1192: Rent Increases, Investing in a Depression & Devastating Impact of Population Declines

Thanks for your support, Jason. I appreciate yours and Carrie's support and your whole network. It's really been very beneficial to me and a whole lot of others. I encourage everyone to use your resources that you have. But thanks, Jason.

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you you ever thought possible. Jason is a genuine self made multi millionaire who's actually been there and done it. He's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your Financial Independence Day. You really can do it. And now here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome to episode 1192. 1192. Thank you so much for joining us today. We've got a bunch of different things to talk to you about and one of our blogcast coming up. I've got Adam here with me. How you doing Adam?

I'm doing great. How are you today?

Good, good. I hope you did something nice for your mom yesterday.

Oh yeah, took the kids, played some Uno with her, gave her a gift. It was a good time.

Good stuff, good stuff. And don't forget your wife because she's a mom too.

Oh yeah, she got to sleep in until 10. We made her a big breakfast. I took the kids away to my parents house so she could have the afternoon to herself. She was happy.

Very good. Good deal. You won on both counts. It sounds like. Well, happy Mother's Day to all the moms out there. What do we have on tap for today? We got a bunch of things. Where do you want to start?

Why don't we start with this Fox article from Chicago where they USC released a study saying that rents are rising faster than incomes.

Oh, imagine that. Do you mean to say that people, in real terms, if you subtract technology from the equation, people are actually getting poorer, the standard of living is declining. Hey, this is pretty common when it comes to big assets like real estate and housing expense. The percentage of housing expense to income has dramatically increased over the last several decades. If you think about it back in the Leave it to Beaver era, in the 50s for example, you had one income and houses were smaller, admittedly in the baby boom housing development generation, but the land was a lot larger And I always think of it back to. I don't know why I think of this as an example, but I used to live in Long Beach, California and I always think of a neighboring city. For some odd reason when I think of this era, I guess maybe because of architecture, I think of Lakewood, California. I don't know why it always comes to my mind whenever I talk about this topic. And I think of the typical 1000 square foot post World War II baby boomer home on a quarter acre lot. Now, almost nobody listening has a quarter acre lot nowadays, but all of them listening probably have a house that's more than a thousand square feet and they're probably using two incomes to pay for that house or something. Because it's just interesting, you know, this stuff is very hard to track. It's mixed. Right. It's not simple, it's complicated.

Yeah. And the interesting thing about the results is it actually makes cities like San Francisco and D.C. more affordable technically because those places actually have seen rising incomes as opposed to a lot of other cities where they haven't seen the rising incomes. So the burden of your rent to your actual income is better than a lot of the smaller towns.

It's a lower burden is what you're saying.

Yeah. So you're only paying 25% of your income as opposed to other cities where you're paying 35 or 40. But then it also shows if you're looking at that incomes are dropping, then the housing affordability of locals, essentially not investors, but local people looking to buy homes, then your competition as a real estate investor has dropped, which helps you out.

Right. There are all these different angles and you can slice and dice this stuff. But you know, the most interesting question that they didn't discuss in the article is they didn't discuss the. The thing that we always try and point out is how you can't hear the dogs that don't bark. And the compared to what question? Because interestingly, renting in the sort of first tier cities, if you will, where we don't like investing is actually still a very good deal. Even though it's gotten a little bit more out of sync with income, it's still better than owning because if you compare it to the price of ownership in any of those cities, you still fare much better as a renter. Again, the double arbitrage of renting a high end home for oneself. And it doesn't, I don't mean extremely high end. The metric I've mostly used is if the Property is under $250,000 in value, it's almost always better to own it than it is to rent it as the occupant. Right. If you're looking for a place for yourself, so under 200, buy the house, live in it. If it's over 250 in value, rent the house and then buy a lot of cheaper houses and rent them to other people. And then you get the double arbitrage, which is great. But rattle off some of the city's profiles in the article, if you would, Adam.

