1999: Shocking Revelation: The Real Estate Market's Surprising Shift - Jason Exposes the New Trend That's Rocking Investors!

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What I wanted to share was I, my wife and I, for the first time ever, paid effectively no income tax in 2022 through doing a cost segregation study and generating about a $200,000 paper loss on our real estate. I'm a real estate professional and it really works.

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 1999. One more to the infamous episode 2000 on Wednesday. We'll have that one for you. Okay, so quite a few things to go over today. I am just heading out from Orlando, Florida here. I've been speaking at Rebel Capitalist Live all weekend and just been a great conference, hanging out with a lot of great speakers from Simon Black to Robert Kiyosaki to Mike Maloney, Peter Schiff, of course, George Gammon. It's his event and I have now spoken at every Rebel Capitalist live event since he started them a few years ago. And just been great experience here, hanging out with so many awesome investors and freedom minded people and people that are just doing, doing great things in the world. And so I thought I'd share a little bit of my presentation that I did on Saturday here, but also several other things and let's just go ahead and take a look at those. By way, I do want to remember to mention a couple of things. Number one, many of you here at the event this weekend at the conference expressed interest in our collective mastermind, the mastermind group that I run with George Gammon and Ken McElroy and Robert Kiyosaki who has been with us since the start. We are meeting in Nashville on Thursday, just a couple of days away. I'm going to go Home and then get back on a plane, go to Nashville. Kind of a crazy schedule, but we're going to have a fantastic event there. If you are interested in the Collective Mastermind, reach out to us and we'll get you connected and get you all the information on that. One of the things we did do, and I was lobbying for this for the last, oh, maybe year, year and a half with Ken and George and they were reluctant to do it, but I finally convinced them to do it and that is to allow people to attend one event so you can attend just one event and sample it. It's only a one time thing and you can do that for one fourth of the membership fee. Okay, so that's a good thing. So if you're interested in that, let us know and go to jasonhartman.com, reach out through your investment counselor, whatever, and we'll be happy to help you with that. Also, we have a Zoom meeting this week on our very special 4.75% financing. Yes, can you believe it? 4.75% financing in this high interest rate mortgage market. We've got a couple of really, really incredible relations and we can bring those to you that offer some really good lending options to get your rates down and your cash flow up on your properties. And again, that is on investment properties, non owner occupied properties. So that is an incredible, incredible low rate. Also we do have the 100% financing where you can put absolutely nothing down on investment property as well. Again, those are fully underwritten loans though, so no crazy reckless stuff like we saw leading up to the grid recession. And if you're interested in being on those Zoom meetings with the lenders, with the sources, let us know and we will be happy to help you with that. Remember, with 100% financing, when you take advantage of inflation induced debt destruction, which you do automatically, such an incredible wealth building strategy, you basically are getting 20% or 25% more inflation induced debt destruction. So if you already like my trademark strategy, inflation induced debt destruction that I've been teaching for 18 years now, this is a way to get one quarter more of it on the same exact property. So it's a pretty amazing deal for sure. All right. You know, I've, I've mentioned this before and looked at this before, but I just want to remind you of why this is so important. And if you're watching this video on video, of course we're getting these up a lot faster for you, so I hope that's helpful. I got some good comments on that this weekend. And so you can see the charts and the graphs here and this just shows you that again, most of the market now has become brand new builder homes in terms of buying investment properties. Now it is much less likely that you're going to be able to buy a renovated property from a fix and flipper than it is to buy a new property, a new built property. Which is great because most of the people want the new builds anyway. Now they do have a premium on the price. But it just goes to show you how the home flippers, the people that would go out, buy and renovate properties, have such a massive shortage of supply because the market is locked up. It's locked down, locked up, whatever. It's tight as a drum where people just don't want to sell their properties because they have these ultra low mortgage rates. So we'll kind of see what happens here. But again, right now you basically have a huge share of the market going toward brand new properties. You know, 93% of the market. Right, and only 7% of the market available for those renovated properties, those older homes that are fixed up, that are rent ready. But again, just such a small share of the market. And I just wanted to point that out again. And then you look at the average sales price of single family homes. Amazingly resilient. I mean folks, I shared in my speech on Saturday a couple of mortgage payment examples and tell me what other asset, what other product, what other consumer product could have a situation where basically the price and priced in monthly payment, because that's the way people evaluate the price is based on the payment. What other product could see that payment go from just over $1,000 a month to just over $1,700 a month and still have no flood of inventory, only a relatively small decline in demand and prices hold up. It's absolutely amazing how resilient the real estate asset is. I mean, what if the new iPhone or the new Samsung Galaxy phone you wanted to buy went up in price by 70%? Would you still buy it? Probably not. You'd probably