1927: Turkey Inflation, Deflation, Higher Interest Rates, Home Investors Good News, Renters' Income Vs. Housing Costs

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I just wanted to say, you know, Jason, I've been following you for a long time. Ten years ago is when I first saw your course. And I'm telling you, the way that things have played out are way better than you projected. For me personally, obviously it's been, you know, a good six years, but now I'm ready to kick it into high gear. As you know, I want to really build a portfolio that's, you know, five or four or five times what I have already. Obviously. Honestly, your advice has been fantastic. It's been life changing for me.

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.

Good day and welcome to episode 1927. 1927. Thank you for joining me today and for all of our American listeners. I hope you had a very happy Thanksgiving holiday. I was on a cruise and, well, that was fun. Went to the Bahamas and the Dominican Republic and had a good time. A little R and R on that cruise and spent some time with family there as well. So let's get into it. A lot of random stuff I'd like to talk to you about today, not the least of which since we just celebrated Thanksgiving, is inflation when it comes to talking turkey.

So your Thanksgiving turkey was the Highest price in 37 years? Yes. A typical Thanksgiving feast cost $64 and 5 cents this year. And you can see if you're looking at the video here on YouTube or whatever plat you can see, the turkey prices have skyrocketed. I mean, just last year from $1.23 a pound to $1.55 a pound this year. So quite a difference. Inflation is pervasive throughout the economy. However, I do see some deflationary pressures. Now, you all probably heard that the retailers had an awesome, awesome Black Friday they did really well and they were very excited about that. They were making bank on Black Friday this year. However, compared to what is always the question, right? And I'm not comparing to last year or the year before anything like that. What I'm comparing to is the level of inventory of products they have. And this is anecdotal. It's just an impression. However, I'm noticing with Black Friday sales and Cyber Monday sales. Oh, and by the way, Cyber Monday, I gotta mention, we did extend. Well, it's not exactly the same sale. We didn't extend it exactly. It's not the same, but it's still a great deal by popular demand. We are also offering a phenomenal sale on our tickets to our Scottsdale event in January as a Cyber Monday promotion. Just go to either Jason hartman.com or better yet, because it runs a little faster, go to empoweredinvestor.com live and take advantage of our awesome Cyber Monday. I almost said Black Friday, our Cyber Monday sale. So very limited time on that. But get your tickets. You can get an awesome two for one deal. So check that out for sure. And you know, my voice is hoarse. I have not been talking today. I gotta talk a little bit before I do these interviews. Anyway, so there are some deflationary signs in the economy and one of them is going to be cars. Car prices are finally dropping now. Compared to what? Compared to the supply chain shortages and the pandemic and all of that stuff? Yeah, they're dropping from that point, but overall they're still pretty high. So we'll see how it all pans out. But I think we're going to see some good sales in January for those consumer items because I think the retailers have quite a bit of inventory of stuff because the supply chain shortage problems have to a large extent disappeared. And I'm thankful for that because it's a good thing. Okay, let's move on with more random stuff. Now, a lot of people misinterpret these headlines and that's why I want to talk to you about some of these headlines today. So this is a Wall Street Journal article and it's entitled investor home purchases drop 30%.

