1461: America is Moving! Suburban Cocooning, Evan Moffic

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 1461. 1461 approaching episode 1500 coming up soon. We are 39 episodes away. Right.

Hey.

So today I've got a great interview with our client turned investment counselor and that is Rabbi Evan Moffic. So he's coming up here in a moment. But before we get to that, I thought I would share a quote that I thought was a pretty good quote and it is about one of my favorite topics that we have talked about so, so many times over the years and so many times at our live events. And that is the topic of inflation. Inflation. Okay, so here we go. It's a pretty good quote. Inflation is a disease of money. Thus inflation may have become the oldest form of government finance. It may also have been the oldest form of political confidence game used by leaders to extract tribute from constituents older even than taxes. And inflation has kept those honored places in human affairs to this day. For 4000 years of recorded history, man has known inflation.

Jens Parson, the book Dying of Money. Isn't that a great quote? Think about it. 4,000 years, that's how long we've known inflation. Remember in the old days.

A zillion years ago, shortly after the invention of money, what people would do is they would take their gold and silver coins and they would literally shave the outer portion of the coin off. And then they would use that gold and silver and melt it down and make more that they could trade, right? They would literally shave some of the coin off and that was essentially a form of inflation. And then in the game of money, and I've studied this, but it was so many years ago, I can't even remember the details. But.

There was a time in history when people got tired of carrying all their precious metals around, right? So they'd carry their silver, their gold, they'd have a little pouch and they'd carry it in and then they'd trade with it and so forth. And so what did they do? Well.

It was not the modern version, but it was the ancient version of fiat money was created back then where someone basically created a vault system and they would say, okay, you can deposit your gold and silver coins with us and we will give you a receipt. And that receipt, those receipts then, because there were so many that were generated, actually became a form of currency, of fiat currency. And people would, instead of going back to, to the vault, to the depository, AKA a bank of sorts, they would just trade the receipts. You know, why do you need the actual gold and the silver coins when you, you have a receipt? And this receipt says, I have so much in the, in the depository. And so just accept my receipt. And hey, that was fiat money in essence, right? So, yeah, it's pretty interesting. Pretty interesting. You know, the first coins were fashioned in Asia Minor. I can't remember how long ago that was, but it was a long doggone time ago. And yeah, humans have known inflation for four millennia. Can you believe that? It's amazing. It's older than taxation. So pretty interesting stuff. Remember, inflation is a robber and a thief, but it is something that you, because you were lucky enough and I was lucky enough for, for you to discover my podcast, maybe many, many years ago, not 4,000 years ago, but many years ago. And since then, I have shared with you my radical ideas on how you can benefit from inflation, how you can game the system. I have been very honored to be your guide in doing this to help you align your interest with the most powerful forces the human race has ever known. Governments and central banks that are screwing the vast majority of the human race. But you are benefiting from it because you know how to invest, right? And you know how to use debt in a prudent manner, and you know how to benefit from it. We'll keep guiding you through that process as time goes on. And boy, times, they are a changing, that's for sure. So we're here for you. Reach out to us 1-800-hartman or Jason hartman.com and without further ado, let's get to a talk that I did with Evan recently. And I think you'll find this interesting because we discuss a variety of topics. So here we go.

Hey, I want to welcome Evan back to the show. He hasn't been on for a little while and as you know, he is an investment counselor. If you need him, he. You can reach out through our website or at 1-800-HARTMAN and Evan, we got a few things to talk about. We've been putting news into our private group. Of course, the Venture alliance members have access to this, and the JHU members have access to some of this because we put some of these articles in there. So you may be familiar, but the New York Times is only two months behind my prediction.

And they are reporting that coronavirus escape to the suburbs. The pandemic has convinced some New Yorkers that it's time to finally give up on city living. Give up on city living. You know, folks, I've said it, and I'm going to stand by this one. I think the world has changed forever. I am not even making a commentary on how grave a threat or how not grave a threat Coronavirus may or may not be, or whether it's a big conspiracy. But there's no question people's psychology has changed. The economy has been damaged immensely from this, and things are reacting to that alone. So you don't have to have anything else besides those things, and they're just facts. So, Evan, this article, a big piece in the New York Times. Let's dive in. Talk to us about this a bit.

