1622: Successful Short-Term Rental Location St. Augustine, Self-Driving Cars, Housing Inventory, Rabbi 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 1622. 1622. And I've got Evan, my friend, favorite rabbi, here with me. Evan, how are you?

I'm doing great, Jason. So always fun to talk with you and learn with you and work together and do what we do.

Yeah, good stuff. Absolutely. I agree completely. And Evan, you are one of the most informed people I know. You're just a voracious reader. You really keep track of the news and what's going on in the world. And you were telling me about an interesting book that you're reading. I mean, you just read everything. It's amazing. But what is the name of this book? Because you cited an interesting passage from it that confirmed one of my theories.

This book is called Bubble in the the Florida boom of the 1920s and how it Brought on the Great Depression.

All right, so we're going back 100 years to the roaring 20s, folks. Now, I must remind you that this was two years after we had Spanish flu pandemic that killed what, 50 to 100 million people. They don't even know how many. And it started in Kansas or Kansas City.

There's another related point to that Roaring Twenties that actually I didn't mention to you before when we were talking, but that's actually very relevant. It talks about how Miami beach was really founded in the 1910s and that because of World War I, Miami beach started attracting tourists who would have been going to France, the south of France, or would have been going to the Riviera, these very high end places. But they couldn't go overseas because of the war. So they traveled domestically to Miami beach, just like today saying about Airbnbs that people are going to stay where they can drive, stay in the United States and not overseas. And that happened because of World War I. And then that built up Miami for.

After World War I. So let me just give a little backstory here for those who may not know or if they did hear this before, they're not exactly connecting the dots. So Evan started out as a client and he purchased a couple of properties. And one of them, or a few properties, I don't know how many, I can't remember, but a few properties. And one of them was a short term rental property in the one and only short term rental market that we, we have ever sold, and that is St. Augustine, Florida. And he and his family are, are in their Airbnb property in St. Augustine, Florida right now as we speak. Now, what's interesting about this too is that, Evan, you closed on that property and you were on the show talking about it before in what, like February?

Yes, I wanted to go down for the closing just, you know, with Chicago in February. And I was trying to convince my wife that I had to go down there for the closing, but everything was really starting to freeze up by then with COVID So I basically said, okay, I'll just do a mobile closing, thankfully. But it really closed February 25th.

Right. So you purchased that property and then the lockdowns, shutdowns, quarantines, the pandemic, it all really went into full swing. And you did not seem worried. But I must ask you just really candid, were you worried at all?

A little bit. A little bit. But I was more worried when you were talking about the demise of short term rentals. That's what got worried me, because I was just worried because you're usually right about these kind of things. There was one point where I was very worried, and that was the month of May because the governor of Florida shut down short term rentals, which nobody understands why, because he didn't shut down hotels.

But then, well, the hotels had better lobbyists.

That's why he probably wants to run for president. And Marriott and Hilton are probably big contributors. But then it really just started to boom. Literally. I mean, it just started to fill up and fill up and fill up. And the months, September usually slows down. There was no slowing down. And so that month of May, I was worried, but after that it was smooth.

And you made the statement to me just a few minutes ago before we started recording for this, that that property was a life changing decision. What do you mean by that?

Well, really, it remains to be seen, right? I mean, it's not a life changing decision financially, but my wife and I mean, we, we always love, we love going to the beach. We love, you know, we love the warm Weather. And we probably would have never bought a second home just because it didn't make financial sense. You know, I'm kind of prudent. I'm not going to buy a house that's going to sit empty most of the year. But this gave us that opportunity to kind of buy a kind of house we'd eventually love to be in, but also to make money with it. So that to me was kind of. I hadn't thought of it. It was like a new way of thinking that this. And I knew it was out there, but I didn't think you could cash flow an expensive house like this. And you showed me how. And our local market specialist, who we love, we don't just use them for short term rentals, we use them for other things. He showed me how and that really helps. So I think it's life changing in the sense of, yeah, it's going to be very financially rewarding, but also just lifestyle rewarding.

