1332: FICO Scores, Florida Real Estate & Population Migration

Hey, Jason, this is Patrick Anderson. Just wanted to say congrats on a thousand episodes and wanted to let you know how much I appreciate all the education you've given me personally. It's helped a lot. I just wanted to reach out and say thank you for everything you've done and appreciate all your help in real estate investing. Have a great day.

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire 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 1332. 1332. And there are some things you need to know, as always, and today will be no exception. And one of the things I love about income property is as long as you have the knowledge and the information, no matter what the market does, you can play it to win. There's an old saying, an old quote that I like a lot. It's about sailing. Tis the set of the sails and not the gales that determine the direction of the ship. And as investors, that's what we know. If we're knowledgeable investors, we know that we can just set our sails for any kind of economy, any kind of market, any kind of weather, or any kind of gales, if you will. And we can still get where we want to go. So I've got Doug here with me. Of course, Doug is one of our investment counselors. He's been on the show many times and you've seen him speak at many of our events over the years. And first, Doug, let's talk about credit scores for different demographic credit groups.

I was actually really surprised when you sent me this article because what it was saying is that Gen Z actually has better FICO scores than millennials, which.

And my generation, Gen X, they beat.

And with technically my generation, I'm at the very, very, very tail end of Gen X.

So basically they're saying generation Z, the youngest who are being counted right now, younger than millennials, they have the best credit scores. I don't know, they didn't compare them to baby boomers, but they compared them to millennials. In my generation, Gen X and our credit scores aren't as good as Gen Z is what we're saying here, right? Correct.

Now there's actually a story within a story here, but the numbers reported in the article were that Gen Z, meaning people who were born after 1995 had an average FICO score of 637, whereas I think the all age average is 634. The Gen X average FICO score is 632. And then the millennial average FICO score is 629. So the headline is that Gen Z has a better FICO score. But to me the story within the story is that a general FICO scores really aren't that high because 630 is not a great FICO score.

No, I'm actually surprised that they're that low for any of the cohorts. I mean if mine was that low, I would be depressed.

Yeah, yeah, exactly. Yeah. So the real story to me is that one, people have bad credit just across the board.

Right.

And then number two is that there's actually not that much dispersion across generations. I would have expected there to be more of a difference and there really isn't. Just generally speaking, FICO scores are low.

Yeah, that's interesting. Okay, so here are a couple interesting tie ins. Number one, a couple of years ago, you know, I want to say maybe two, three years ago, we reported on this show that credit scores were the highest they've ever been. And that was for every demographic cohort. It wasn't just for any specific Gen Z millennial, you know, Gen Xers, Baby Boomers. It was just overall and it was saying that US credit scores were the highest they've ever been and they were like 700 and something. I don't remember the exact number. Number two point. Remember there are many types of FICO scores. A FICO is not a fico and a credit bureau is only one of the big three credit bureaus. So again, like everything, it's complicated. So there are many FICO scoring models. Some that credit card companies use, some that card leaderships use for auto financing, some that mortgage lenders use. And you'll have a different FICO score on each one of these. Plus you'll have a different FICO score at each credit bureau. Okay, so just know that. But yes, you're right. This is amazing that the credit scores are that low. Now I am going to do a new thing with this. Because I'm going to defend the millennials and I'm going to defend my own people. I'm going to represent here with. On the Gen Xers too. And I'm going to say that I don't think you can give Gen Z that much credit for this. You know, and here's why. Look at. When we go through life, I mean, just look at our bodies as a metaphor for this. You know, we're going to get some injuries, right? Just living life. We're going to fall out of a tree and break a bone when we're a kid. You know, when we come out, maybe we're perfect, but we're going to get some bruises and we're going to get dinged up. And this is the same thing that happens to our car and our body and you. That's why a new car is perfect and a used car, it's got a few dings, right? Same is true with credit scores. And look, you know, I have heard so many people say things like, well, my credit score is 850, which I think is the highest it can be. Right? Well, you know what that means. If your credit score is that high, clearly you are not doing anything in life. Okay? You know, it's like saying, I've never failed at anything. Well, and you've also never actually done anything. So, you know, it's just kind of, you know, Gen Z is too young. They haven't had any bruises yet. They haven't gone through a recession. You know, in fact, their credit score is way lower than it should be. When I was 18 years old, my credit was perfect. Cause I was new, you know, I mean, come on. I'm gonna defend the millennials. Millennials give me some cred. I'm defending you.