One of the ones that they talked about the least affordable, some of them include San Diego, Los Angeles, Riverside, San Bernardino and Sacramento. And the most affordable ones included Atlanta, Salt Lake City, Vegas and Phoenix. And it also mentions that the affordability in places, some places that are like San Francisco and Washington, D.C. are better than the national average as well.

Yeah, interesting. So nothing terribly surprising on that list. Salt Lake City surprises me a little bit, I guess, but nothing terribly surprising, you know. And when you talk about that affordability question, you're talking about how the rents have increased faster than incomes have increased, right?

Yeah, it's just, you know, when you divide the rent into the income, you know, what percentage are you getting? And they're finding that San Francisco and D.C. are actually better than you would think. Since 2000, they say the median annual income for renters actually declined by two and a half percent while the rental payments went up by 17%. So you got that disparity. And I would think in places like San Francisco and D.C. your annual income has remained roughly even or even gone up a little bit.

Yeah. So this is another ratio that I've mentioned years ago. It's the RTI ratio, the rent to income ratio.

And it's something to consider for, from the perspective of your tenants, of course, the RTI ratio, and then also for yourself, because everybody listening needs a home in which to live for themselves. And so if you are in the cities where the RTI ratio is favorable to tenants, usually where the more expensive real estate, then be a tenant, just do the deal where it's the best for you. That's the point. And own the rental income properties where. Where the deal is best for you as well. Right. Where the ratios are always in your favor. So that makes sense. Anything else on that before we.

I was actually just thinking in places like D.C. and I would bet if you looked at state capitals where it's landlord friendly and the home prices aren't too terribly high, I would be willing to bet that places that have a lot of government employees, it's probably a pretty good chance there because government salaries don't decrease, they pretty much never will.

Which is ridiculous, of course.

So if you have a whole bunch of people in a society that have steady incomes or even increasing incomes like you usually get in a government job, their ability to afford rent increases is going to be there.

Yeah, yeah, that's a good point. And the government unfortunately never goes out of business. So, I mean, it should, you know, why should government employees be insulated from free market conditions? Right. Why should their pay just always be adjusted as a cost of living increase? You know, it's absolutely ridiculous. But that's another topic. Hey, in the interest of time, let's take a break for a little blogcast here. And then we were coming back with a bunch of other topics. Adam, I know we got a lot to cover today, so you're ready to go to the blogcast now. Let me tell you something about this. We play a lot of these. If you are not a subscriber to my Real Estate update on Alexa on your Alexa app, that would be unwise because you're missing out. So be sure you subscribe and you get our latest updates every day on your Flash Briefing.

We'll put them in the show notes. We'll put a link to it in the Show Notes.

Yeah. Thank you for doing that. And that's on the any Alexa enabled device. You know what's interesting to me about listening to. Oh wait, Alexa's talking to me. Hang on.

Thanks a lot, Bezos.

Alexa, stop. She's always eavesdropping. I tell you. It's like, now we've got Mrs. Kravitz in all our homes. Now for those of you who don't know who Mrs. Kravitz is, and Adam, you probably don't either, if you are old enough. There was a show called Bewitched and Mrs. Kravitz was the nosy neighbor who was into everybody's business. Now we have electronic versions of her in all of our homes that we pay for, that we pay to have there. Yes, it's really a sick society we live in, but we're in it now. Here's what's interesting about these old blogcasts. These were written and published, some of them many years ago. And what's fascinating, at least to me, is that when I listen to these on my Flash briefing, how applicable they still are. Even something that we published originally 10 or 12 years ago. Real estate changes very slowly, and the principles around which investing is built change almost never. They're just Timeless, you know, and that's why you can't have a CNBC type program for real estate or a newspaper as big as, say, the Wall Street Journal because there's just not enough to say it doesn't change that much like the stock market does. Right. It's interesting how really how timeless a lot of these principles are. And also from the prediction angle of what came true and what didn't come true, it's just quite fascinating, I think, to listen to these historical perspectives. That's why we love doing Flashback Friday episodes. Do not miss Flashback Friday. That's just a really important thing. Ready to go to the blogcast?

Let's do it.

Here we go.