Yeah. So interestingly, the Airbnb and short term rental market has been really kind of split into two different camps. Some of them are really struggling. Urban. Well, really three camps, maybe. Urban properties really, really struggling. Things are very tough for short term rental owners or managers in urban markets. Right. As they are for every property in an urban market. Right. Right now. But also what I predicted at the beginning of this, which has come true, is that the short term rentals that would do well were the ones where you could drive to them in less than four hours or so and you could have a truly different experience than where you were driving from. So for your short term rental, I mean, people come from all sorts of places, right? You know, you've been just totally booked up and you've been raking in the cash. It's been great for you. I know that. But they can drive from Atlanta, they can drive from Orlando to St. Augustine, Florida. And if you don't know where St. Augustine is, folks, just look it up. You know, it's outside of Jacksonville, Florida and it's a really beautiful, charming little place. I'm going there in a few days. It's America's oldest city. It's not really a city, but it's a town and it's just charming. And people can drive and have a truly different experience and feel like they're on vacation. And I think that's the key. Those short term rentals are working and they've got to be in a low density area like you are. Right?

Yeah.

So those are working great. But many are suffering. So it's very mixed. Okay.

The other thing you said is that it's a nice house, but this isn't a fancy house. It's the kind of house where during a recession, instead of one family staying here, three families could come and stay here and they would have enough room. And it's kind of utilitarian. It's very close to the ocean, but it's not this huge palatial ocean house that costs a million dollars. So in a bad month I can cover the mortgage. It's not.

How much was it, like 400,000?

Yeah, well, 469, but that included all the furnishings.

Okay, so maybe 30,000 in furniture. So $430,000, 40,000 in furniture, something like that, probably.

There are Airbnbs around here that I saw that are 995amillion. I would never buy one of those.

Because it's just too risky. Got it. Okay. So anyway, we covered the short term rental thing. Now let's go back to the book. What's the title of that book again? Because.

Oh yeah, Bubble in the Sun.

Okay. Bubble in the Sun. And it's about the 1920s, the roaring 20s. And it's about Florida. You know, Florida was famous in that era for, you know, you all heard the term swampland in Florida, right? And you know, there used to be a lot of sleazy promoters promoting Florida properties 100 years ago. And guess what? There are still sleazy promoters promoting properties today 100 years later. Okay. But we're not one of them. So what was interesting is that passage you shared with me before we started recording for this. And that was about the automobile. Read that. If you would share that with our listeners.

The invention of the automobile has had more influence on society than the combined exploits of Napoleon, Genghis Khan and Julius Caesar. Auto industry would be instrumental in creating the consumer goods oriented society that we inhabit today. It would contribute to the emergence of the vast expanse of American suburbs where it soon changed the architecture of the American home. Bidding carport and then garages to bungalows and single family residents equally. It brought an end to. To rural isolation and largely freed the homemaker from the house. And basically the point he makes is that the automobile essentially turned all of American raw land into real estate.

Okay, well, he said that. Exactly. So read that. Do you have. That piece was telling the automobile, more.

Than the railroad, the streetcar or any other factor, turned the American landscape from raw land into real estate. It did so by making the land accessible and thus developable. Its value could be easily established, enhanced.

And commodified okay, so now let's go 100 years later. Fast forward okay to 100 years later. And what I've been talking about starting about eight years ago is the autonomous automobile, the self driving car. And it's interesting, I was reading about it again today, I've been talking about it for eight years. At least you had a thought about the corollary to that quote in the book.

Well, you've said that you could imagine a time when if you like to surf and let's say you don't want to live in the socialist Republic of California anymore, we used to live in Newport beach and you like to surf but you decide to move to Phoenix. You could hop in a self driving car, let's say you hop in at 11pm or midnight, go to sleep, wake up six hours later, seven hours later, whatever, time refreshed at the beach, surf all day, take your car back, stay overnight if you want, you don't have to live there, pay the taxes and that you can still have some of that beautiful lifestyle aspects while living in a totally different place. That's game changer.

