1759: Housing Shortages, Capital Formation, Shrinkflation, Cyclical Markets of the World

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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 1759. 1759. Those numbers are getting big and they're getting harder to say. Anyway, it's great to have all of you listening and some of you watching from 189 countries worldwide. We really appreciate our global audience and we'll do the best to keep you informed and keep you up on the latest and greatest investing, financial and real estate news. So we live streamed yesterday about how the big institutional investors are engaged in massive rent increases. You know, there are times in the marketplace where it becomes sometimes it's easier or less expensive to rent and sometimes it's less expensive to own. And of course that's a very localized question. When you look at these national surveys, they're just pretty much meaningless because all real estate is local. But as we do see the market slowing down ever so slightly, that can be very misleading because it is not the case in the low priced entry level housing, that bread and butter housing that makes for really good rental properties. Those are flying off the shelves. They are booming. Inventory is extremely constricted. And if you take a look at the chart up here, this I actually talked about on a podcast a while back, but it's still so telling. And it just shows you that the number of available homes has fallen steeply in metros across the country. And this is just as of maybe, I don't know, two months ago. It's not old and when you segment it by price. It is just really, really much more severe than they're showing on this chart. So in Atlanta, for example, a market that we've been busy in for many, many years, one of our investment counselors, Sarah, purchased a property there years ago on one of our Atlanta property tours. And she just resold that property at an, at a huge profit. Just an incredible, incredible profit. So look at this. A deficit of 9,000 homes for sale in Atlanta, down by 9,000. 2,000 in Austin, 17,000 in Chicago. And of course, this is all related to the size of the population in that metro area. So you have to take that into account. I really wish they would express this in per capita terms because that's always much more meaningful. Why? Well, it answers the Jason Hartman question. What is that question? Compared to what? See, you don't have the compared to what answer when they just talk about the number of properties. It needs to be the number of properties compared to the size of the market. So we have to sort of adjust for that in our minds. Right. Austin is a smaller city than Chicago, Atlanta or certainly New York, which is down by 30,000 homes. Right. Washington, 6,000. Cleveland 2000. Cleveland being smaller market again. Right. So proportionately, you know, Cleveland might be the worst off in terms of its inventory. Right. In terms of its lack of inventory. So it's pretty amazing what's going on. The entry level housing suffering greatly from a complete housing shortage. And right now, in almost all places it is better to buy than rent in terms of that monthly option because the interest rates are so low. Yet at the same time, landlords are taking advantage of incredibly low rates, literally negative interest rates. And as I said before, this may be the first time ever that we have negative interest rates officially. Now, what do I mean by that, officially? Well, we've many times had them unofficially. But what I'm doing there is I'm taking the official rate of inflation according to the most widely used measure of the consumer price index, and taking the interest rate on a 30 year fixed rate mortgage and you are literally getting paid to borrow the money, even if you never rent your house out. It's absolutely incredible, right, because you're borrowing it below the cost of official inflation and unofficial inflation rates are much, much higher than they're saying. So many examples of this. So much shrinkflation going on out there, so many ways that service has just been massively reduced. And at the same time, prices have gone up. The size of everything we buy, practically every consumer product is less and less and less, yet the prices are the same or higher. They're hiding the inflation by shrinkflation. Zillow, another dysfunctional tech company. You won't believe this. This is a Business Insider article that talks about how Zillow has listed a staggering 93% of the hundreds of homes it purchased in Phoenix.