As Rising Rates and High Prices Cool the Housing market. So let's take a look at this article for just a second here. If you're watching on video, you see that we've got it up on screen here. So here is the article in the Wall Street Journal. Buyer activity by companies fell in line with the decline in overall home sales amid higher borrowing cost. And look, folks, this is to be expected. Of course, the higher interest rates have made it so a lot of investors, including some of you listening, can't qualify for the mortgages anymore. Or even if you can, you don't want to, because the deals ain't as good as they used to be. That's just a fact of life. But the question is, compared to what? So we'll look at a deal here in just a moment and we will ask and answer that question, hopefully. Compared to what? So here it just talks about how, of course, the rates are higher. Companies bought around 66,000 homes. These are these institutional investors in 40 markets tracked by real estate brokerage Redfin during the third quarter. So 66,000 homes. But compared to what? Compared to 94,000 homes during the same quarter a year ago? Well, of course they're going to buy a third more homes the year before the money was free. It's actually still free because you're borrowing it much lower than the rate of inflation. But it's not as good as it used to be because last year we still had high inflation, but we had super low rates because the Fed had not started attacking inflation yet with high rates. By the way, we talked before about this big J.P. morgan deal. They just allocated another billion dollars in a collaborative effort to buy more single family homes for investment. So some of them are definitely still buying out there. But check out this chart. Investor home purchases on a quarterly basis. And you can see here, it of course, is historically still very high. If you go back before the pandemic, investor activity is higher now than it's ever been, even back to 2010. So investors are purchasing more homes now than at any time in the last 12 years. If you take out the anomaly, not a benchmark. See, everybody's. Well, not everybody, but people who don't know any better are trying to use the last two years as a benchmark. It's not a benchmark. The last two years was a fluke, an exception, an anomaly. It was crazy. It was a time that will probably never be repeated again in our lifetimes. The last two years was just totally weird. Do not make that your benchmark. But if you go back the highest year here and on this chart, it's a little hard to read, looks like about 2017, I'm going to say, with over quarterly purchases of about 65,000 homes. And here we're at about 66,000 homes. And that was the highest point, taking out the anomaly of the last couple of years in history, back to 2010. But right now, we have a higher point than that and a much, much higher point than any of these times. If you just take out the crazy period over the last two years, still a lot of investor activity, in fact, the highest in 12 years, if you exclude the crazy times over the last two years. But what does this mean over? Let's just understand this, folks, because this is what's really important for people to understand. The people who don't get it, they read a headline like this and they go, oh my God, that's crazy. The market's falling apart. It's a disaster. No, it's not. It's an opportunity. And I'm not trying to like make light of this. This means less competition for renters. That's good news for anybody that owns housing stock because there's less inventory of rental properties coming on the market than there has been at any time in the last two years. That means when you buy a rental property, you've got less competition for tenants. And you know that these tenants have been priced out of the market. You know, just as I predicted at the end of last year and early this year, that builder contracts are being canceled left and right. I predicted that. And that has totally, totally, totally come true. And that's exactly what's happening. Buying activity by companies fell in line with the decline in overall home sales amid higher borrowing cost. So fewer new rental properties coming on the market for lease and more tenants who cannot move into the homeowner pool because they've been priced out of the market with the higher prices and the interest rates, thereby putting upward pressure on rents because of basic supply and demand. Okay, here's one that's interesting. This is also from the Wall Street Journal. 17.5% the share of sold homes that were purchased by investors in the third quarter. That's down slightly from the beginning of the year, but still higher than at any time before the pandemic. So that's a Wall Street Journal stat right there for you. And let's just look at the actual. These Redfin charts do a good job of dividing up. Remember, I'm always talking about how we need to segment the market and this chart is doing that for us. The only thing I don't like about this chart is it doesn't tell you what low priced, mid priced and high price means. It doesn't define that. But just by common sense, I think we can kind of figure it out and we'll talk through it here. So if you're watching on video, you see that we've got one line Here, the red line that represents the low priced housing inventory, the gray line that represents the mid priced housing inventory and the blue line that represents the high priced housing inventory. All of them are down in terms of what they were over the last two years. Meaning that fewer investors are buying all three segments of those homes than at any time during the last two years. But compared to what? If you go before the last two years, you can see that investors are still purchasing certainly more than they did a lot of times historically dating back for 22 years to the year 2000 in the third quarter of the year 2000. So again, compared to what is always the right question. Now what's interesting about this though is that as an investor you should not be buying mid priced and high priced homes. Now again they're not defining this and I think it might go by market, comparing it to the median price in any given market. And remember of course all real estate is local. So this chart includes all markets like cyclical markets, hybrid markets and linear markets. So it's not adjusting for that like we would as smart investors doing the right thing, making the right decisions. But the low priced homes are the ones you want to buy, right? And that's low to like. I mean low ain't what it used to be anymore. Right, because most of the inventory that investors are able to buy nowadays is new home inventory. Because all of the people that own existing homes have 28 to 29 years left with super mega artificially cheap mortgages and they're not giving those up. We're going to go over some inventory stats in just a moment. I'll give you an update on inventory overall. So you can see that the low priced market has only seen a 20% year over year decline in investor purchases. But the mid price market has seen a 37.1% decline. So much bigger decline in investor activity in mid priced homes. And the high priced homes has seen a 35.7% decline in investor purchases. Which actually kind of surprises me that that decline isn't higher than the mid price for whatever reason. I don't know. Okay, so here's another way to look at it. Okay. Investor home purchases down as housing market slows this year over year change in the number of U.S. homes purchased by investors. And we can see here that overall again we go back to that same stat we talked about earlier, down 30%.

