to live there okay now let's just recap what happened here we borrowed just over fourteen thousand dollars we paid back in what's called nominal dollars that means in name only it's still called a dollar it's just the value of it has changed so much um we with interest we borrowed about 36 or we paid back about thirty six thousand nominal dollars but after inflation attacked the value of them they were really only worth sixteen thousand three ninety three so you see how

we got this big inflation discount and after tax benefits and this is estimated because everybody has a different tax bracket obviously we really only paid back twelve thousand six hundred dollars okay so what happened we thought we were borrowing at seven point three seven percent but after inflation our effective interest rate was really 1.06 percent and after tax deductions because the interest on the mortgage is tax deductible we were actually paying a negative interest rate of one negative one point one six percent so we literally

got paid to borrow money this is the hidden wealth creator with income property you know most people think oh uh you know real estate's a great investment because it Hedges inflation um you know I I bought the property for uh x amount of money and then I sold it for more but really that's not what usually happens because uh the appreciation is mostly a result of generalized inflation in the economy what they didn't notice is that they were paying the debt back in cheaper dollars they

got a discount on the debt because of inflation-induced debt destruction and that's the hidden wealth crater that's happening behind the scenes all the time that really really makes income property the greatest thing it doesn't work unless you finance the property though you got to finance it for this to work yeah yeah no I I love that um and that's exactly one of the reasons why it's you know for someone getting into investing and wanting to go internationally just if you're not a citizen of of that

country you pretty much can never take out a loan and so right there is enough reason to to stay in the US and best So yeah thank you for that explanation Jason you're just there's so much that we could talk about um but as we wrap things up here I want to just ask you real quickly you know the name of this podcast is short-term rental riches and a lot of times people associate the word rich just just with Finance but I was wondering if you

have something that's enriched your life or a habit that you have in a lifestyle way that's um enriched your life but not in a financial sense uh well you know I would say lifelong learning I mean I everybody always told me when I was a kid you know that I was so curious about everything and I would just say you know stay curious don't lose that ever uh learning as a lifelong process and it really is very enriching and you know it usually turns into money

okay so um uh you know just just be engaged in things be interested in things I think the people that live the longest and have the best lives are constantly engaged or interested they're they're engaged in life right you know they're always asking questions like why does this happen why does it do that you know um I uh I have a dog so I I tend to walk a lot and uh you know sometimes I'm listening uh to audiobooks and podcasts and so forth but sometimes

I'm not listening to anything and I'll just listen to the birds talking to each other especially in the morning you know and it's just fascinating like these whole conversations they're having you know um and I was kind of woken up to this because I use an app called Voxer a lot to communicate and one of uh the people that worked for me years ago she was in Canada and it was Winter and so it was snowing and I sent her a Voxer message in the morning

and she said oh Jason it's so nice to hear all the birds and I realized I didn't notice the birds and I thought I'm missing out on a whole thing in life here that she noticed because it's winter and she doesn't have any birds right they all flew South and um uh so you know she picked up on that because she didn't have it right I didn't notice it because it was just a normal thing for me and so notice the normal things the little things

in life that are just happening that are just you know there's a lot of meaning in these things and I think people that who study and I'm no big student of it but people who study things like Zen Zen Buddhism are really aware of this these kind of like small things there there's an old book that was really big years ago called chop wood carry water and it's just about you know Finding meaning in just little everyday things in life that most of us just kind

of take for granted you know and I think that's uh that's part of lifelong learning totally and I think traveling helps us do that a lot of times too we go to an environment that's totally different we recognize things sure that maybe we didn't recognize before so well Jason I really appreciate your time I'd love to have you back on in the future I know there's a ton of wisdom in this episode that's really going to help our audience to make better investment decisions with their

real estate Investments hopefully have more time to to learn and do the things they want to do so how can people find you get more information follow you yeah so my main podcast is called the creating wealth show and you can just look up Jason Hartman that's j-a-s-o-n-h-a-r-t-m-a-n on any podcast platform or on YouTube I've got a lot of great videos on you YouTube almost 2 000 podcast episodes is the data at the date of this recording on my main show and I even have some

other podcasts as well uh and uh so uh you know just follow the work there go to our website jasonhartman.com and get on our you know sign up on any web form there get on our newsletter list we send out some great emails with some really interesting articles and uh you know it this is all free stuff that's available to you so um just check it out I have a lot more strategies I teach that you know we don't have time to talk about but uh

they're all there for uh for the taking so check it out well we'll make sure to get uh all your information all your links and our show notes and uh again thanks for coming on and we hope to have you again in the future all right my pleasure happy investing to everyone I'm dedicated years figuring out how to manage my personal portfolio remotely and it wasn't always easy and it took a long time but now my amazing team can professionally manage my properties without me and

good news our team can also manage yours let us save you the stress and headaches and some money by offering you an industry low fee find out more about partnering with us head to striches.com hit the property management button answer a couple quick questions and meet with me personally that's stritches.com rest easy knowing that with my team your properties will be in excellent hands