That it owns at a loss. They've been overpaying for properties. And why does this happen? Well, folks, we got to take a look at the way we do capital formation in this country because it is really, really messed up where we have this winner take all system where all of this money rolls up to these big software and tech companies and they're dysfunctional. They have to deploy that capital and so they deploy it by overpaying for properties. Right. And I knew they were doing this. There was a lot of information about it. People saw it out there. It was, it was just absolutely crazy. So we'll see what happens. Now. Maybe, maybe the market will catch up with them and they will find that they've actually made a nice profit on these properties. But that'll take a few months to work itself out. Not as long as it used to because again, in this market where we see prices, especially in the entry level, increasing so quickly, it is just crazy, crazy, crazy. And you know, if you've studied the Hartman comparison index, that in most places real estate is actually still quite cheap. But the unaware people, the low information investors out there, the people who just don't get it, that don't understand how it works, that don't ask the Jason Hartman question compared to what they still think it's really, really expensive. And so it's complicated, right? It's complicated in cyclical markets. I believe real estate is mostly overpriced in most of the cyclical markets. The trophy markets, the markets you hear about on the news, the markets that have glorious highs and really ugly lows in the hybrid and linear markets, still lots of bargains, historically speaking. Let's look at some of these trophy markets. Around the world. It takes 20 years of work to buy an apartment, a 600 square meter apartment, that's about 600 square feet, give or take, in these cities near the city center of the following cities. Now, this is from Statista and it's based on the average annual income of highly skilled service sector people. And this is a UBS Global Real Estate Bubble Index survey. Okay, so what does it tell us in 2011 in Hong Kong, A very overpriced market that, by the way, is on the verge of massive. Well, I'm not on the Verge of. But you know, I was there with Carmen a few years ago. I reported from Hong Kong and how incredibly high the prices were with. We talked about Kyle Bass, the hedge fund manager's report, a lot about Hong Kong and how we thought it was really an overpriced market. And then literally two weeks after we left Hong Kong, massive civil unrest and the protesters and mainland China cracking down. You know, really, really sad to see what's going on. And then of course, conveniently Covid came along to keep all those protesters inside and to allow the, the big heavy handed state to crack down on them. Okay, well, in 2011, and this is the difference. Right? But again, this is only based on the price compared to the income. It's not based on the price compared to other things, and it's not based on the monthly payment. So again, incomplete information, but still interesting nonetheless. Hong Kong in 2011, it took you 15 years to afford to pay cash for a 600 square foot or, yeah, approximately 600 square feet apartment near the city center. Today it takes you 20 years, right? 20 years. But the money is a lot cheaper. And those of you waiting to try and time the market, which in my opinion and historically proven is a fool's errand, do not go overboard in trying to time the market because you're going to miss it. And the choice you have today, if you think real estate is overpriced. Okay, fine, let's entertain that argument. Now in the cyclical markets, I, I agree with you, it is overpriced. Linear markets. Yeah. Not so much hybrid markets in between the two. Right. But linear markets still very well priced in terms of entry level housing. All right, incomplete information here, because here's the thing. If you're trying to time the market, you're either going to get the property cheap or you're going to get the money cheap. You're very unlikely to get both. And when people compare prices today to the last peak in, depending on what survey, you're looking at 2005, 2006, even 2007, right before the Great Recession, they're going to say, well, they're historically high. But remember, the money is less than half the price it was back then. Look at the mortgage interest rates and you get three decades on that. In the US now in these other places you don't get those great 30 year fixed rate mortgages, but in the US you do. So do you want the property cheap or do you want the money cheap? And remember, 1% in interest rate equals about 10% in price. So that's your trade. Money cheap or property cheap? Now I will tell you the best of all worlds in that circumstance. It's to buy the property when it's cheap, during a really bad recession, when you probably won't have the confidence to do it, even though now when things are booming, you'll say, well, I'm saving all my money, I'm keeping my powder dry and I'm going to have cash. Cash is king. I'm going to jump in and buy everything in sight. While you were around in 2008, why didn't you do it then? Did you not have enough cash? Was financing unavailable or were you just worried? Were you scared like everybody else? It is very easy to say you're going to be bold and buy everything in sight looking in the rear view mirror. And as I've taught you over the years, almost every deal looks great in the rear view mirror. But during the valley, the trough, the very, very scary times during a recession when we all think the world is falling apart, that it's never going to come back, it is very hard to have that kind of confidence at that time. We'll see who has it next time around because there will undoubtedly be a correction and we'll see who's willing to go all in. Because you never know where the bottom is, do you? You never know how long it's going to take to get through that recessionary time. And you never really know where the bottom is. It's always a mystery. Okay, but the best of all worlds is this. And it happened to many of our clients. It's to buy when the property is super cheap and then to get lucky and maybe two or three years later to have the money be really cheap, meaning the interest rates just fall like crazy. And financing to be available, because remember, post Great Recession, the money did get pretty cheap. Now, not as cheap as it as it is now, but it was pretty cheap. I mean, interest rates back then comparatively, compared to what compared to history, were very low. Now they went a lot lower with COVID 1984, but they were cheap. And it wasn't just about the price of the money, it was about the availability of the money. Because those cheap loans, you could only get four of them, you could only get a maximum. Well, there was time, you could only have two and then they increased it to four. Now you can do 10, right? 