1749 FBF: How Declining Home Ownership Rates for Millennials Creates Opportunities For Real Estate Investors

Welcome to this week's edition of Flashback Friday. Your opportunity to get some good review by listening to episodes from the past that Jason has hand picked to help you today in the present and propel you into the future. Enjoy.

Welcome to Creating wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven't thought of before. And a new slant on investing, fresh, new approaches to America's best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine, self made multimillionaire who not only talks the talk, but walks the walk. He's been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason's footsteps on the road to financial freedom. You really can do it. And now, here's your host, Jason Hartman with the complete solution for real estate investors.

Hey, welcome to the Creating wealth show.

This is episode number 505.

505. And this is your host, Jason Hartman. Thank you so much for joining me today.

So, you know, on many, many previous.

Episodes, I have talked about the amazing, literally amazing demographics coming at the rental market over the next decade plus and potentially, you know, I don't really have any way of empirically knowing this, but potentially they are the best they've ever been in US History.

It is nothing but amazing. Every part of this which we have talked about in depth on many prior episodes, it's amazing. I mean, you look at the millennial generation and they are this huge cohort, the largest demographic cohort in American history, slightly larger than the baby boomers.

And they grew up seeing their parents.

Go through a housing crisis and a stock market crisis and an employment crisis, or I should say unemployment crisis.

They saw their parents get burned and they are in an anemic job market. It's hard to find employment.

You know, it's, it's not going to.

Be the typical thing that used to.

Exist, by the way, where the typical millennial, well, they weren't a millennial back then. They were a Gen Xer. My generation, the typical Gen Xer, you know, they'd years old and they're buying their first house, right? Or even younger many times. But nowadays that has just changed because with an anemic job market, they've got to have mobility. Mobility is the best thing you can have on the, on a resume, as I often say.

Here's another article that just kind of, among so many other reasons, the massive.

Amount of student loan debt not having faith in that American dream of homeownership and an anemic employment market and needing mobility. And, you know, the list goes on and on. Family formation starting later. People not really getting married at any big rate anymore. You know, this massive growth in the single population, the largest voter block in the last three presidential elections, which most.

People don't even consider that a voter block.

Right? Because singles are of both genders, they're of all ages, they're of all races. So, you know, it's not considered a voting block, but it really is. I Single is a voting bloc, and it's the largest voting block in the last three presidential elections. So here's a Business Insider article I came across that says apartment renters just aren't crazy about buying a home.

It's just really interesting. It comes at it from an interesting.

Angle because it says, and I'll just read a little bit of it to.

You, it says on an almost daily basis we hear the question when will.

The millennial first time buyer emerge?

While predicting the behavior of any cohort.

Still recovering from high levels out of unemployment and a record amount of student loan debt can be tricky.

The response of some of the largest.

Apartment REIT operators and a reit, of course, is a real estate investment trust. These are the big owners of many apartment buildings, right?

Is an unhesitating no time soon. When your apartment lease expires, you have.

Two choices, renew or move out.

Each quarter, we track the percentage of residents who move out of an apartment.

To purchase a home.

Other reasons for moving can include job.

Change, eviction rising, you know, rents rising too high, etc.

By studying publicly traded apartment REITs who manage a combined 520,000 units, we learned.

The following number 1.

During the housing boom of the early.

To mid 2000s, roughly 1 in 5 renters leaving their apartment opted to purchase a home. In fact, the national home ownership rate peaked in 2004. At the same time, the percentage of.

Those moving out to purchase a home was peaking.

Now, my commentary. Remember, I've talked to you many times in prior episodes about what I call the three dimensions of real estate.

Now there's really more dimensions, but these.

Three dimensions that I talk about commonly are people buying, people renting and interest rates. And of course, the values of homes reacting mostly to interest rates and housing affordability.

And when I do this, I always.