Yeah. And so just to add to that, and you got that right, I gave the example of a person who worked Monday through Friday and on Friday night they hung out at home, they watched a movie, they had dinner, they relaxed and then at 11pm they got in their car and went to bed. Right, okay. And then, you know, I mean they'd get there faster. But you know, at 7:00am for example, they wake up, they're in Newport beach or they're in La Jolla, they're in San Diego and they wake up refreshed, they've got their surfboard on the top of the car and they get out, they go surfing all day and then maybe they have dinner in San Diego or Newport beach and then they decide, well, I think I'll just go back home to Phoenix. And maybe it's a guy and he surfs, but he has a family and he wants to live in Phoenix because the house, he can buy a nice house there for. I mean it's gone up now. But say it's a $700,000 nice house in Phoenix. That would be equivalent to a $3 million house in LA Jolla or Newport Beach. Okay? So the self driving car just changes the game. It completely changes everything. And what it does is it disrupts the, the high priced real estate market and it allocates some of that value to lower priced real estate markets. And guess what listeners, for the last 17 years, I've been helping you invest in these lower priced real estate markets. Okay, so you're already there and I must give you some sound effect on that. Cha ching.

And I think obviously the pandemic, the fact that more people can work from home just makes this even more likely. I mean, what sparked this we were talking today is Apple, which we don't advise investing in stocks, but I look at it sometimes. To cnbc, Apple stock popped a whole bunch today and the reason is there was a report that they're working on more self driving car technology to come out in 2024. And we know Apple is really good with consumer products and great with making something popular. They take another person's idea and they turn it into this massively popular consumer goods. So that's a signal maybe the self driving car really will start to accelerate and start to really appear more widely.

And I read an article today about Tesla's. They made an announcement and Elon is notoriously bad at keeping promises and he's notoriously bad at deadlines, but they do eventually come. He says they will be again. He said this before, it's not the first time, okay, but whatever, take it with a grain of salt. He's out again saying that full self driving is right here. Now I can tell you my new car, okay, that costs dramatically less than a Tesla, okay? And I had two Teslas a couple of years, you know, three years ago I had a Model X and a Model S. I had both of them, you know, my new car for less money is better than the Tesla's were three years ago, dramatically better. And it doesn't even market itself as a self driving car, just the self driving functionality in that it stays in the lane incredibly well. It stops and goes. You know, you gotta put your hand on the wheel because the car beeps at you if you don't. But you really don't need your hands on the wheel. It's absolutely incredible. It's so impressive. I mean, and that is a game changer. It is a total game changer. And remember, we are all about suburbia. And for eight years I've been saying the rise of suburbia. Now I got to. And we're going to get into some housing inventory stuff because you got a really interesting thing from the Calculated Risk blog that we want to talk about. But just you a little more on this for a moment. I just got to give my backstory here for a moment. As a younger single guy living in Irvine, California and Newport Beach, California, I gotta tell you, for many years I hated living in suburbia. And I always wanted to live in a city where there'd be, you know, a younger population, a larger single population. I mean, I lived in Familyville. I was bored now, granted. Well, I was working and I made a lot of money selling houses for families. Okay. So, you know, business was great and you know, those are beautiful areas. Okay. But they are kind of boring. And I remember once I posted on Facebook, this was, you know, 10 years ago probably because Irvine, California always seems to make the FBI list every single year of one of the safest cities in America. They do a ranking every year, the FBI does. So I posted a link to the article and I said, congratulations to Irvine. They're the number one safest city in America again. And here's the thing about that. It's great that if you live in Irvine, you know, you'll never die. The only problem is it's so boring that you may never actually live in the first place, you know, but, but you know, I'm. I'm sort of half kidding. It's not really that boring. Okay, listen, if you, if you have kids and you're going to soccer games, you know, it's great. Okay? But I did not love it.