just keep your old phone for a while, right? What if a car you're looking at went up in price by 70%, almost doubling? Right. Would you still buy it? No, you'd probably wait. You'd probably put off the decision. You'd probably say, I can't afford it, I'm just not doing it. And a lot of people said I can't afford it with housing as referenced in the housing affordability Index, which has plummeted. But what are they going to do? I Mean, most people would consider a smartphone and a car pretty necessary in today's world, right? Well, even more necessary than that is a roof over your head. So it's just funny how people sort of fail to understand the way people have to evaluate these decisions and the way the deck is being reshuffled. And I'm going to get to that a little more in a moment. But I wanted to share with you just two quick headlines that are interesting. One is from HousingWire. It says, Home prices inching up despite difficult affordability. Home prices, which are flat to down year over year are inching up each week now into this year. The data is creating a surprising supply and demand equation. Again, very little supply, decent amount of demand, not as much as before, certainly not the kind of savage housing market we've been in over the past couple of years. But remember the metaphor I've always shared of the sink, right? The faucet represents new listings coming into the market. It's just at a trickle. There's hardly anything new coming on the market. The sink itself, the basin of that sink represents current inventory of homes on the market. And if you consider a normal market to be a full sink, okay, the sink is only one third full now. Okay, so that's, that's the comparison. We only have about one third of the inventory. We need to be considered a normal market. And then you look at the drain and you consider the drain to be the buyer demand. How many properties are being absorbed? How many properties are being purchased? Right? Well, the drain is a little clogged. Maybe that drain is 20% clogged. Maybe it's 30% clogged. Right? Where properties aren't being absorbed as much because there's not as much demand, but there's no supply loosening, right? And just hardly anything coming on the market. People just unwilling to sell their properties because they've got those low rate mortgages. All right, the next headline, Guild delivers a $37 million loss. Now, this is a mortgage company, right? In the first quarter, amid CEO transition, Guild Mortgage continued to face pressures from high mortgage rates and low inventory levels like its peers. So, so let's just look at the mortgage business for a minute and think about how they feel about the real estate market, these mortgage companies, right? Well, they feel rates are really high. So it's hard to get people to qualify for a loan. It's hard to get people to want a loan. That's true. But also since inventory is low, buyers can't find a house. Those that who are left in the Market don't have much to choose from, so they can't find anything. So of course that has reduced activity, it's reduced the volume of sales pretty significantly. And as such, mortgage companies are suffering along with title companies, real estate companies and on down the line. So it's just interesting to see how this stuff all plays out. Here's the housing affordability index on the screen and you can see that housing affordability used to be very high and it has gone down quite a bit now. It's certainly not the lowest it's ever been. It was dramatically lower in the 80s and until about, really about 1987 or so, you didn't really see any reasonable housing affordability. But guess What? By about 1984. Ominous title. Read George Orwell's book 1984, very important book to read. But also coincidentally, remember we had that high inflation of the 19 of the late 70s and the early 80s. Paul Volcker, the Fed chair, raised interest rates dramatically. So affordability plummeted. But guess what? The population didn't decline. There were a whole bunch of demographic cohort, people in the baby boomer generation that were moving right through their primary household formation years. They needed homes, right? And even the generation before them was very much in need of homes. And so these people were doing something. And the rental market boomed during that time that housing affordability was low. So these two are countercyclical and that's what we are going to see. We're in the beginning stages of it and a lot of the data is very confusing right now because so many new apartments, multi family apartments have been built that that is sort of skewing these statistics because most of the rental income statistics you hear are from the multifamily industry. Single family home rental data is not super reliable for many reasons I've mentioned on prior episodes. But overall, remember, you've got to have this lag time always in changes in cycles, that is typically about a two year lag time. And rents take two to three years to catch up to prices and they take much longer to adjust. Why is that? Again, people were crowding around me after my talk on Saturday, had this big crowd around me. I explained exactly this again and think about it. If you have a market where sales are really, really hot and homes are selling and every price is beating the next one, right? One house down the street sells and it sells for, you know, $300,000. Then the next one comes along, it sells for $320,000 and the next one after that comes along, it sells for $335,000 and the next one after that. And you know, these might be within the same month, or maybe it's the following month. And all of these comps set a new price on top of the old one. That happens very quickly. But if 10 properties in that neighborhood are leased, they usually have one year leases on them. And there's only a chance for that owner, that investor, to raise the rent one time each year. So rents move much more slowly than prices move. Right. That's why it always has this lag time for the rents to catch up to the prices. And that's exactly what's happening now. So as affordability plummets, it puts massive upward pressure on rents. And you investors who think, gosh, you know, it's so hard to make the numbers