You know, millions of American moms and dads have begun that ritual again. Now that it's back to school time. They pack the PB and J. They pack the fruit cup, the cereal bar, and the box of juice. In the brown paper bag, they assemble a bunch of different commodities into one single object. A school lunch for their child. Now, it may seem like a stretch to turn a school lunch into investment advice, but as an income property investor, I regularly recommend purchasing commodities in a very innovative way.

I believe copper has a good future.

I recommend lumber, steel, and concrete, but not as individual commodity investments. I recommend investing in them as packaged commodities in the form of houses and apartments, which have universal demand. Just like our brown paper bag lunch, a single family home is an assembled or packaged set of commodities. Think about it.

If you want to lower your risk.

When investing, look for areas with very low land values and high improvement values as a ratio. We call this the LTI ratio. Think about what increases the value of improved property. Environmentalism and building restrictions. Industrialization of developing countries like China, India and Brazil. Raw materials cost. Just a few years ago, our government said inflation was only 3.3%. Yet that very same year, steel and iron prices surged by more than 10 times that amount to 34%, while lumber was up 17% and prices of wallboard was up 20%. Every time the cost of labor or energy increases, it increases the cost of our packaged commodities or the apartment buildings or homes sitting on very inexpensive land. This is a very good way to reduce risk and increase upside potential when investing in income properties.

All right, Jason, so now we're going to take a question from, and I'm sorry, listener, if I don't get your name perfectly right, Hayato Nagishi.

I think you did pretty good on that.

And they want to know, do you think income property investments will still work? If the US Were to fall into another depression with a capital D. So.

My answer is Great Depression with a capital D type depression from the, you know, the 1930s and economic disaster. We only saw a kind of a close second to it. Maybe not even close, actually, but a second place was the Great Recession 10 years ago. And my answer to the question is sort of maybe not really. I guess that's my answer. How's that sound for definiteness?

That's really helpful, Jason. Thanks.

Yeah, thank you. Thank you. I thought you'd think so. So the reason I say that is that the real question is how will income property work in a depression with a capital D compared to other asset classes available for investment? Right. That's the real question. Because assuming you have money with which to invest during a depression with a capital D. Keep pointing that out, a big one. What else are you going to do? You know, I would say, now, here's another way we need to slice and dice that question. Are you asking about properties in which you already own that you rode into the Depression, or properties you would buy during the Depression? Okay, so we gotta slice things up even more. So when it comes to the properties you own, the likelihood is they'll go down in value. And if there is significant deflation now, of course, the powers that be at the Federal Reserve and governments around the world will start pumping money into the economy with quantitative easing, the likes of which you've never seen before, even more so than we saw during the Great Recession 10 years ago. And that's inflationary. They're going to try and cause inflation on purpose and just juice the system to create inflation. And their ability to do that is literally unlimited because they can print and manufacture so much money, so much, not really money, but currency out of thin air, that they can, at some point create inflation. A lot of the economists like to say, well, it didn't work in Japan, or it didn't work during the Great Recession 10 years ago. Well, I would argue that that's not true at all. I would argue that during the Great Recession, it did work. It just took some time to play through the system. And one of the oddities about The Great Recession 10 years ago is that that money didn't trickle down enough to Main Street. But if they push the money down, maybe some of you remember, it was quite a while ago now when Bush was president, the second Bush, there was a tax refund check that came back to Everybody of like $600, I think. Do you remember the. Adam, do you remember that?

I remember getting that check in the mail.

Yeah.

Yeah. So the government could literally just write everybody a check for a million dollars.

And that money would go into the system and it would create inflation. There's no question about that. No matter what was going on, you can create inflation if you want to badly enough. All right. They just did it with typical quantitative easing. And a lot of that didn't hit Main Street. It stayed in the banks. Right. But ultimately, as we've seen the last few years, we've seen massive asset inflation. So there's no way you can argue that there wasn't at least a lot of asset inflation. Technological things, of course, got cheaper. The Amazon effect is a big part of it, too. So, like everything, it's complicated. But getting back to the question at hand, compared to what? So the prices of your properties will decline. The rents on the properties may well decline as well, but it depends how long it takes for them to create inflation, which they'll definitely want to do it, the powers that be. What else are you going to do? I mean, the stock market will be collapsing. Maybe now the gold bugs will say, well, gold is going to be the thing to have during those tough economic times. Well, you know, it really hasn't proven itself much at all. I mean, I get the theories about precious metals, sure. But in practice, just doesn't work. Okay.