Compared to what I mean in the last quarter it was up by 7% and a couple quarters ago it was up by 81.6% and before that it was up by 141%. See, they've got a baseline here of zero right now if we go back to 2008 because a lot of people are making these faulty comparisons of today to 2008, we see that that activity was down at the worst point by almost 50%. The investor market was cut in half in 2008. Right. So again, that was a once in seven decade anomaly. It's not the market we're in now. This is a completely different type of situation we've got going on now. All right, now this is another really interesting chart. And this is from the U.S. census Bureau American Community Survey. And what it shows you here is that renters incomes have not caught up with housing costs and they probably never will. This is housing costs, median rent, including utilities and median renter household income. And you see that the gap has widened. And folks, this just shows us one thing. I've been talking about this for 18 years. 18 years I've been telling people this, that the standard of living is declining. This is what inflation does. It is a robber and a thief. It is a pickpocket. It makes the standard of living go down, the quality of life go down for most people. And it is a sad thing. It is because of these either stupid or just evil rotten people running the central banks, running the government. You know, all of these central planners will lump them into one. The central banks and the governments, not just in the US but around the world. They are hurting people because they are engineering things so that it benefits them and their elitist people. And who suffers? Well, the poor, the lower middle class, the middle class. And if they're not playing their cards right, the upper middle class. But, but you know, the upper middle class has no excuse. They can solve the problem. The problem is some of those people in the upper middle class are just spending all their money and they're not investing. So you've got to live a reasonably conservative life in comparison to your income so you can afford to have money with which to invest. And the way you beat inflation is by investing, but only in a particular way. Using the Hartman method, using inflation induced debt structure, that hidden wealth creator. And if you're new to the show and you don't know what that is, just go to jason hartman.com use the search engine there, type inflation induced debt destruction. You can probably just type that on the Internet. It's my trademark term and you can just find it. Certainly you can find it on YouTube as well. But folks, what people make the mistake of here is they think, they think on this, like glib knee jerk reaction type of thing that most people do, they think, oh gosh, this means rents will go down. No, it doesn't. What it means is standard of living will go down. It means that the renter that was renting your house is going to have to move to a lower priced house or they're going to have to take on a roommate or have a side hustle or do something to try and mitigate the way their standard of living is being attacked through these terrible policies that our elites are foisting on them. The central bankers, the governments, they are ruining people's lives. They are using inflation as a wealth redistribution strategy. And it is literally the most efficient way for these people to redistribute wealth from the poor and the middle class to themselves and their cronies in the upper echelon. That's what inflation does. It is the most powerful method of wealth redistribution that has ever been used, ever, throughout history. Much more powerful than taxation. All right, I want to talk to you a little bit about apartments. And we have talked about this a few times and this is from John Burns and it just talks about how the apartment market is slowing. And this is to be expected because this market really has been quite overbuilt. And you can just see here, when we look at a lot of real estate Investment trusts or REITs own big apartment complexes and have a lot of apartment units in their portfolios. So this says the gravitational forces of rising supply, economic uncertainty and return of seasonality have all pulled the apartment market back down to earth. While apartment owners would normally not celebrate a softening in demand, this is exactly what the Fed needs to see in order to tame inflation, which will be great for the economy overall as well as apartment owner borrowing costs and cap rates. I don't know about that. I'm not sure I agree with that statement. But okay, whatever. That's what they're saying. The major publicly traded apartment REITs or real estate investment trust. You know, these are these big pooled assets that you can invest in but you probably shouldn't because pools are for fools. Direct investors make the most money. Okay, Just finished reporting their third quarter preliminary October results and confirmed as we noted last month, that rent growth is quickly decelerating. Now again, the only reliable rent surveys are from apartments. They are not reliable from single family homes because the single family home market is extremely fragmented now. It is getting a little better than it has been historically. Why? Only because these big institutional landlords are playing a Much bigger part in the single family housing market. But the vast majority of rental surveys, I mean, and I'm talking vast, fast, fast, like 90% when they talk about what rental rates are doing, are relating to apartments, only maybe 10% or a little bit more relating to single family homes. Just think about this. So many of you listening own single family rental properties. Hopefully you bought them through our network@jason hartman.com if you're really smart.