10 per spouse, right. If you're married, which might be a decent reason to get married. Although marriage is typically a pretty bad deal. Read Men on Strike, which is a sad Commentary on our culture. The book is written by a woman, Helen. Helen Fisher, I think. Yeah, very, very interesting book. And it's a sad commentary on our times, how they've disincentivized marriage and family formation. But hey, that's a whole nother topic about sociology. So the best deal is to buy when the property is super cheap, refinance it, pull the cash out when the money gets real cheap. If you only have to wait a year or two to do that. But how do you know if that's going to happen? You don't, nobody does. And even if the money's cheap, will the money be available? Will the financing be available? So you can have cheap money but lack of availability of that money, which is what we had coming out of the Great Recession. So 2008, 9, 10, 11, 12, 13, 14, 15, you know, money was cheap, but availability of money was very scarce and qualifying was, wow, it was incredibly hard because the banks overcorrected because they were scared and they had all sorts of new regulations by Dodd Frank, which was that ridiculous 2200 page bill nobody read. I can hear Nancy Pelosi now. We have to pass the bill to see what's in it. Speaking of the health care bill, right? What a disaster that turned out to be. I mean health insurance costs have skyrocketed and that's not just really the cost, it's that they deny everything now. It's the availability of, you know, certain treatments and protocols and co pays and all this stuff, right? It sucks. The health insurance is all super. Do it yourself. Have you tried to call your health insurance company lately? They don't answer the phone. Nobody answers the phone anymore. It's all DIY folks. Do it yourself. Pump your own gas, serve your own food, pick it up at the counter. But you're expected to leave a tip even though you're going to bring it to your table, bus your own table at the restaurant. You know, it's all self service. That's shrinkflation. Absolutely, Shrinkflation. Okay, Paris, back to the survey. 2011, 15 years to afford that tiny little apartment. Now about 17 years. London, 2011, 10 years. Now 14 years. Tokyo, 2011, about 8 years. Now 13 years. Singapore. Same thing. It's the same thing with all these cities. Singapore, New York, Munich, Sydney, Frankfurt, Zurich. What do all those cities have in common? They're all cyclical markets. They're all the trophy markets of the world and they are overpriced. If this were a survey that wasn't global and it was the U.S. you could just put the names like San Francisco, Seattle, Los Angeles, Miami, Palm beach, where I live. Right. You could put Boston, New York, Washington, D.C. and many others in that same category. Those are the cyclical markets of the US and they're the markets that are very much overpriced. Okay. So yeah, Zillow has overpaid for these properties. We'll see how they do on it. The market might catch up with them. You know, it depends how long it takes them to turn these. Oh, here is more proof of this massive concentration of wealth, of how we are living in a mass affluent world. And sadly, as it's mass affluent, it's also mass poverty at the same time. And this separation, this divide between the haves and the have nots is only going to get significantly worse.

My prediction, and I've been saying this since 2004, they are hollowing out the middle class. And what I'm here to do to help you do is to move up into the upper middle class or the rich, which surprisingly does not take as long as you think the years are going to pass anyway. Let them be your friend. Put inflation on your side, put time on your side. People with a net worth of $30 million or more are considered the global elite, the ultra wealthy of the globe. And you would be surprised how quickly by investing in income properties and running a good business or even a good career as an intrapreneur rather than entrepreneur and having a side hustle, which is hopefully going to be a great real estate portfolio, you would be surprised how quickly you can get there. I mean, I'm surprised when I look at my own life how quickly it happened. Now, granted I'm not a kid anymore, but you know, the mobility available to people using income property is truly phenomenal. It's absolutely staggering. If I look at where I came from and how I grew up, and most of you have a similar story, most of us came from pretty humble beginnings. Okay? I look at my mom grew up on a farm in upstate New York, lived in basically in poverty on a dirt road. Okay? Five kids, they didn't have anything. Me grew up a little better than she did, lived in the city, in Los Angeles, in crappy areas of Los Angeles. I was mugged repeatedly in my school a couple times at knife point, okay? That's how bad it was. I'm pretty street smart, you may not know that, but I had to be right to survive. I remember when my mom owned this pioneer chicken in the absolute terrible area of Los Angeles. I remember one time we were Leaving and you know, the store would close it, I think nine o' clock at night. And the cook, the chicken cook, you know, in the greasy place, needed a ride home. So my mom gave him a ride home in our little crappy Toyota piece of junk car that maybe costs, I don't know, $3,000. And my mom bought it used from the rental car company. Right. You know, because they would get rid of their rental cars. And she, I remember we looked at the rental car company and the cars who were selling off. Right. So about this little cheap. Toyota didn't have air conditioning. I think that one had a radio. But the car before that, that little Honda Civic didn't have a radio even. Yeah, stick shift, no radio, no air conditioning. You think about how we have it now, they don't even make cars like that anymore. Which another, that's another sign of like a good comparison, as I said before, of how to compare it to how they're just not making cheap houses anymore. They don't make cheap cars anymore. One is because of all of the regulation in housing and in automobiles, it's just made the cars really expensive. But number two is the profit margins are so much smaller for the auto manufacturers and for the developers. And that's why the type of properties that you're buying through our network, when you buy them through us, you are getting a type of property that is going to become extremely rare in the