Well, it cited a lot of reasons. I mean, we've been. We were talking about people leaving the big cities even for the last two years before the coronavirus for a variety of reasons, price, safety, so forth. But now it's accelerating even more. And this article, what I thought was really interesting is it pointed out things I hadn't thought of, like urban universities. One of the things that brought New York so much back to life in the 90s was the rise of NYU and other cities like Boston. Boston University. Universities are hit so hard by COVID 19 that they're not going to be able to have these huge lecture halls. So another reason these cities did so well has been lost. And people want space. They want a cocoon. I mean, you've been talking about this for a while, but this idea of cocooning and of being in a safe, open environment is even more appealing now.

Yeah, you're absolutely right. You know, back in the 90s, I read Faith Popcorn's book. I'd love to get Faith Popcorn on the show. We have not interviewed her yet. As you all may know, I'm a big fan of futurists. I read a lot of futurist material. Alvin Toffler. I've talked about the late Alvin Toffler, Faith Popcorn, John Nesbitt, megatrends, et cetera, et cetera. There are many others, of course, and Faith Popcorn talked about it in the 90s. She talked about the idea of cocooning. She may have questioned, coined that term. And it was, it was just based on the idea that people are cocooning in their house. Their home is their castle. And back then, the great technology that was making that all possible was home theater systems. Okay. Faith Popcorn's big premise was why do people need to go to the movie theater anymore? You know, of course she was right at the time, that was a big thing. But it's nothing compared to what we have at home nowadays. So listeners, you know, this is not just about real estate investing when we talk about this. It's about a variety of things. If you are in a business or industry that sells things for the home, if you are in the home improvement business, if you're a contractor, you know, these industries I think will flourish in the coming years because people are really, you know, they're just kind of cocooning and they're making their homes better. And I'm doing that. You know, I've noticed this behavior in myself, like I've said before, and I don't want to sound insensitive to people because I know this is very hard on a lot of people, but I personally have really been enjoying my staycation, okay? And I'm getting a lot done at home. I like it, okay. I don't want it to be this way forever. Admittedly, cabin fever is, it's coming, okay? But right now I've been liking it. And so, you know, I've been buying more, more home related things. I bought a new piece of furniture, I've been buying some more stuff. I've been kind of doing my little minor amount of home improvement. I think for other people this will be much more significant than it is for me. And businesses will make money off of this. Businesses that sell home improvement, remodels, additions. The real estate industry in terms of traditional home sales, when it gets going again, and it is going, but it's going to go a lot more. People are going to look for larger homes, more comfortable homes, places where they can really cocoon, where they have space for home gym equipment, home office. And you know, if it's a family, it's multiple home offices because each spouse needs a place to work potentially and each kid needs a place to work too, because there's going to be a, a big uptick in homeschooling. There's going to be home universities. We're discovering that the emperor called the college, the government university debt enslavement complex that Emperor has no clothes. People can learn at home. And like you said, Evan, the cities, I mean, think about it. Boston, within a short distance of the core of Boston. You have 35 universities, colleges and universities, okay? And that has driven to a large extent, the real estate values there. That has made Boston a very attractive city. And like you said about New York, same deal. This stuff is no longer the big draw. It's not that meaningful. People are going to learn remotely, and we're going to fortunately see a lot of these universities go bust as their enrollments decline, thankfully, as they should. And as we see more scalable online learning, that should be almost free. You don't make college free the way idiots like Bernie Sanders want to. Okay? You make college free by using technology that has been available for really two decades now. Okay?

Can I let you go. Can I, Can I let you go on a short tangent here too?

Because I thought I was on a tangent. You are.