So what I think about that is in regards to gold and owning that, you don't actually own gold. It's not like they deliver a brick of gold to you. You own the price of gold, and that is likely to also decrease whenever this happens.

Well, what do you mean? I mean, you can own the metals. In fact, I have said, if you're going to be in the metals market for gold, palladium, platinum, silver, you should take delivery of them.

Right, I agree, but most people don't.

Yeah. They're just buying an ETF or some sort of derivative. Yeah, right.

Yeah. And you look at, you know, the Great Depression versus that versus real estate, you're talking about losing half, you know, or more two thirds. And if you have your property and you have a good interest rate and you're looking to just get through it, you don't have to care that your home value went down because you're not looking to sell.

As long as you can sustain the rent.

Right. As long as you can sustain the rent. But even if your rent went down to the level of your payment or even a little bit below that, and you're spending $50 a month to own the house for a while, that is less Likely.

And when you say $50 a month, you mean in negative cash flow.

Right? In negative cash flow.

So say for example, you had $200 a month positive cash flow in that property and the rents got really depressed during this depression and you had to bring the down by $250 from a $200 positive to a $50 a month negative.

That's still going to be a better return than losing 60, 70% from the stock market. Yeah, because you can get your rents up to a positive cash flow quicker than you're going to get your. As they always say, you lose 50% in the stock market, you have to make 100% to get it back. So you're going to get your return back on your investment property a lot sooner than you will in the stock market.

Absolutely. And remember, one of the killer characteristics about income property is that the deal you acquire the property at is never the deal you have to stick with it. Reminds me of business where, you know, I'll constantly encounter weasels in business, okay, where they'll agree to one thing and then they won't keep their frickin agreement. Oh, drives me nuts, drives me nuts. Sleazy weasels. They're so many of them out there, right? And you know, people just don't keep their promises, they weasel out, right? But as a real estate investor, you can be a weasel and it's completely legit. And what I mean by that is, you know, you buy the property, you pay X amount of dollars for it, it's in a certain condition, you've got certain financing structure on the property with a certain interest rate on your mortgage. And if there is a depression, the likelihood is we'll see rates drop. Now they may be high into the depression at the start of it, but ultimately we'll see a lot of QE measures that'll include massive declines in interest rates. And as we see that, you can just weasel out of that mortgage you had and refinance and get a better mortgage or you can even weasel more. You can do a loan modification without even refinancing. You can. If you want to get rid of the property, you can do a short sale or just let it go, just let it foreclose, you know, and listen to that episode called you'd walk away. I profiled that with, I mean, we did a few episodes on that during the Great Recession, but millions of people just walked away. That's what the contract says. It says, hey, you know, either pay the mortgage or give us the collateral. So you always have the choice to just give them the collateral.

And especially, you know, if you're a real estate investor, even if you're scared and you hold your cash for a while, then when we get out of it and we start coming up, you still got cheap properties you can buy.

Yeah, well, and thank you, because that was the other side of the equation. Another way that you can change the deal, you can kind of weasel, if you will, is not only by when you look at it from a portfolio perspective, but buying more properties when they're cheap, if you have the money. But you can also take the property you already own and improve it more inexpensively. You could do an addition, you can do improvements. You can create a better property, lower price. During the Depression, when things are cheap, when labor is cheap, everybody's out of work. And you can get a contractor to come and work really inexpensively and improve your property. That's a good time to not only acquire more properties, but to improve the properties you already have. And again, you're constantly able to renegotiate the deal along the way.

Now, Jason, you did mention when we were discussing this a little bit before recording, that there is something you're worried about that will lead to a problem with real estate investing. Can you want to tell the listeners about that?