Los Angeles, it's too far. You were working morning, noon and night, so. And the traffic so bad that you couldn't live in Los Angeles and drive.

Out to Orange county, you know, go on YouTube and watch some of Paul Joseph Weston's videos or Watson, Weston, Watson, I don't know, you know who I mean? He's hugely big YouTuber and you know, he has a video called LA is a Shithole. Okay. And you know, listen, I grew up in la. It pains me to say that, but it's a disaster. It really is. So I don't want to go to L. A. Okay, Are we done on the self driving car and the automobile in general and all that stuff? And tell us more about that book later too.

Yeah, but the bottom line is self driving cars are going to make the single family homes you buy, we all buy more valuable, you know, and it just, it's the same same forces that are propelling, that are propelling the increases right now. We'll just continue in other ways.

Yeah, so the rise of suburbia, that has been accelerated that I predicted eight years ago, that it's been accelerated this year due to Covid is and due to the Joe Biden campaign rallies. I mean the riots and burning down and breaking windows, Joe Biden campaign rallies, same thing. Anyway, so I hope people get that what my joke is, right?

I read this article. I think it was a great joke. It said, you know, maybe if a politician can win by staying in their home and doing nothing, maybe all politicians should just stay in their houses and do nothing.

That would be great. Yeah, yeah, absolutely. Absolutely. That would be a good idea. So the rise of suburbia is upon us and it's had an acceleration this year, but the autonomous vehicle is only a few years away and it's going to have another huge push. So folks, all of these suburban properties that you find@jasonhartman.com properties and talk to your investment counselor. Yes, Jason hartman.com properties shameless self promotion there. All of those properties. Many of you are clients. You've been listening to us for years and congratulations because you're about to see a big bump in value. I mean, listen, there are other factors obviously, but I'm just telling you the self driving car is a game changer for your suburban properties. It makes them much more valuable. The example of that Evan gave that I shared from years ago about the surfer who moved to Phoenix but still likes to surf on Saturday. That's quantifiable. But what about the couple who, you know, move to boring suburbia but you know, when it opens up again, okay, it's not open now, but it will open again someday. Take Broadway, right? Take, you know, the attractions like the arts and the opera and you know, what is available in urban areas, right? Well they could go, they could, you know, leave their house dressed up at six o' clock in the evening they arrive all relaxed and nice and in the car on the way there, you know, they have a glass of wine, a glass of champagne. You can drink and drive. If you're not driving, okay, the car is driving, okay. And then they can go to the opera and then afterwards they can go to a bar or a nightclub or to watch some music. They can have as many drinks as they want. They get in their self driving car and they're ushered home safely. So it's a game changer. They don't have to look, live in that expensive real estate environment anymore. They can live anywhere they want.

And sometimes we're a little hard on cities on this podcast, but I'm not anti city. I love visiting New York City or you know, and actually self driving car will make some of the great parts of a city even more accessible. It's just you won't have to live there, you won't have to deal with the traffic in the house.

I like cities too. I think they're great. I just don't want to live in one. And I certainly, or, you know, I might want to live in one if the prices were reasonable. But they're totally unreasonable and so are the taxes. So the game changer is, is happening. Okay? It is happening right before our eyes. So congratulations to all of you clients who are investing through our network and all of you who aren't yet. Reach out to us. Jason hartman.com or 1-800-hartman and Evan. Now, let's talk about this fascinating article on housing inventory.