And look, I bet you no one has ever surveyed you. You've never received a survey on what your rent is. You never received a survey. Did you raise rents when your leases renewed the last time around? Did you decrease rents? What is your vacancy rate? No one is asking you that. So no one is surveying you. And the other 18 million mom and pop owned properties in the US that are single family rental properties, they're not getting surveyed. But big institutional apartment owners are either filing their earnings reports and so they're on the public record, or they have survey companies that are constantly surveying them, asking what they're doing with their rents. No one is surveying the single family market. And that's why you need to just peel back the layers of the onion to understand what's really going on here. Okay, so here is a good chart about apartments. Apartment reit, same store, new lease, rent growth, change. Now, when you're evaluating stocks of publicly traded companies and their retailers, you always want to look at what they call same store sales. Right? Because think about it. Say you take Best Buy for example. I can't think of another one. But Best Buy. And Best Buy is. Say they were in growth mode. I'm not saying they are, but I'm just using an example here. And say they were opening up new stores and you looked at their financials and their financials said, hey, business is growing, but they're opening up new stores. And that's why it's growing. More stores, more places to sell TVs and computers and gadgets and gizmos and all the stuff that Best Buy sells. Right? That would be very misleading. You've got to always look at same store sales. So you have a compared to what Answer. And that's what they're doing here with apartments. So they call it same store, but you get the idea it's the same concept, right? And it says By October, all REITs reported low to mid single digit new lease rent growth. The best proxy for current demand, a deceleration from recent double digit rent growth, while a slowdown is expected this time of year due to seasonality. That sharp of a decline indicates that the apartment market is slowing more than normal. Annual new lease rent growth slowed to 5% in October from 13% in the third quarter of this year. Wow. Well, 5% ain't bad. I mean, compared to 13%, which is insane. Yeah, you know, it's still good, but most people, the uninformed will read this stuff and they'll think, oh, my gosh, the market's falling apart. No, it's not falling apart at all. It is decelerating, as it should. It got out over its skis, as the saying goes, and, you know, it needs to get back in order and have some equilibrium. Okay. Renewal rate growth eased, but remains high. REITs focused on pushing renewal rents to minimize the difference between in place rents, the people who are already there renting, and market rate rents, known as loss to lease. As a result, renewal rents increased at a similar pace to new leases in the third quarter and outpaced new leased rent growth in October. So what does that mean? Well, what they're doing there is they're talking about, hey, were they able to bump the rent up higher if they were renewing an existing tenant? Or. Or were they able to get more from someone on the outside? Where can you do better? And over the last two years, I have said to you many times that this is the first time I actually came out and said this, when I said it would be better to lose your tenant and have a tenant turnover because the rents have increased so dramatically. The tenant who is in your property probably can't afford to live there anymore. Which harkens back to what I was saying just a few minutes ago. Inflation ruins the standard of living for people. It causes a decline in standard of living and quality of life, where the tenants simply have to move to a lesser house, in a lesser neighborhood, in a lesser school district with fewer amenities, whatever. Right? They can no longer afford your house because the market has passed them by. Now get your tenants listening to this podcast and watching my YouTube channel and we will help that rising tide raise all the ships. Right, but look, we know that most tenants aren't thinking this way, right? They're focusing on other things and not delaying gratification. They want instant gratification more often than not. And that's why they're slipping behind on the socioeconomic ladder. So anyway, occupancy. I'll just say one more note on this. Occupancy fell slightly. Weighted average total occupancy, this is in apartments, fell to 96.2% in the third quarter. From a record high of 96.6% percent one year prior. Mid America Apartment Communities with a portfolio located in the Sunbelt Markets was the only REIT that reported an increase in occupancy from the second quarter of this year. So I mean, again, ask yourself, compared to what? Those occupancy rates are still incredibly good, but they're not as good as they are in single family homes. And the rents are definitely softening quite a bit in apartments and there's a lot of new supply coming in the market. So be cautious if you're an apartment investor. This is not the time to be putting a bunch of