Talk about, you know, I give an example of my friend Nancy, who I ran into at the car wash sometime circa 2003, 2004 in Irvine, California, and she worked at the time. Maybe she's still there. I'm not sure. For the Irvine Company, the largest apartment owner in Orange county, if not all of California, possibly. They're certainly a giant, giant company. You know, I said to Nancy, the typical question, I said, hey, how's business? And she said, oh, it's, you know, it's really kind of tough right now because everybody is moving out of apartments to buy homes from you. Now, back in that era, I was in traditional real estate. It was before I sold my traditional real estate company to Caldwell Banker.

And, you know, I thought, well, isn't that interesting? Interest rates are very low. Prices are going up. Housing affordability was still reasonably good.

It got bad later in the boom. And that's, of course, a sign of a bubble coming.

And that's how countercyclical it is. So when interest rates are low and.

It'S easy to qualify for loans, remember back then, you could fog a mirror and get a loan. Then you have this kind of market.

Where everybody just moves out, okay, and they buy. And now you have kind of this.

Weird scenario because, of course, interest rates.

Are extremely low, but the lenders are.

Making it pretty difficult to qualify for loans, right?

So that's kind of an odd situation on it.

You also have a time right now where in most markets, housing affordability is quite desirable. It's very good. People can afford to buy, but they can't necessarily qualify for loans.

Now, you add on to that the.

Additional layer of psychology, and it's what I talked about when I started this segment of the show where I talked about generation Y, the millennial generation, and.

How they just don't really seem to.

Psychologically have that same concept of the American dream. First of all, they're putting off marriage. They're putting off household formation. A lot of them are living at home with their parents. A lot of them are renting. They have massive student loan debt.

They like mobility, and they like the.

Social life that, you know, that renting offers. It offers usually a better social life than owning, unless you're a family and you live on, you know, family, ish neighborhood and so forth. And that can be a different kind of social life.

Welcome to this week's edition of Flashback Friday. Your opportunity to get some good review by listening to episodes from the past that Jason has handpicked to help you today in the present and propel you into the future. Enjoy.

And so they're putting off this choice, right? And so you layer all this into.

The equation, and the decade of renters coming at us is like this tidal wave. It's, you know, like the movie, right? The Perfect Storm. And it makes being a landlord a very desirable thing right?

Now, the article goes on to say, since 2008, the percentage of renters moving.

Out to purchase a home has remained below the historical average of 17%.

Well, the homeownership rate has continued to decline. Now, when you look at stats like this.

This is just me talking.

When you look at stats like this.

It'S important to make another distinction that is hard to survey. And so you have to sort of accept a lot of anecdotal evidence rather than, you know, really, really firm empirical facts, right?

Because you can't survey individual homeowner, single.

Family home landlords very well. You can only survey big apartments. So here, this article is based on, you know, surveying these huge REITs, these huge institutional landlords that manage 520,000 units.

Now, many of you listening own, you.

Know, 20, 30, 40 or even more single family homes, right?

But nobody is surveying you, right? So you don't, you, you don't get.

Stats very good on single family homes or individual owners because surely no one has ever called you and surveyed you about what your tenants are doing, right?

So that's one other thing you always.

Have to just consider with this. We have to always look at the apartments.

Now, a lot of these people would.

Much rather live in a single family home, and I think that's the big opportunity for us because by and large, our clients offer single family home rentals and that can be a great opportunity for them.

So, you know, there's a graph here that's included and it is, it is staggering.

It's amazing. You look at back in 2004, you know, up to really about 2006, seven or eight, and you saw that the.

Homeownership rate was high, and then it.

Started to plummet, which I think is actually a great thing. I think the homeownership rate has, is still a little too high. You've heard me talk about that on prior episodes. It's funny you would hear a guy in real estate say that. I know I'm probably the only one.

But, you know, I think the homeownership rate realistically should be around 50%, maybe 55%.

Now it's hovering around 64%.

And it peaked out at nearly 70%. And we did that talk at our.