future because it's the end of the entry level home, the end of the starter home. Okay, so mobility, absolutely surprising. You know, as the old saying goes, most people overestimate what they can do in a year and, and underestimate what they can do in five years. But I look at my mother, I look at myself, I look at a lot of you that have been, you know, investing with me for 10 years. Right? And you, you come to events and, and reach out to me and we communicate now and then and I see how much all of you have grown following our plan. It is truly amazing. We overestimate what we can do in a year, but underestimate what we can do in five years. The opportunity for mobility with investing correctly is absolutely staggering. Okay. Mass affluent society. Well, these private jet companies are a good sign of a mass affluent society. NetJets, you've heard of NetJets. Berkshire Hathaway owns part of them, Warren Buffett's company. And NetJets is now pausing immediate access to, to new fractional and lease purchases of private jets. There are no rooms at the inn or airplanes for sale at Least if you want to fly immediately with netjets. In perhaps another warning sign that the industry is facing a severe shortage of private jet capacity, NetJets has paused share and lease sales for immediate access. Now I've had netjets after me for years and years to try and get me to buy a fractional share of a jet or to buy a jet card where you get a certain number of hours. And you know, I'm a member of one of those private jet companies. I used to be a member of another one. I don't fly private that often because it's just so hard to justify the cost. Now it's not so bad if you have several people in the plane, but you know, if it's just you and the dog or you and one friend, it's really hard to justify the economics of that. Knowing where I came from and how, I don't want to be completely frivolous, right? So the uber rich can't even get a jet anymore. And if you think NetJets is anomaly, oh just wait, there's more. Flexjet, another company is also pausing jet cars sales as fractional demand for their deals right for their memberships roars forward. With consumers ready to dive all in on private flying and evaporating supply. Flexjet, not NetJets, this is another company has halted accepting new jet card customers as of yesterday. The company is not changing the terms for existing jet card customers. It will allow current jet card customers to renew with changes. The critical difference is both peak and non peak day call out will be up to 120 hours. Previously the non peak booking window was 24 hours. And they're going to add, they're going to DO surcharges of 25% on both the Phenom 300, which by the way is a super cool plane. I've had my eye on that one for a while. And the Challenger 300, which I've, I've flown several times. Flexjet has already raised hourly rates on both cards as demand continued to soar. Flexjet CEO Mike Silvestro said rate increases didn't make sense, so they didn't increase the rates for the renewal people or the current members. But on renewal or if you're, if you want to buy a new card and you're not a customer yet, you're screwed. Now you might be thinking why does that matter to me? Isn't this a show about real estate investing, folks? That is a sign of wealth concentration and the wealth gap widening and widening and the rich getting just richer and richer and richer. And it's a sign of inflation. How about one more today, Sarah, one of our investment counselors who most of you know, she posted in our private Inner Circle group about how rent can cost up to $27,000 a month in a new senior living complex in San Francisco. Now, San Francisco has been a pretty embattled city. It is coming back a bit. Hey, listen, when you print all kinds of fake money and throw it into the system, everything's going to come back like the rising, the rising tide lifts all the boats, right? But yeah, it's, it's just, I mean, $27,000 a month for senior living. Now I remember when my grandmother who passed away of Alzheimer's years ago, we had to find senior living homes for her and they were, you know, five, six thousand dollars a month. One of them was really quite nice. It was in Corona del Mar, California. But we didn't think the care was as good there, so moved her to Anaheim to what we thought we had better care, not as nice, but better management. Right. And that was, you know, memory care, that was dementia care, that was fairly intensive care, medication, all kinds of, you know, all kinds of stuff. You know, highly skilled care. And that was five, six thousand dollars a month. And that wasn't that many years ago. Okay. Early 2000s to the late to 2010ish. And now $27,000 a month. Absolutely staggering. So the divide is widening. Costco raises the minimum wage to $17 an hour. And the mom and pop businesses will not be able to compete with that. So it'll put more of them out of business and constrain supply. Evil Jeff Bezos, who, by the way, I thought he was so into equal opportunity, but he didn't hand over the CEO role of his company to a minority or a disadvantaged person. You know, why didn't he do that? Gave it to a white guy. Hey, Jeff, what's going on here? I thought you were woke. Guess not. Guess when it comes to money, everybody's, you know, everybody's just going to go with the flow, right? But yeah, the hypocrisy is incredible. And he's been working on putting people out of business when he was CEO of Amazon by making it impossible for mom and pop retailers to compete. You know, raise the minimum wage so everybody will want to work at Amazon instead of abc, you know, privately owned store on Main Street. Right. So it's this consolidation of power, consolidation of wealth, and it's going to continue. So if you are not building a nice real estate Portfolio for yourself. Get in touch with us jason hartman.com or 1-800-hartman get in touch with us as soon as you possibly can because we are here to help you do that and it is absolutely staggering what's going on in the world right now. You know, this is, this is new stuff folks. It's, it really has not been seen before. So I hope this is helpful and let's wrap it up. I think for today. Again, reach out if we can help. We do have a virtual event coming up that we're going to announce real soon. So stay tuned for that. That'll be an easy one. You can just jump on Zoom and meet us, get some good education. That'll be creating wealth virtual and first time I'm ever presenting that as a virtual event. So look forward to seeing you there. Stay tuned for that announcement and again, reach out to us Jason hartman.com we're here to help you. And until Wednesday, happy investing.