Yeah. The only thing, if you view it from the perspective that we talk about, the. Compared to what perspective? Where every investor is simply doing a comparison game. You're either going to invest in stocks, income, property, precious metals, cryptocurrencies, you know, whatever, Right? You got to do something. So you just want to pick the best of those alternatives when it comes to income property or just real estate in general that's even not being held for income. The one thing that I think can truly derail any of the plans based on our methodology that we talk about on this show, there's really only one real thing that could really, really hurt you. Population decline. If there is a plague, if there is a population decline like Japan has seen, where simply nobody's having babies anymore, if there is a huge move out of a given area where you own property, like what's happened with Detroit over the past few decades, and you know, to be fair, Detroit's coming back in spots, okay? And when I say Detroit, I don't mean the inner city, I mean the metro area in general. We're even looking at something not too far from Detroit. So there are some possibilities. But hey, for decades that went the other way. I mean, it's taken a long, long time. And remember, the Market can be irrational longer than you can remain solvent, as the saying goes. Right. So population decline by whatever means. Okay. An outflow of population from a given area, terrible disease, God forbid. The opposite of a baby boom. Right. A situation where nobody's having kids. You see this in Western Europe, you see it in Russia, you see it in Japan. That can all really hurt you as a real estate investor. I think that's the truly sort of the only real thing that can really, really derail your plans as long as you do all the other things we mentioned. Adjust compare to what? Et cetera, et cetera.

All right, now let's move on to a thing that you're absolutely loving when it comes to Facebook.

Yeah, let's close with this one. And by the way, on an upcoming episode, Adam, we really need to talk about something you've been wanting to bring up. Right. What is that?

The infrastructure plan with Trump. Where what you love when you said last week, I don't agree with Trump. I love this.

Yeah, yeah.

I love it. If I had liked the man.

Adam. Adam is starting to become a Trump fan. I think you're a closet Trump supporter.

One of the things I looked forward to when he was elected, I looked forward to his infrastructure plan. I really hoped that this was going to happen. And if it does, it is going to be absolutely magnificent.

Yeah, yeah. Real estate investors. Stay tuned. We're going to go into this in some detail on a future episode. We got that coming up. But let's close with the Facebook thing. Mark Zuckerberg's ex roommate and I agree, don't we?

Yep. Now, what are the things you want to do with companies like Facebook? Jason, the three things you think absolutely.

Need to happen, I think really all of these big tech giants, because we live in an era of tech tyranny. I think they need to either be, as Zuckerberg's roommate would say, split up under antitrust laws. They need to make their algorithms public so people can see why. We see what we see why search results are the way they are. And I'm not just talking about Facebook. I'm talking about Google. I'm talking about Amazon. I'm talking about all of the big tech companies. Okay. And. Or they need to be regulated like utilities so that people cannot be deplatformed, they cannot be kicked off. It is absolutely absurd that these companies have become the arbiters of censorship. And unlike when the government censors you, you can file a lawsuit and protect your rights. You can't do anything with these platforms because they're private companies and they're exempt from the same recourse. And listen, if they were small and there was a variety of choices, I wouldn't have a problem with this. You know, I would say, look, it's a private company. You know, we don't have to give you a platform to say what you want. We can disagree with you and kick you off. Fine. That's fine. Until they're as large or larger than many governments, okay? Then they become susceptible to being regulated like a utility. And listen, I'm not for regulation. But this is a different world we live in, folks. This is a brave new world. We haven't seen this before. It's got to happen. Tell us more about Zuckerberg's roommate, Adam.

So this is a guy who actually believes that Zuckerberg. I shouldn't say actually believes because I don't know the guy, but who believes that Zuckerberg is a good, kind person, and that's who cares. Yeah, that's the thing is, I don't believe that he thinks that about the guy, but he still says his power is dangerously excessive because he controls what billions of people around the world see and hear. And even if you're the nicest person in the world, it doesn't take much. You can just get something just a little bit wrong, even if you don't mean to. And you've made a huge change on what people are seeing and hearing, people's.