Meet the Masters event a couple of years ago called six Years, six Million New Renters.

And, you know, it looks like we're.

Going to be Right. And one of the other Things we.

Pointed out is that if Fannie Mae.

And Freddie Mac were to stop being subsidized by the government, if they were to be allowed to fail, or, you know, fail for whatever reason, or rein in their horns and become drastically smaller as they should. Another real estate guy saying something that you'll never hear any other real estate people say. I think Fannie Mae and Freddie Mac should go away. They cause distortions in the market. Just as Sallie Mae and. Or is it, yeah, Sallie Mae with student loans. Okay, these are just silly, stupid government agencies. They shouldn't be allowed to exist.

If they were to go away, we predict that that could mean an additional.

Up to about 25 million new renters. Whoa, what an opportunity. Now you'd probably see home prices decline.

Because remember, in that three dimensions of real estate, those things go countercyclically or.

They'Re non correlating indicators, I guess is the way I want to say that. Interesting stuff to keep in mind.

Now I want to get to a couple listener questions, but before I do, I want to say something. Listeners, you need to listen to the prior episodes and you need to come.

To our live events. We've got our Memphis property tour coming.

Up in just a couple of weeks. You should be there. A lot of the questions you're asking are answered at the Creating Wealth Seminar.

The live seminar, and here you've got it with a tour and a private.

Dinner and a semi private tour of Graceland.

We may just have an Elvis sighting there too.

So come to the, come to our live events. Okay? We don't have them that often, so it will be in Memphis in a couple weeks.

You've got the Creating wealth seminar, you've.

Got the property tour, you've got some meals with me. You know, you can sit right next.

To me and ask me questions till.

Your heart's content and I will answer them. But if you don't go to the live event, you need to buy something. You need to go to jasonhartman.com and.

You need to purchase the Creating wealth home study course. Okay, just go buy that.

Listen to it.

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The great guests that we have on our show.

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Outline, it follows a really nice overview and gives you all the stuff, the.

Broad knowledge you need to know. Okay? So you need both of these things. You know, it's like saying you went.

To school, maybe you went to college.

And you got all of your basic academics taken care of there, but you.

Still read the news and listen to the news.

Right?

You know, that's what the podcast is.

It's the news combined with some tips and some good commentary there.

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Hartman.Com, click on Products and invest in the Creating wealth home study course.

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It's really a great thing. So let's get to a couple of questions here.

This one comes from Matt in Colorado.

Here we go.

Hi Jason. My question is in relationship to mitigating risk for properties, what if you have, let's say 10 properties in three states, do you have an LLC to manage the properties and then another LLC that owns the properties as assets, thus mitigating the risk if there's ever any liability issue where a tenant possibly sues and tries to recover for an amount greater than what you're insured for. I'm just trying to understand how you.

Silo risk between your properties so that you're not exposed should something accidental happen to one of the tenants and they seek to go after you for an amount in excess of your insurance. Thanks. This is Matt.

Hey Matt, great question. We have discussed that on prior episodes.

And of course at our live events.

The first thing I have to say of course is I am not an attorney.

I am also not a tax advisor.

But I, you know, my personal experience.

With this and you know, and what I've heard from so many clients is what I can share with you.

Number one. Generally speaking, I think the use of LLCs and entities can certainly offer some asset protection.

I think it is largely over promoted.

It does create some complexity when investing in real estate. If you put your properties into LLCs.

The single family homes, I'm talking about the single unit properties or, or anything.

Up to four units, it can make it a little bit more difficult to get insurance. Okay.

And insurance might be a little bit more expensive. There are fewer providers providing it to entity owners rather than individual owners.

And also, in all my years of doing this, I cannot remember ever hearing a Lawsuit where you had the typical.

Slip and fall, where you have the tenant claim they were injured and they sued the landlord and it created some kind of liability for the landlord.

Certainly not to say it couldn't happen. It can happen, but I have never heard of it happening.