So George Gammon, Jason Hartman and I have, we've created a high level mastermind group called the Collective. The goal of the Collective is for you to learn from the three of us as well as of course the other members on how to build and more importantly how to maintain your wealth. In this video we're going to go into detail about what the Collective is and what it can do for you. Enjoy. So I'm Ken McElroy. I've been in real estate for over 330 years. Started with a two bedroom, two bath using my own money and now I own over $1 billion worth of real estate that I bought over the years. Built a big company. We have a construction company, a development company, a property management company and of course an investment company. And typically now we syndicate and work with large, both private and public institutions for the equity and, and the debt. And so what I bring to the Collective is how to scale, how to grow. Starting with one really small property with no experience at all and growing it into an organization which I've been able to do that basically runs almost without me. So that's what I'm going to bring to the Collective. We decided to start the Collective because.

One I met George Gammon and George brings a very interesting perspective about the economy and the Fed and the way money works and Bitcoin and alternative types of investments which quite honestly I was super focused on real estate almost the entire time and even I want to be a little bit more diverse. So when I talk to George and to Jason, they're always doing very, very different things on the investment Side, Jason specifically is more focused on the single family housing and what's going on in that market so that we could collaborate and have different viewpoints on different things. And so that's why I thought the collective would be good because I think everybody's kind of searching for the same kinds of answers. So the collective means to me basically the collective group, the whole. And I've always been a big believer of team collaboration. So for me it really means collaboration of everyone kind of coming into a room and learning from each other based on their individual highs and their individual lows and to be very, very respectful of all their independent views on things and to be more open minded, transparent and authentic. So I cannot wait for the group to get together each and every quarter because we all have very different walks of life that we're going through. And so it's very, very cool to get into one room with like minded people. I think the right person for the collective is somebody who's into personal development, somebody who's trying to be a better individual, somebody who's trying to have that work life balance, trying to figure out good decision making on the investment side, specific good decision making on the personal side, perhaps, certainly on their health and on their wealth. The members that have already signed up are people typically that have businesses that they're growing, businesses that they've started or businesses that they've sold. So typically they're higher net worth and they're trying to figure out what to do with their money. They're probably a little bit afraid of inflation, they're probably a little bit concerned about where to invest. And they're obviously looking at real estate as one component. Somebody that's trying to do the right things both on the personal side and on the financial side. So some of the experiences that members can expect to get out of the collective are certainly the network. And I think that's always super powerful. I've been involved in groups like this before like EO and ypo, the Entrepreneur Entrepreneurs Organization. And ypo, which is Young President's organization, which is kind of a peer to peer network. And I, that's what I envisioned. And I think people are going to certainly get that out of there. They're going to have lifelong friends for sure from this and they're going to meet people at every single event. But also we're going to have fun. So as an example, things like race car driving and doing all kinds of really cool things and meeting celebrities and things like that. And fashion, fashion shows are going to be part of it. So it's kind of a how do we have fun and learn together? And we're going to have that at each and every event. So thanks for watching. If you guys are interested, there's a link below you can click on. It'll take you right to the website, which has a load of information on exactly what the collective is, where the next events are, and what exactly you'll be getting if you become a member. Thanks for watching.

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