I would imagine the reason why millennials have a. Which is why people in general have a generally low credit score is just because of high debt burdens. It's not debt to income. Because oddly enough, your income doesn't really play into your. Your FICO score. But I think it's just the general level of indebtedness does play in. And for a lot of people, it's high.

And that shows you the fact that income does not play in the FICO score, how epically stupid the FICO scoring system is. I mean, that is just silly, okay? Like, I have literally been denied credit because the income I put on the application, which was an honest number, made them suspicious. Well, I mean, I. I'm only speculating, okay? But it's like your Income's too high. We, you know, we don't understand. I mean, like that. That just can't be. It doesn't fit into the model.

Yeah, exactly. They must say, oh, no, your income's too high. You must be involved in white powder or something.

Right, right. You're. You're clear. Arms dealer, you know. Yeah, exactly, exactly. You're doing something that can't be legal.

You must be doing something illicit.

Yeah, exactly, exactly. So anyway, you know, look, let's let gen Z get 10 years older and we'll see what their credit score is. Like, you know, the jury's out. I say, I don't know. This is kind of interesting, but like, everything, take it with a grace.

One thing that is interesting to think about because, again, generally speaking, I try not to read too much into how articles editorialize because most journalists just backfit a narrative to whatever the topic of their story is. But Gen Zers say if you were born in, like, say 1998, you were about 10 years old when the Great Recession hit. Yeah. So chances are, you know, you've seen right up front what happens if you don't plan out what you're doing.

You saw it happen to your parents is what you're saying.

Yeah, yeah, exactly. So, yeah, because they saw what happened to their parents. So again, like you said, let's give it 10 more years to see how it plays out. But, yeah, it's just very interesting kind of things to see.

It is. It definitely is. It definitely is. Okay, so let's talk about the next topic. And that is what we have been chronicling on the show here, which is people staying in place. And then my prediction about people staying in place, you know, I'm looking at one article here, Doug, entitled Americans Are Staying Put in Record Numbers Worsening the Housing Shortage. The population share of movers Falls to a record low. So what does this mean? Why is this happening? Well, one reason is that maybe people are tapped out and they can't afford to buy, like, the next move up in housing. Another reason might be that, hey, they've got such a good mortgage that they don't want to give up that great mortgage. And another reason might be that, hey, they just bought a house, you know, two years ago. It's not time to move yet. They haven't outgrown it and anything like that. Another reason could be that they're just happy and content with their lives, which is great. What do you think?

One thing you said that I think is really important there is that maybe they just Bodies.

Hang on, hang on. Isn't everything I say really important? But okay. No, it's actually not.

Time to clap for Adam.

Many throwaway comments in what I say, but go ahead.

One thing I just thought you said that was especially poignant is that maybe somebody bought their house in the last couple of years. Because what most people forget about when it comes to real property and real estate is that it's going to cost you usually about 8% of the total sales price in transaction costs. Now, if you're like us and you have a holding period of between 20 years and forever, that's not really a big consideration. But if you just bought a house for, say, $300,000 about a year or two ago and you decide you want to sell it and it hasn't gone up over 10%, then you're actually going to need to write a check in order. Well, or you're going. You won't necessarily need to write a check, but you're going to get less from the sale than you put into it in the form of a down payment.

Right, right. It's like exiting your car lease early, you know.

Exactly.

Yeah.