Rights all over the place. It's absolutely pathetic. And interestingly, all of these big tech companies are left wing. They all just lean that way. And as I always say, and this is not a political statement, it's just a fact, okay? Whenever the money flows easily, people tend to lean to the left politically, okay? And, you know, whether it be a celebrity in Hollywood, look, they may have struggled before they became a celebrity, I will give them that. But once they got discovered and their life turned into absolute magic, where they had the Midas touch, okay, where they got $20 million to be in a movie, okay? Julia Roberts, whatever, right? Then the money's just flowing easily. These big tech companies, zillions of dollars, chase them. Wall street venture capitalists are happy to just throw money at these companies. So, you know, maybe they struggled in the beginning, maybe they didn't. Zuckerberg certainly didn't. But once they got sort of discovered, if you will, and the good times started rolling, you know, it's just too easy. They don't understand what it's like for working Americans who are saddled with Big tax bill, worried about their future financial security. They don't understand that. They're just like ivory tower professors with tenure. They don't care. They just dole out these political pronouncements and impact lives of countless other people. They have no understanding. It's like idiot Gwyneth Paltrow who said that she had a harder life than a single mother. Are you kidding me? Her comment just shows how insanely detached she is from reality. It's just disgusting. It's disgusting that these people have a platform. It's just pathetic. They really should just, as the saying goes, shut up and sing. You know, I mean, I love their art, they're great for their art, but they really have no business saying stuff like that.

And especially when you look at these people have all the power, but they're not responsible. They're not. They don't answer.

They have no accountability. Yeah.

The only thing that they're responsible for, making more money for their investors. And if you're not an investor of theirs, they don't really care about you.

Yeah.

And even, even if you're an investor, they may not care about you that much. As long as you don't sell. That's their only concern. And that's, as a business, that's what you should be concerned about. But you have to caution about how much power you give somebody in that situation.

No question about it. And the one final interesting thing on this that we should wrap it up with is that Zuckerberg keeps saying that he thinks the government needs to regulate them. Now, isn't that interesting? Okay, that is super interesting that these repeated comments from him about that. And folks, that is the same thing I have told you for many, many years about Wall street and how Wall street, because it's a rigged game and it's an insider's game, and it's a duopoly. They love government regulation. They're happy to have it because it keeps new players out of their sandbox. And that's exactly why Zuckerberg is saying that he wants more regulation, because he can afford to comply with it. Yet a new startup company can't afford to comply with it. So that is his barrier to entry. It will benefit Facebook and it will hurt startups. The higher you make the barriers, the more you regulate, the harder it is for new entrants to come in. I mean, look at Wall street as an example. How many new startups out there do you see that might compete with Goldman Sachs? Zero is the number. Why? Because the regulatory burden of complying with all of the SEC regulations is insane. Nobody can afford to do it. So you just don't see new entrants. You don't see new players in the marketplace because the old entrenched players are the only ones with enough money to be able to afford compliance. So regulation, they love it, keeps new people out. Anyway, Adam, let's wrap it up. We have our Cuba cruise coming up. And by the way, in cruise time, folks, this is right around the corner. I know you're all thinking November isn't that close, right? We don't have to think about joining Jason and all his friends in the venture alliance for a cruise to Cuba, Grand Cayman and Jamaica. We don't have to think about that right now. Right. But in the era of the cruise world, in cruise time, this is right around the corner. So you need to go and register. We still have some Early Bird pricing on that and it's going to be awesome. If you haven't been to Cuba, by the way, which is my favorite of our destination, it's like going in a time machine back to 1959. You'll absolutely love it. I've been to Cuba before and it was fascinating. It's just something you must join us for. So go to jasonhartman.com cruise and check that out. Or by the time you hear this message, it might be on the front page of jasonartman.com but either way, get there. Jasonartman.com Cruise join us in November for our first cruise ship event on Holland America. It'll be great.

And we also answered a listener questioner here and we would love to answer your question. And you can go to jasonhartman.com ask give us your question and we'll get it answered on the air.

All right. Thanks, Adam. Happy investing, everybody.

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