But, you know, I just, I'm just saying these universities and I'm noticing that with my own kids schools and with summer camps, there is just a total lack of creativity. And I've kind of noticed, especially with the nonprofit, like I've noticed with nonprofit camps versus for profit camps, the nonprofit camps were the first ones to cancel. The for profit camps are figuring out ways to deliver value to their. To the camps, to their students. I bet with universities, this has really been this industrial complex that use the power of government to control things. This may be an opportunity for. For great schools to figure out creative ways to engage students and parents.

Absolutely. Absolutely. And, you know, gyms are doing that too. You know, there's this beautiful new gym near my house. It was open for a very short time, then it had to close down. And, you know, through their app, they have home workout suggestions and stuff. You know, they're really trying to maintain that relationship with their customers. And you're absolutely right. Listen, you know, when people don't have an incentive, when they're not paid for results, why should they be creative? You know, why. Why should they. The human won't, you know, look, our brain uses about 20% of the entire energy budget of our body, okay? It's. The brain is a hog. It's a really big processor and it uses a lot of power. It uses 20% of the body's power, which is a lot for something that doesn't even move. Okay? You know, compared to all your muscles and your legs and, you know, all that stuff, right? So we try to be cognitive misers. And Evan, you know you and I have been studying this a bit lately. When we discover. When we've been studying advertising and copywriting. Yeah. Story storytelling. You got to make it easy for people. And when you want to deliver a marketing message. That's what I mean. But on the converse of that is like you said, look, the nonprofits, the big fat professors at the universities that are tenured, they're not going to try hard. The nonprofits are not going to try hard because they don't get paid to try hard. They're not at stake.

You once in a while, you once in a while find an exception. Yeah, sure, you do like an extraordinary teacher. But in general, I've just noticed that one camp we're looking at for our kids like that all these other camps closed. And one of them I saw on the website, they're outlining everything they're doing to make the camp safe. They are going above and beyond. And I know they're going to be. I mean, they are adapting. They're doing what they have to do.

Yeah, absolutely. Okay. Looking at this article a little bit before we move on to the next topic. Okay. I found this to be interesting. Okay. People are packing their bags. Between March 15th and April 28th, moves from New York to Connecticut increased by 74% from one year ago. Okay. That's according to a company called Flat Rate Moving. And by the way, these moving reports are available and I teach that in my Creating wealth seminar to learn about migration trends and so forth. And you know, there's promover.org and u haul. U Haul is actually a very good website. They really do some nice surveys on this kind of stuff. And. And suburban towns which are not really known for their rental stock, meaning rental stock of homes had huge spikes in activity, which is being driven in part by escaping New Yorkers, according to brokers in these areas. Now this is the New York Times article that I'm quoting from here. Okay. Leafy Wilton. Is that a person? Leafy Wilton. No.

It does sound Wilton, Connecticut. Right, right.

Oh, oh, okay. Yes. Okay, sorry. What do I know about east coast geography? Northeastern geography. We don't sell much up there, so I don't know the geography. Okay. Excuse me. For Mike, it's not.

Not good rent to value ratios there.

No, definitely not. Definitely not. For instance, experience 19 lease signings between March 1 and April 29 versus 10 in the same period a year ago. So that's a 40% increase. Okay, what else do you want to share from the this thing? How about Westport, Connecticut? That's Amazing. Okay. In the same period Westport had sick, that's where Martha Stewart lives with her ankle bracelet.

Had 63 new rentals, up from 36. Okay. One year earlier. Earlier, go. While Greenwich, Connecticut was at 200 versus 158 properties included single family houses and condos and leases were sometimes as short as two months.

Fast. People are turning their homes into short term rentals in some ways.

Well, they're not the same. Like as you were saying about your Airbnb short term rental that you bought through our network, it's not as short as the typical. The way we think of rent it for a week or three days, but this is like a two month rental. Yeah, right. Interesting.