Right, exactly. And so I think that what's happened, you know, what was happening was that there's been really high volume in houses, but, you know, and that was based on the assumption that the prices would keep going up. And they did. But at some point. Right. Prices don't go up fast forever. And at some point when they sort of start topping out, then it gets a little tougher to be able to move without needing to take a hit to your equity. And, you know, like, this is one of the things that we found out during the Great Recession also was that a lot of people were really reluctant to list a property that they knew had gone down in value and that they were upside down on. You know. Now, eventually they got over that and decided to do short sales, but there was a whole bunch of inventory that was just off the market because people were waiting for prices to come back up to where they could at least break even. And so I think that's a little bit of what we're seeing now. But I think this. The side impact of that is just that the transactional volume is going down a lot more just because, you know, you don't see, as many people, like you said, shifting houses. A lot of times it's either in migration or out migration. And if it's in migration, you'll see a lot of new homes being built. And if you're seeing out migration you'll see a lot of properties going vacant, potentially being sold or potentially being rented out.

It's quite interesting what's going on, this staying put idea. And we're going to take a little break here and play one of our blog casts just to kind of split the show up a little bit and then come back and talk about millennials renting. And as we talk about that homeownership, I want to remind everybody I agree with. I think it was Newsweek magazine. We talked about the article at the time. It was maybe now, I want to say about nine years ago that that rather profound article came out in. I think it was Newsweek magazine. It might have been Time. And it was on the COVID You know, it was a big article throughout the magazine that talked about how this myth of homeownership being good for society because that' the Bush administration kind of baked into us, which I think was wrong. It sounds good on its face that, you know, everybody should own a home. That should be the goal. And it talked about how that makes the economy stagnant. And in areas with the highest homeownership rates, the economy is actually were more stagnant. There was less velocity of money. And Doug, you and I have both said for, I don't know, a decade now that the best thing you can have on a resume is mobility, the ability to move to where the jobs are. And so this staying putness is not really a good thing, but I think it's going to actually increase. And. And when we talked a few days ago about when Evan. Evan's actually your client, Doug, who was on. He was on the show. I don't know if you heard that one with him. He's just such a sharp guy.

He's a clever dude.

He's a great guy. Rabbi Evan Moffek, he was on, and we were talking about assisted living facilities and the fallacy of investing in them and how all this technology is making it possible for people to age in place. And so there's just a lot of different things that are happening. You know, I hate to say the famous last words. This time it's different, but some things are different, you know, they really are, I think.

Definitely. And it was funny that you mentioned the assisted living facility, because in the property tour, that just made me think about the property tour we recently went on in Ocala, Florida, which is right next to the Villages, one of the Florida's biggest assisted living communities. And we actually also have a lot of new inventory that's come in in the Florida area also. You know, in the central. And actually I think I'm looking at a property right now that came up in Tampa and it actually looks, it's a new construction.

It looks really got some decent new construction properties. You know, what we did, folks, to solve the inventory shortage as much as we can, is we started a new division to really focus on getting new construction product, which I know all of you want. Now, you know, you have to give something to get something in that world and you're paying a premium for these properties. But overall, long term, if you like the class A tenants and the class A properties, this is the stuff for you. We've still got the lower priced properties with the higher yields. We've got a good mix of properties@jasonhartman.com and through your investment counselor. Tell us about this one, Doug. And by the way, this is in the state of Florida. And here's my saying, Florida is the new Texas.

So this property, it's located in the Tampa area. It's actually in a city called Riverview, Florida. But it's listed for $200,000 and estimated to generate a gross rent of about $1,550 per month. Now, of course, you have to factor in vacancy and then factor in all the other costs. This one is a part of a neighborhood with an association. But the advantage of that association is that there's a 24 by 7 gym, right? Basketball, tennis, you know, very close to the school, community pools, trails. So what that means is you have the opportunity to appeal to a very broad variety of potential and you have a lot of those amenities that will really attract your class a type of people. Because I think that, you know, the thing that never really comes through in a standard pro forma is that. Right, you know, there's, whenever you standardize something, say you standardize a pro forma with a certain amount of vacancy, certain amount of maintenance, certain amount of whatever. Well, what that means that what you usually do is you standardize for the middle. So that means, say if you're sourcing a property that's a class A brand new, you're going to have probably quite a bit lower maintenance. You will probably have very low long term vacancies. But you don't necessarily want to build your pro forma with those lower assumptions because otherwise you might set up, you know, artificially high expectations. Similarly, if you're looking at, say a class C property, you might actually have higher vacancy and higher maintenance that you need to budget in. But again, you know, you want to be careful with how Much you fiddle with the numbers just because otherwise it gets really hard to compare things across different providers.