capital into this market at the moment. Okay, all right, we'll wrap up with inventory now. Inventory subsiding a little bit and we are at 568,000 homes for sale in the United States, still only about half of what we had seven years ago. Inventory is extremely low and it's nowhere near where it needs to be even in normal market, much less what anybody would call a buyer's market or a bad market. Inventory is extremely low and it did drop a little bit from the week prior. But the telltale thing will be what happens in the new year. Where are we going to see inventory go? And my prediction is that I, and I've been saying this all along, it's not a new prediction, is that we're going to see more inventory of new homes and maybe only a little bit more inventory of existing homes. We have this dichotomy in the market where existing home sellers don't want to sell. They have no motivation to sell. They have 28 or 29 years left on these mega cheap mortgages. They're going to fight to keep those properties however they can. Right. Even if they experience tough economic times. And there's no question we're going to be in a significant recession here. Okay, but the new home builders, they're in a totally different situation. They don't have 28 or 29 years left as these great mortgages on their property properties right now. They could keep them and rent them and a lot of them are doing that. They're keeping some of their own inventory and turning it into rentals. But they don't all have the luxury of doing that because they don't all have the debt structure the way they need to to make that happen, even though it might make complete sense to do that. They can also sell them to institutional investors that we talked about earlier in the show and go from there. Okay, so here is a property from your favorite website jason hartman.com and this property is in Alabama and this is one of our great builder properties. We've got some phenomenal opportunities there. All of the major cities in Alabama, we are very busy in those cities. Our clients are buying up properties like crazy there. We've got one client that is on the verge of buying about 60 some odd houses in a couple of our Alabama markets. And these are very, very attractive right now. So this property, $269,900. It'll take you about 56, $57,000 down plus closing cost, projected rent about $1,700 and the projected cash flow. And if you're looking at the video you can see where my mouse is. I, I make my mouse pointer very large so you can, you can see it, you see it right there. Projected cash flow of about 115 per month or almost 1400 dollars per year. And I want you to notice something here because people tend to make mistakes about this. It's a little minor thing but I just want to point it out. Okay? The principal reduction on this mortgage is $290 per month plus the positive cash flow of 115 per month. This represents your true positive cash flow, right? Because you're getting a mortgage pay down of almost 300amonth. So how much do you have here? You have $405 per month in real effective positive cash flow. Right now if I had my druthers, I would just have all my properties on interest only loans. I would absolutely love that. But you know, those are available but they're not as good as they used to be. Nothing's as good as it used to be. Get over it, deal with it. It's the way it is folks. It's the market we're in. Right, but your effective positive cash flow is 405 per month when you add these two together. And remember we've got conservative projections in here. We've got assumptions of only a 6% appreciation rate. We've got vacancy rate built in here, management fees built in here. So if you self manage this is going to be substantially better because your management fees are $130 per month and we've got maintenance percentage yet. This is a brand new property. You're probably not going to have any maintenance at all for the first few years of 2%. So your overall total return on investment projection is 37% annually. 37% annually. Now you've got a buy down in here. So the builder is actually paying 3% toward your closing cost and 3% toward the buyer's rate. Buy down. But you got to act quickly because you got to buy this one in, particularly by December 15th. Okay? So if you tie this or, you know, many of the other properties we have@jason hartman.com in the property section, if you tie them up by that date, you've got some good builder incentives here, and that'll buy your rate down to only 4.5%. All of this, of course, is subject to your qualifications, your credit score, yada, yada, yada, you get it? Okay, but what I want to point out here is even if it only goes half as well as expected, and your projected or expected return on investment is 37% annually, if it only goes half as well, you're making almost 20% annually now. What else are you going to do? Tina, Tina, there is no alternative. Right. Are you going to invest in the stock market? Well, you'd be down over 20% in the S and P this year. You'd be down about what, 30 something percent in the NASDAQ, you know, individual stocks. It's all over the board. We get it. Cryptocurrencies. Well, you're going to be bankrupt.