It is. It's nice. And, you know, this also proves something you were saying a couple years ago about renting has lost its stigma. You know, I mean, yes, people are kind of forced to rent here, but no one cares about. No, no one cares whether you're a renter or not in most neighborhoods. I doubt in Westport, Connecticut, if someone's paying $20,000 a month to rent a house, nobody on the street is going to say, oh, these renters are bringing down the value of our homes. That's not happening anymore.

Yeah, no, that's. That's totally changed. I mean, and I'll admit, even myself, back in, say, the 90s, I used to look down my own nose at renters and think, well, at your age, shouldn't you own a house by now? I really thought, hey, sorry, that's the way the world thought back then. It's like if you didn't buy your own place by the time you were 30 or 35, you were kind of a loser. You know, that was. That's the way we used to think. But now, you know, renting has totally lost its stigma. Listen, I would rather be renting myself right now, okay? And I own lots of rentals that I rent to other people. Renting is a better deal. The more expensive the home, the better deal it is. Even at 55,000amonth, like that one in the Hamptons that you posted, right?

Yeah, with the infinity pool. Sound like a nice. I wonder how much. You know, I wonder what the rent to value ratio in a house on a house like that is. It's got to be horrible. Horrible.

Well, that house has got to be worth a lot more than 5.5 million, right? So 55,000 would be 1%, right?

I guess that's true. I guess that is a good rent. Well, I know it would be a bad.

No no, no, it's a bad rent to value because I'm sure that house is probably $15 million or more.

Right, right, right.

You know, it could be, it could be 50 million for all I know. Right.

So they really should sell the house and buy some properties in Indianapolis and, or Little Rock.

Well, if their house is worth. If their house is worth 20 million, they could sell that house and buy 200 rentals through our network. You just go to Jason hartman.com properties and they could be happy to. And they could have $1,000 times 200. They could have $200,000 a month approximately, versus 55,000amonth because their rent to value ratio sucks.

Yeah. Much more efficient use of capital.

Definitely. No question about it, folks. Shameless self promotion. Go find that. Go find Those deals@jasonartman.com All right. Okay. Anything else on this topic before we switch gears?

No, this is, I mean, this is just something you've been talking about for a while. It's not going to end. It's not just coronavirus. This is many other factors pushing this. And as you always say, put yourself on the same side as the most important, you know, institutions like the government and the Federal Reserve will also put yourself on the side of demographic changes. And this is a big demographic change.

Absolutely. Absolutely. So speaking of these changes, home builders have seen sales jump as renters flee small urban apartments. Now this is Diana Olich, one of my favorites, cnbc, and the article is entitled exactly that. This is what I've been saying for two months. Home builders suddenly see sales jump as renters flee small urban apartments. So they're getting out of the urban areas with these tiny little places. It's not very comfortable to cocoon in a tiny little urban apartment or condo. And they're moving to the burbs. You know, it's the same things the New York Times article says. It says in the initial four weeks of the national shutdown, sales of newly built homes began falling, falling. They were down 85% from the normal spring activity by the fourth week. Now, of course, the traditional home shoppers, they weren't leaving. You know, nobody was having any open houses. Nobody was showing properties. So of course they're down. But listen to this. In the past two weeks, however, the numbers have started to climb, according to. And we've had them on the show a few times. John Burns Real Estate Consulting, which tracks hundreds of builders nationwide, we're still down roughly 65%. But more positive news is coming out of the new home market, particularly for builders, says Devin Bachman, Manager at jbrc I just got an email from Devin. So this is interesting. And as these lockdowns lift and people get less concerned, there is going to be a mass. Like, this is the 2020 version of the Grapes of Wrath. Okay. John Steinbeck's famous book the Grapes of Wrath was about migration. Now, they're not all going to the same place this time, so it's different in that sense. But they are going to a diverse set of places that have one thing in common. They're suburban. They're places where people can socially distance and where they can get a much larger home, where they can feel comfortable. Comfortable in that home.