Right. And that's why we standardize appreciation rate, vacancy rate, pretty much the management fee and the maintenance, not exactly on those because they're a, are circumstances that change them a little bit. But folks, beware of all the hokey, sleazy people out there promoting properties where they don't even account for a vacancy fee at all, they don't account for any maintenance, and they say, well, management is free for the first year. And so these performas look way better than reality. So do not fall victim to these sleazy shady operators. There's many of them out there.

And also that real estate is a completely passive investment. No involvement on your part whatsoever.

Total myth. Total myth. If anyone out there. And by the way, these shady operators do have podcasts. So let the buyer beware.

Yes, exactly, exactly. But yeah, this property in Tampa, it's brand new. It's significantly below the overall median. Because I think one of the articles we looked at last time we were talking was how there's just an overall national shortage in houses that are less than 250,000. So this one, right, you're talking about a brand new three bedroom house, $200,000, that is exceptional affordability. And you know, because one of the things to think about is, you know, you're going to have a whole bunch of people who are up on the east coast that, you know, a lot of them have owned, have owned properties in places like say, New York, Massachusetts, Connecticut.

Their life gets so much better when they move. They can't even believe it. They make comments to me like, why didn't I do this sooner? What was I doing living in New York City, paying a fortune when I could live in Florida and have no state income taxes? The houses are much less expensive and it's the Sunshine State, you know, so. Yeah, absolutely. Hey Doug, let's take a quick break and let's go to the blogcast just to give our listeners a little variety. And we'll be back to yak more in a moment. But I'm going to challenge you to a duel. And I'm going to share a property on the other side of the state of Florida in Jacksonville. So we'll be right back in just a moment. And here's our blogcast.

Thank you, Jason. It seems counterintuitive and the idea that debt is great for the real estate investor is one of the hardest ideas to communicate to property investors who show up on our doorstep eager to Learn the Right Way to Invest in Real estate There are plenty of wrong ways. Paying off your mortgage quickly is one of the worst ways. Please believe us when we say this. It's much better to put in as little of your own money into the property as possible and try to stretch that Note out to 30 years or longer if you can. This is how you make your banker take the majority of the risk. But exactly how does correctly structured debt get paid down by inflation? First, you should understand the idea of real value versus nominal value. Nominal means that a $100 bill from 1950 and a $100 bill from 2009 are essentially the same. There might be a few minor cosmetic changes, but in the absence of inflation, you could theoretically go to sleep in 1950 with your $100 bill, then wake up 59 years later and the buying power would be the same. You could buy the same amount of stuff now as then, but inflation rears its ugly head and devalues your money so that your 2009 spending spree with that Benjamin Franklin comes to a screeching stop very darn fast. Take that idea and spin it around. While inflation is bad for you, if you hold cash, it actually works in your favor when you're a borrower. In nominal terms, your loan balance is the same in 10 years as it is now. But in real terms, inflation has devalued the balance to the detriment of the banker and the benefit of you. Rest now. We'll talk more about this later. For more, visit jasonhartman.com for the creating Wealth Blogcast. I'm Will Weeks.

Thanks for listening to this audio blog and please see disclaimers and important information at the website. So I hope you enjoyed that little educational blogcast and that is available as an Alexa skill. I can't say the word because she will wake up here, but if you have one of those devices you can go to Amazon.com and enable the Jason Hartman Real Estate Update as a free A L E X A skill. Okay, got it. Anyway, Doug, you talked about that property in the greater Tampa metro area. This one is across the state on the east coast of Florida in Jacksonville. Brand new construction 191,900 projected rent 1525 projected cash flow of 190 bucks a month. That's phenomenal on a brand new single family home.