I haven't really talked much about this whole FTX scandal, but I just cannot believe it. You know, I will generally say this, and most of these crypto bros that have been all crazy about this crypto stuff and you know, listen, I own a little bit of it too, you know. Well, not as much as I used to because I sold some and tax harvested a loss recently. But my point is this whole idea of like free money, okay, is just immature. It's like gambling. I mean, look, we all know people who are into gambling. They go to Vegas, whatever, and they gamble. They play the lottery. They do, they do all this gambling stuff and I just, I don't know, that just never attracted me. It's just not my personality. I don't. Listen, I have other flaws and things. I have my things, okay? I'm certainly human, okay? You know, thankfully I never got addicted to gambling or alcohol or drugs or any of that stuff. Right? But you know, it's like, how did they expect something for nothing? Where does that come from, that you're just going to make all this money? I mean, I got a couple other slides here I'll share with you on a future episode. But I mean, Binance, ftx, these companies offering these insane returns. How does someone that puts their money into that stuff think they're going to generate those returns? I mean, it's just bogus It's a Ponzi scheme. You know, it's. It's Bernie Madoff 2.0. Right. You know, money isn't free. It has to be somehow earned. You can earn it through labor or capital allocation, but you gotta ask, what investor on the other side of that trade, what is that counterparty doing to pay you these insane promised rates of return? Right. When you look at a real estate deal like the Performa that's on the screen here, here's what the counterparty is doing. They're paying you 1695amonth, 1700 bucks a month. You'd like. Where could you get scammed in this deal? Yeah, it's not perfect. Real estate's certainly not perfect. You're going to feel bumps in the road, no question about it. But it's real estate, as the name would imply, right? It's the real thing. This is the most historically proven asset class in the entire world. Hundreds of millions of people have become rich with income properties and a whole bunch of people were temporarily rich with crypto schemes and scams. A whole bunch of people got temporarily rich in the stock market. Right. The one true thing is the real estate. It just works. Certainly not perfect, but it just works really well. You want to learn more about it. You want to meet other investors firsthand that are really doing it. You want to learn from them, network with them, get them in your friend circle? Join us for Empowered Investor live in January, our Cyber Monday sale. Take advantage of that ASAP. Hurry. Go to empoweredinvestor.com live and get your tickets. You can also get them@jason hartman.com. either way, take advantage of our Cyber Monday deal and we will look forward to seeing you in beautiful Scottsdale, Arizona in January. And hey, look, if you live in one of many places in the country that don't have the beautiful weather that Arizona offers, then coming to Arizona toward the end of January will be a very nice vacation for you. So come and join the fun. We're going to have a great time. We're going to learn a lot. We got a bunch of great speakers lined up and we'll look forward to seeing you there. Go to empoweredinvestor.com live or jasonhartman.com and get your tickets and we will talk to you on the next episode on Wednesday Day.

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