Do you think, Jason, that there's going to be any switch to. You know how you've had the author of the book State of the States on Meredith Whitney? Yeah, Meredith Whitney. You know, I'm in Illinois, so we are, I think, the second or third strictest state. And I'm worried that schools won't even open in the fall. And obviously, you know, I'm here. I'm not moving anywhere anytime soon. But if I had the freedom, why wouldn't I move to like a state where there's just, you know, first of all, the better weather, aside from that, but where you can, you can have more opportunities, where there are more businesses that are opening up, where there's just. I feel sometimes now, again, this will depend on people's own individual feelings about coronavirus. But I'm eager to get back to work, to get out again. Do you think some, some overbearing governments will drive people out of their states?

Yeah, well, I'd be remiss if we didn't talk about Elon Musk. So Elon Musk has been making noise that he's going to move Tesla and he got a response. I'm looking at an article says lawmakers response to Musk is brief and to the point. Some point out that it's harder to dismiss the jobs Tesla provides. Okay. Elon Musk has threatened to move Tesla out of California. And one lawmaker seems ready to move on without him, leaving little room for ongoing debate. Lorena Gonzalez tweeted late F Elon Musk. F U C K okay, Elon Musk, the CEO is unhappy with California's restrictions. It's just amazing that she would say that, that she would actually tweet the F word to Elon Musk. And, you know, that's the attitude of California. You know, listen, I'm no big Elon Musk fan, okay? I definitely will criticize him until the cows come home. But in this battle, I'm on his side. Because these politicians, they are just, they're just pathetic. In California, they're awful. They are so unwelcoming to business. They're trying. It's like a state that is trying to commit suicide. It's absolutely unbelievable.

I mean, these are good paying jobs. I mean, I agree with you. I was listening to a story about Elon Musk too and talked about how, you know, he's, he asked, he has so much money and yet his employees that are on furlough don't know when they're going to be hired back. They're not making any money. And it was just a sad story. And I sympathize of course with his employees, but these are generally higher paying jobs. So if California doesn't want them, he's going to go open up another factory in Reno.

Yeah, and a lot of those people will just move. They'll just move to Reno or whatever. Right? It says now here's what they say. And the article goes on, it goes, Elon needs California more than California needs Elon. Are you kidding me? I doubt that. Okay. Another post said Tesla has a lot of employees in the state. So what you're actually saying, meaning you the government is f 37,000 people and their families. That's exactly what the socialist Republic of California is saying. Absolutely stupid. And folks, every time some idiot in New York or California pulls something like that, some idiot politician, it just benefits the type of real estate that you can find@jasonhartman.com so I'll just put point that out again. Okay. With these home builders, I just wanted to play for you a little clip here that talks about the mortgage market and this issue. So let's just get this and then we'll wrap it up.

Freddie will now buy mortgages that go into the government's forbearance program after they close. That program allows borrowers to delay their payments for up to a year if they've been impacted by the economic shutdown. Now, Fannie and Freddie hadn't been buying those loans, leaving lenders on the hook. And as a result, lending tightened dramatically. You can see here.

So see basically what they're doing is Fannie Mae and Freddie Mac are now acting in a dysfunctional manner to bail out the system. This wouldn't happen if these weren't government sponsored entities. Okay? It only happens because of this. It's dysfunctional. Nobody in the free market would do it. But they're doing it.

So go on how mortgage credit availability tanked in March. Now, there are a lot of factors behind that, but this was just one of them. Fannie and Freddie's regulator said in a statement. Purchases of these previously ineligible loans will help provide liquidity to mortgage markets and allow originators to keep lending that from Mark Calabria. Now, there are certain limits.

Of course, of course it will. Of course, of course it'll help the mortgage market. But it just goes to show you that they're just bailing out every aspect of the system. Everywhere you look.

Mortgage must have closed between February 1st and May 31st of this year. It can be to buy a home or refi, but no cash out refis. The loan cannot be more than 30 days delinquent. There will also be a cost premium for lenders to sell these 5% of the loan for first time homebuyers and 7% for repeat homebuyers. There is some disagreement as to what this means for mortgage rates. Some say they could fall slightly as the credit box opens up more. Others say some lenders will pass on those higher costs on to borrowers in the form of higher rates.