I mean, really not bad.

It is not bad. It's quite good actually. It's quite fantastic. The total overall projected return on investment is 27% annually. And like I always say, even if it Only works out half as good as that. These are projections. They are performas. You know, real life is different than the brochure. Okay, but even if it only works out half as well as that, and your overall return on investment is half of 27%. Hey, you're not going to be complaining, right? Doug, what's the overall return on investment on the property you were talking about?

The one that I was looking at actually has a 41% projected ROI. And the main reason for that is because this pro forma is built with an 80% loan to value ratio, whereas the majority of our pro formas are built with a 75% loan to value ratio.

And so what that means is the more leverage you get, the higher your overall return. Of course, your cash flow will be a little lower. But the overall return because of the benefits of leverage in part of this multi dimensional asset class we love called income property, it amps up your return a bit.

Exactly. And there's actually an idea that you were talking about just a minute ago that I wanted to expand on just the slightest bit more was the net migration of people into Florida. Because it actually pins on a prior conversation topic, which is people having kind of home ownership and how that's playing out. Well, I think that there's a lot of people especially, especially in like the baby boomers and coming up in the generation X who their home equity is their principal retirement savings. And so like for example, people moving out of New York, they basically need to cash out their home and then what they do is they move down to Florida and they can actually buy a place that's nicer, brand new, still have quite a bit of capital left over and be able to enjoy just a more fulfilling lifestyle because it's less expensive. So I think there's two things that are important about that. Number one is we want to buy our properties in that path of progress so we can benefit from that. But then number two is that, you know, I think that there's going to be this long term migration that's going to have an impact on a lot of the respective housing markets. You know, your ownership is going to shift in places like the east coast like New York, from people who have owned the property for say, 30 or 40 years. I mean, I would assume that it'd have to shift to somebody younger or you'd need to get some investment group that buys it up. Now, I don't know what the answer to that's going to be, but I think it's going to be something really Interesting to watch.

Yeah. So when you said path of progress, that was interesting because mostly that term relates to development. And the investors that use that term a lot are land buyers. Right. Where they will buy vacant land. They call it land banking. Land is, you know, not a very good investment usually because it's very speculative. It doesn't have the multidimensional characteristics we love. But that path of progress term means that you buy your vacant land, you sit there, you wait a couple decades or a decade, and some developer comes along and wants to build something and you make a good appreciation rate on that. But when you say path of progress, it's also about this tidal wave of money that is flowing out of the high tax business. Unfriendly states, the states that were successful decades ago, like New York and California, that are riding on a very old reputation, they're not the new thing. That's not where the action is anymore. Those are states that, you know, it's kind of like some of these businesses, you know, there, there are some old companies that we all deal with that, you know, really, they're not that great, but they've got a reputation that they earned over many, many years. And I sometimes think about these companies when I'm a customer. They're just so mediocre at best. And I think, gosh, you know, this company, I think they went out of business 20 years ago and they've just got so much capital that like no one told them yet. You're actually out of business, but you're still operating. That's like California, New York, but yeah.

Another thing that I keep thinking about too is that the way that real estate markets generally tend to work, and this is, I think in aggregate and at the individual market level, is that they tend to expand and contract from the top. So what that means is that when there's a lot of in migration, the place where you see prices start amping up the fastest is at the high end of the market. And when markets start softening, the place where you start seeing reductions is at the high end of the market. So what that means is if you're following our strategy, where you're buying in that median range, or potentially even a.

Little below median, hopefully you're buying below the median.

Hopefully you're buying below the median, then what that means is that you're not going to amp up as fast as the stuff at the top, but you're also not going to experience as much price compression because it's always compared to what. And as long as you own the most affordable options. You're probably not going to see too much in the way of disruptions just because people still need a place to live. And if you're the best deal out there, you're not going to be short on customers.