Well, there's a couple things here. One thing is it just talks about how inventory is just so low, and it's the lowest it's ever been since they started recording statistics in 1982. And one of the things it was starting to, it was lower starting in about 2012 through 2017. Then it started to level in 2017 through 2019. It was pretty steady. And then in 2020, it went way down. Few reasons. One is people didn't want to sell their homes because of COVID That was a huge thing. And the other is, obviously people weren't building as much because of COVID But the other part of this, and we've talked about inventory, you've taught us so much about this. The other part of this article that was really interesting was the rental forecast for the next 10 years and how the demographics. Well, two things. One, there's going to be a lot more homebuyers as millennials reach the age where they can really afford to buy homes. And we're starting to see some of that now during COVID But also, as you've talked about, the price to buy a home is going to be so high that there's still going to have to be a lot of renters. There's still going to be a lot of renters. This is one thing that I've learned in working with clients. Everyone's always worried about, oh, when is my house going to be vacant? When is my house going to be vacant? Am I going to have a tenant right away? And we all want to have tenants right away. But I've started to tell clients, did.

You mean to say, when is my house going to be rented?

Rented? Yeah, yeah, yeah. When it's going to be rented. That people are worried if there's not a tenant in place the day it closes, and they're worried, well, what if I get vacancies? And I've kind of learned, and I'm trying to encourage clients, is vacancies are not going to be a Problem, especially where we're buying, because the most important thing is getting the right property and getting the right team vacancies. There is always going to be demand because the places we're buying, the population is growing and the renter demographics are very, very favorable. And this was just more evidence of that in this article.

Yeah. Okay, so tell us more detail about it though, because one of the things the article talks about, and this is a very well done study of this, you know, there are charts and graphs and bullet points. It's, it's well done. But it does say that even though inventory is incredibly tight and incredibly scarce right now, it does say that it is going to loosen a little bit by mid-2021. And it's gonna, it's, we're gonna get a little bit of relief. It's not saying it's gonna be anything dramatic, but it's gonna be better. And I guess that's because their thesis is that the builders are really ramping up and they're gonna start to come online.

Well, supply and demand, right? I mean, supply and demand. Yeah. Here it says in 2020, inventory really declined due to a combination of potential sellers keeping their properties off the market during a pandemic and a pickup in buying due to record low mortgage rates and move away from multifamily and strong second home buying. the same time, demographics are now favorable for home buying. And he says here, this was really what you just referred to, making the assumption that pandemic will mostly be over by 2021. We can make a few general predictions. Potential sellers will be more willing to sell their homes and allow strangers into their homes. The move away from dense cities will slow. That will change with the pandemic end and cities will be attractive once again. Of course, the trends towards working towards remote working, online shopping and home entertainment will likely continue. And this will allow some people to live anywhere. 3. Demographics will be favorable for home buying. The generation moving into the home buying years is much larger than the leading edge of the boomers that will be downsizing or moving into retirement communities. Four, Mortgage rates are probably close to a bottom now. Hint those of you who want to buy right now, buy right now. But it seems unlikely rates will increase quickly with the Fed will be holding down rates for the foreseeable future. Five, homebuilders will continue to respond to low inventories and housing starts will likely increase further in the second half of 2021.

Okay, thank you for sharing that. Now I want to make a very important point. Are you all listening? And Are all of you ready for the very important point? I just want to make sure you catch this very important point. Okay? I hope you're paying attention now. Inventory is not a generic concept. The inventory that will be created when there is a little bit of relief in inventory is not going to be inventory that you as an investor are going to be the least bit interested in. It's going to be way too expensive for you. Builders are not building any entry level anything. Okay? They can't. The government has put so many restrictions on them and made building so expensive. And lumber prices, lumber prices, steel prices, everything prices, you know, whatever, Right. They have made it so expensive that they cannot make a small basic house pencil out. They can only build upper, middle and high end houses. That's the only thing that really pencils, with a few exceptions of a few production builders that are willing to build the lower end stuff. And by and large, in the overall scheme of things, that is nothing. It's like nothing in terms of the overall market size. Okay? Now we've got a few of those that we have scouted out for you at great expense. Okay. And with great effort, you can find out about those. You can talk to Evan or our other team members. You can see them@jason hartman.com and, and we'd be happy to help you with them. So I just want everybody to understand that very important point that inventory is not the exact inventory you're necessarily looking for as an investor. It's just inventory is a generic concept. So.