It hasn't happened to me. And I've had hundreds of tenants.

You know, it's just. I think the risk is kind of overrated.

I think it's pretty easy to insure around this stuff.

Now, there are other types of risk, too. You know, you could have a liability from another activity.

You might get sued in your business or in another part of your life.

Say a car accident or something like that, and they might try and attach assets. And, you know, there are ways with LLCs to protect those assets from the.

External threat versus the internal threat, which is the one to which you're referring.

And one strategy. If you want to go the entity route, you don't mind the additional expense and the additional complexity.

It can certainly offer some greater protection if you want to go that route.

You can have maybe three LLCs in three states.

You mentioned 10 properties that you had, and I believe you said they were in three different states.

So you might do one LLC in each state.

You might have that LLC owned by another LLC in another state, and you might put that in a desirable state, such as Wyoming or Nevada or one of the others that offer some greater protections. For example, in Wyoming, they offer charging order protection so that if an external threat occurs and you are sued and you have a creditor come to you.

They may be in a position where they will have to wait to collect until you take a distribution.

And if you don't take a distribution, they just have to keep waiting, you know, possibly forever.

So there are some reasons to do this. Talk to an attorney.

We've had many attorneys on the show talking about this stuff before. At our Meet the Masters events, we have attorneys come and speak, and any of our investment counselors at my office can refer you to an attorney who can help you with this kind of stuff. Again, I can't practice law. I don't know enough about it. There are a lot of complexities. But those are some initial thoughts to guide you and maybe bring up some questions when you do talk to an attorney.

Okay, let's go to our next question from our listener, Steven, who has called in many times.

And here's another question. We have definitely covered this one many times on prior episodes.

And just to say I did not.

Yet move back to the Socialist Republic.

Of California I'm looking for a place there. I do have a big tax benefit.

I have to move back and re establish residency for. So I do still live in Arizona at the time of this recording.

But I'm looking.

So I'm going to answer this question about renting versus owning. Here we go.

Hey Jason, Dr. Steve G. Jones, clinical hypnotherapist here again. And I have a question about owning versus renting your primary residence. I noticed that you rent your primary residence.

And your reasoning, well, right now you're in California. I understand that because tax thing, you had to move there to get some kind of tax savings. You wanted to be in La Hoya. So you're renting in La Hoya because property prices there are too expensive. I understand all of that. But before any of that you were living in Arizona, renting a place that I think was a condo for about 5,000amonth or you were trying to, that was your goal, to rent it for around five or six thousand a month, I believe.

And to me that doesn't make any sense because.

It'S very wasteful.

Sounds like it's about $60,000 a year flushed down the toilet. So I don't understand in the scheme of things and in the long term.

Planning of things.

I don't understand that it sounds like a live for today, don't plan for tomorrow type move. And I find that.

I don't know, I'm not able to comprehend that as a person who is interested in, in building wealth over time. It just sounds extremely wasteful. So on the other hand, I understand you being a single guy and wanting to.

You know, have the freedom to move around. But wouldn't it be better to have a stable home base now? Not considering this California thing, that's a different, that's different altogether. I'm talking about before you realize that wouldn't it make sense to have more stable base that you owned that you were paying down the mortgage on, not paying someone else's mortgage and from there you could go out and about. And I asked that because I'm in the same situation or I'm considering I'm in the same same situation as you and I'm considering that exact challenge. Rent versus own. So I love to hear your reasoning behind why you chose to rent and how that makes financial sense. Because one more thing, you can own a primary residence and you could travel around the world like you do anyway and like I do and those are all tax deductible because they're all business related. So please explain thank you.

Okay, so that question has been addressed.

Many, many times in prior episodes, and.

It'S a good question.

Here's the deal.

If you are going to live in.

A home or a condo. Well, I don't like owning condos at all, okay? So I almost never think a condo is a good deal. There may be an exception here or there, but almost never.

But if you're going to live in a single family home that's worth less.