That's Diana Olek at cnbc. And there you go. It's bailouts everywhere we look, Evan.

But Jason, I've been wanting to ask you this question. Is this just going to last forever? I mean, I'm sure that the fact that all these bailouts are delaying foreclosures and the ability for, let's say our local market specialists to find great deals, are they just delaying it by three months or six months, or is this just going to continue to happen for years on end?

Well, I guess every bailout, in essence, delays the inevitable, which is the collapse of the system eventually. But the difference between my thinking and all of the Chicken Littles like Peter Schiff and Jim Rickards and just everybody, they're all out there saying the economy is going to collapse. They've been saying this for decades and they're always wrong. The reason is because nobody knows how long they can keep kicking the can down the road. And I say they can kick the can can down the road another 50, 100 years. And the question is, compared to what? Yeah, it's all dysfunctional, but it's dysfunctional everywhere. It's not just in the US it's the whole.

And that's why market timing doesn't really work with our approach because we're buying for cash flow. And okay, so maybe it'll be cheaper in a year, but you're still going to be collecting Cash all along the way.

Yeah, and probably the kind of houses we recommend, they're probably not going to be cheaper. I mean, we may see a huge decline in real estate prices, but when you segment that up by market, linear cyclical hybrid, and then you segment by price and you segment by high rise condo versus suburban single family home. And when you do all of that, I think you might see the real dollar prices of our properties go up or at least remain stable in this. Now, maybe not. Maybe the economic collapse will be so bad that everything will go down, but then it will kill the buying market and strengthen the rental market. So as I teach in the three dimensions of real estate, as I call it, that strategy of mine that I've been teaching for 16 years, the rents, the rental market and the purchase market are non correlating. Okay? So when people are forced to stay in the renter pool because housing affordability has gone down, and that goes not by the price but by the payment. Okay, so the interest rates are up and we're in bad times. Or if people don't view the future as though the market will appreciate in value, they don't buy. They just wait. It's like deflation versus inflation. Evan, look, if your currency is going down in value, you try to spend it as quickly as possible in an inflationary environment because you want to buy your stuff, you want to exchange your currency for your dollars for stuff before the stuff gets more expensive, especially assets. Yeah, so you. Especially assets. But even just goods that you need, you know, a sofa, whatever. Right. But in a deflationary environment, you do the opposite. You put off, you wait, you say, hey, look, it's going to be cheaper later. I'm not going to buy now. I'm just going to keep renting because I'm going to wait for the prices to go down. Okay, good luck with that. We'll take the 20% yield you give us every year and you keep renting. Fine, no problem. I like it.

Me too. Me too. It's a plan that works. It's really. See what happens.

It really is. Evan, wrap it up with any other thoughts you have.

Well, I think we just showed that real estate, income property, especially our approach to income property, is the most durable asset class. It's not going to double your money in six months, but it will build long term wealth in almost any market environment. And we just don't know, we don't know what the future holds. And don't you want something that has proven returns through all of history and that's what we have.

You know one of my very favorite phrases, and it's from one of the classics. Okay. Is the book starts off by saying, I am ready to be the hero of my own life. And that's what I want to say to all of the listeners. You are the hero of this story. Evan and I and the rest of our team, we're here to be your guide and to help you have a heroic life. And that's really what this is about. So you're the hero, we're the guide. We're here to help you along the way and give you the guidance you need so you can build an awesome real estate portfolio so you can get that end state of financial security in a world where the opposite is happening to most people. So fortunately, you found us. You've been listening to the show, and we will guide you through these turbulent times. But there's a lot of opportunity in these turbulent times. All right, Evan. Hey. Thank you so much for joining us today.

Thanks, Jason. Thanks for having me.

Until next time, everybody. Happy investing.

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