But what it does is it's to our advantage because it pushes home prices up.

Of course. Yeah. Once you're in the game, it's to your advantage, but if you're not in the game, it's to your disadvantage.

That's right. That's right. And we may have to revise those rules. Cause I remember one thing I learned from you early on is you said if a house is over $250,000, you should probably rent it. If it's under, you should probably buy it.

We're going to revise that a little upward. Yeah, we have to revise the numbers upward. So now I'll add like $100,000 to that probably and say if it's over 350. You know, there are other reasons to buy a house and rent a house, you know, for your personal use is what we're talking about there. But that, that's another subject for another day. Okay? Yeah.

So we get a lot. This inventory, as you taught, is so connected to price. And. But even More so the kind of inventory we have because it's not being built anymore, it's even, it's even better. It all goes back to supply and demand. The kind of housing that we have is in high demand for renters and the supply is just not there. Especially right now. The eviction on foreclosures. There's not many foreclosures happening. The existing supply is even more valuable.

The foreclosures will increase, the evictions will hit and there will be a wave of that. But that again, mostly affects. Well, the evictions mostly affect the institutional apartments. Okay. These are not single family homes in a areas very much. Okay. It's mostly lower end workforce apartments where the people that have been highly affected by the unemployment problem live. Okay. So waitresses. I shouldn't. That sounds so sexist by today's standards. I better say so. Servers, okay. Because, you know, someone will shoot me or something. And so, you know, it's. It's a different market. Okay. It's. It's not the market that is renting, by and large, with, you know, there's a couple exceptions here and there, obviously, but by and large it's not the market that's renting the types of properties we're recommending. So. Good stuff, Evan. Closing thoughts. Let's wrap it up.

Well, I just want to say our, our clients are just terrific and I think they get this. I was talking to one today, even while on vacation, I was talking to a great client who says, I get it. And our biggest issue is inventory and we're getting more of it. But it's really, our clients get that what we have is a conservative investment that pays you well over time. In fact, I was telling this client, we were talking about just investments in general, and he has stocks and bonds and so forth. And I was telling him, I said, I kind of think, I said this is just my opinion, but I kind of think of income properties. In some ways it could be categorized as a bond because it's conservative, but it has returns much greater than stocks, especially the kind we sell because it's low risk. Right. I mean, the replacement cost is often greater than the price we pay. Now that takes a while to explain all that, but really we have this great asset that our clients really understand and that I just feel grateful for that and grateful that we're educating them every day.

Yeah, yeah. It's a multidimensional asset class and it's the most historically proven asset class in the world. It's the most tax favored asset class in America and taxes are the single largest expense in anybody's life. So reach out to us if we can help you. 1-800-hartman or jason hartman.com also we have our ongoing asset protection and estate planning webinar. A lot of you are taking advantage of that. That's jasonhartman.com protect also our Alabama new construction properties@jasonhartman.com sweethome like sweet home Alabama. So you can check all that stuff out. And Evan, thank you so much for joining me. And I want to have you say something to our audience because you are a rabbi. Well, yeah, wish them a Merry Christmas.

That's exactly what I was thinking. Let me be perhaps the first rabbi to wish you a Merry Christmas and if you're Jewish, a happy Hanukkah. I know I have several Jewish clients. A happy Hanukkah. Whatever your race, religion, ethnicity, we wish you a happy holiday season and joy of being with your loved ones. And you know, as Jason always says, we help you take care of the money thing so that you can really enjoy life and we help you there. So, so enjoy.

Just take care of the money thing. And with all the happy holidays wishes, I want to wish you happy investing. And thanks for joining us, everybody. Thank you so 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 art and media 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.