Yep, absolutely. And you can catch the customers, meaning the renters or the buyers, if you want to exit and sell that property. Moving up the economic ladder or moving down the economic ladder. So it's a good place to be. If you're at either end, you could be left out, but if you're in that nice bread and butter middle ground, it's well below middle ground. It's really quite, quite safe. Hey, Doug, we had a couple more things to talk about, like the millennials that want to rent forever. We'll get to that on a future episode because we are out of time. Wrap it up with a final comment, and then we'll leave it until tomorrow.

So I think the last comment or the last thing that I'm thinking based on our conversation today is that I think, number one, don't be fooled into thinking that everybody else hasn't, because it's like we saw nobody has good credit.

Well, not nobody. Figure of speech. But we get.

Okay, yes. I go, yes. On average, nobody has good credit, let's put it that way.

And we're talking about our references at the start of the show with those 630 Fett.

630 credit scores. I mean, that is not good. No, it's not good. So, yeah, that's the thing. Yeah. And so then, number two. Yes. Before you feel too sorry about yourself, just make sure that you're not reading people's Facebook posts and you're looking at things more objectively because it is still a great time to be alive. And there's a lot opportunities out there. You just have to make sure you look for them and make sure that you don't get suckered into some kind of shyster scheme.

Absolutely. Good points. And, Doug, that was kind of a pep talk, too. I don't know that anybody feels bad about their life, but if they do, Doug cheered you up.

Well, one of the things I do is that I've made a point of telling a lot of my friends that if you post something on Facebook, just assume I won't read it, because I've intentionally reduced my Facebook exposure because I've noticed that a lot of people on Facebook, basically what they do is they just do nonstop, stop post trying to make their life look perfect. And I'm like, nobody's life is Perfect. Nobody's happy all the time.

Social media is a disease of its own. And you know the scary thing about the world we live in, whether it be social media or just all these devices in general, I mean, every movie and TV show I see is so inaccurate about real life because anytime I watch these actors having a dialogue or engaging with each other in some way, I think real life is nothing like this anymore. In real life, everybody's just looking at their phone. They're not interacting at all.

So, yeah, there's a meme I saw one time. It said, you thought the zombie apocalypse would look like this. It shows all the zombies and then the other side is. But it actually looks like this. And it shows a bunch of teenagers leaning against the wall looking at their phones.

I know, I know. And we both saw that meme on Facebook while we were looking at our phones. It's an irony, folks. It's an IR anyway.

It's an irony. Yeah, yeah, exactly. It's the Matrix all over again. We all think we're free, but we're just voluntary slaves.

We are slaves in a dystopian world. And it's the world that Orwell predicted. But also, gosh, I can't think of his name now. You know who I'm talking about. The other book that was the other dystopia about being lulled into apathy. What's. I can't think of it. Okay, listeners, go to jasonhardtman.com hey, this show is real, man. And I can't think of it. I had a senior moment here and I'll think of it the minute we end this. But go to jasonartman.com ask and tell me what I can't think of. Okay? You'll win the prize.

Tell Jason where he's wrong.

Yeah, yeah, yeah, whatever. I'll be back tomorrow and I'll tell you, I just can't think of it right now. Okay, go to jasonarmon.com you can reach out to Doug and all of our other great investment counselors on our investment counseling team. There's there. And we are here to help you build wealth with income property, the most historically proven asset class in the entire world. The most tax favored asset class in America. And that's what we're here to help you with. That for the last 15 years. This is what I've dedicated my life to. So we're happy to help you with it. Just go to jasonhartman.com for more and we will talk to you tomorrow. Thank you so much, much for listening. Please be sure to subscribe so that you don't miss any episodes. Be sure to check out the show's specific website and our general website, hartmanmedia.com for appropriate disclaimers and terms of service. Remember that guest opinions are their own, and if you require specific legal or tax advice or advice in any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you're using and write a review for the show. We would very much appreciate that, and be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.