Than about $150,000, it makes sense to own it.

Okay?

And because if you're going to rent that property, you're probably going to pay fifteen hundred dollars a month to rent it, and that's going to be about 1% of the value.

So in that case, I would recommend that you buy that home and you live there. Okay, it makes sense. But in La Jolla, for $5,000 a month, I can get the use of.

A $1.2 million or maybe even more home. Okay?

And that is a phenomenal deal because I can take and acquire $1.2 million worth of other real estate assets in.

Markets that make sense. For example, I could buy 12 $100,000 homes with that $1.2 million worth of real estate.

And I could put those homes in.

Three diverse markets, four in each, and I bet I could get them to generate $1,000 per month. So I would be getting $12,000 per month for my $1.2 million worth of.

Real estate versus getting the use of a $1.2 million gorgeous home for myself.

For only $5,000 a month.

That makes complete sense. You cannot argue with that. It is a great deal to be.

A renter of a high end property. Now, you referred to the property in Arizona that I was trying to rent and I'm no longer trying to rent. That was quite a while ago. So you obviously listened to an old episode. This property, probably still on the market, is a really high end penthouse condo.

And it was listed for $2.4 million.

Last time I checked, it was about, I think, 5,500 square feet or something like that. And it was newer.

It's beautiful.

It overlooks Tempe Town Lake in Arizona.

And that I did make them an.

Offer that where I went up to $6,000 a month on.

But if I'm going to invest $2.4 million in a real estate deal, I want to get 24 grand a month. 24. I want to get 1% per month. Okay. Anything else? It's better to rent. And look, here's the thing.

You Got to understand. I remember I was at church years ago and the pastor said, you know, he was talking about materialism, and I was at church in Orange county, like.

The most materialistic place going, right? So I was there and he was talking about how that none of us really own anything. And I think this is a concept.

That is worth thinking about in this discussion of rent versus buy, because none.

Of us really do own anything. We're not taking any of this stuff with us, right? When we pass on, as the pastor.

Said, we are all just trustees from birth to death.

We get to own and control things while we're alive. And it is incumbent upon us to, to do the best job we can with our financial resources and to plan for the long term, but also live a little bit today. Don't deny living today either, and balance.

That equation of instant gratification versus long term planning.

If you live in a house that.

You own and you pay five grand.

A month to own it, you could rent that house out to somebody else.

And charge them whatever the market rent is. So when you're saying I'm just flushing.

$60,000 a year down the toilet, you're.

You'Re just, you're just wrong about that.

Okay? I'm not doing that at all. Okay? We're all renting. If you live in a house in which you own, you have lost the, you have an opportunity cost where you can't rent that house to somebody else, or you can't use that money tied up in that property, or, or that loan that you got against that property for some other property that could produce.

A return for you.

So this is the deal, okay?

We're all renting. We're all renters. Even if you think you're an owner, you're in essence still a renter because there's an opportunity cost that goes with it. Okay?

So I hope that answers your question that's been debated for many, many years. You know what? I was going to have Dan Mitchell, senior Fellow from the King Cato Institute on as our guest today, but once again, I went very long.

So we'll have Dan on probably the next episode.

And be sure to go and get your final chance to register for the Memphis Property Tour. It's almost full and it's only a couple weeks away. We'd love to have you join us. We've got a private dinner at Graceland, Elvis Presley's former home, Graceland. So that'll be really cool. And we've got a semi private tour of Graceland too. So not only will we look at some good properties.

Not only will you get the Creating wealth in today's economy seminar, and not.

Only will we be able to spend.

A lot of time together and have informal conversations, but we will also have the Graceland stuff, which I think is kind of cool.

I wanted to do it two years.

Ago when we had a tour there and we just never pulled it off. So this time we did. So join us and I will look.

Forward to talking to you on the next episode and seeing you in Memphis.

I've never really thought of Jason as subversive, but I just found out that's what Wall street considers him to be.

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