work, it's just not as good as it was before. Well, I'll be the first to tell you, it's not as good as it was before, of course. But you've got to understand what is happening. What pressures are building in the market. What behaviors will that dictate for buyers, for renters, for mortgages, for all of these other factors in the real estate equation? Okay, all right. And here is a chart of rent inflation. And of course you saw, I mean, look at this, the late 70s, early 80s, massive rent inflation. But then, interestingly, when affordability got better, the rents came down. And also there was a lot of supply that hit the market as well. Okay, so you've got your baseline of 0% change. Right. And then, you know, we saw rents kind of bop around up and down. We saw them go down again. And as more people were buying properties, and we had the Great Recession in there, which really skewed things. Now, one of the things that happened during the Great Recession is we saw a situation where the government, of course, interfered and distorted the market. How did they do that? Well, of course, they were doing short sales workouts, loan modifications. People were doing strategic defaults on their properties. And the whole mantra from the government is keep people in their houses, don't let price discovery happen, don't let the foreclosures happen. And that was a massive distortion in the market because all of those people foreclosed on during that time would have quickly recycled into the rental market, and they just distorted that. Now the government can't distort the market forever, and they never are able to do that. So eventually we saw things get normal again. But recently we've seen dramatic rent inflation as we just have this massive shortage of supply. And so Lots and lots of new apartment units coming on the market just recently suppressing rent a little bit more than it should. But again, that's a little bit of a different market for single family homes and multifamily for apartments. But we are going to see pretty good substantial increases in rent inflation over the next several years. That's my prediction and I'm sticking with it. Now a lot of people say, well, what's going to happen if incomes don't rise to meet housing prices, mortgage payments or rental prices? How will you ever see these prices increase? Because we do have short supply. No one can really deny that. And by the way, There is one YouTuber out there who says that's not true. And he's wrong. Okay? He's just wrong. I'm going to do a big analysis of one of his recent email blasts. That makes a pretty good case for a losing argument, right? I'm gonna say that, I mean, I, I, I have respect for this guy. He, he really does a good job of presenting data. But the problem is he always makes like one or two big leaps in logic and most of them center around the idea that everything happens at once. And one of the ideas, I'll just, just do a little spoiler alert here, right? One of the ideas is the short term rental market. And there are a lot of properties in the over saturated short term rental market. A lot of people thought they could buy properties, put them on Airbnb. And as I've said many times, look at Airbnb since it was born, has never really been through, I mean, it started in the Great Recession, but it's never really been through a real recession. Right. It still hasn't experienced that. The COVID era recession. That wasn't a real recession, okay? It was, that was a very unusual version of it, right? And think about all of the new hotels that have been built since Airbnb started and think of the massive proliferation of what I call non primary beds in the entire world. And how do you know this? Well, just anecdotally, I mean, I'm not giving you big statistics on this, but just notice all those new mattress companies that have come around, right? Casper, Tuft and Needle. I mean, I don't know, I can't even think of all the names of them. There's so many mattress companies. Like why do we need all these mattress companies all of a sudden? I mean, what happened to, you know, Sealy and Posturepedic and you know, all those old mattress companies, Right? Why did we need all these new companies? Right. Well, because there demand for mattresses because there's so many non primary beds in the world now. And so that market's just very oversaturated. Right. And a lot of people are paying the price now. A lot of those Airbnb owners are under real distress and they are putting their properties on the market. And so one of the things he goes into is, well, how many of these properties are there? And you know, there's a lot of them. And he says, well, they're all going to dump their properties on the market, but that's simply not true. Okay, they are doing that slowly. Some of them are wealthy enough to keep them as second homes, and they will just keep them. These things happen over time, gradually, and there is so little inventory on the market now that the market will simply absorb all of these properties. Remember, there's only about one third of the inventory we need and the drain is a little bit clogged, meaning lower demand. But these properties definitely will get absorbed and they don't hit the market all at once. So you really got to watch out for this logic. Okay, let's talk about the deck reshuffling here. Incomes not going up, but rental prices, housing prices or payments, because those are the same thing. The payment is the price when it comes to the house. Most people buy on a payment. What happens to them? How do they do anything if incomes don't support increases in prices or even stabilization in prices? Well, because the thing that has to give is the standard of living, the lifestyle, the expectations of the buyers and the renters. That's what has to give. Look, everybody with every market decision pretty much agrees to compromise. Nobody ever gets exactly what they want in anything. And guess what? If they did get what they want, they'd simply want more. That's human nature. We are as creatures, our psychology is built around discontent. We are constantly discontented. And, you know, that's a good thing to some extent, to a realistic, reasonable extent, because that discontent creates progress. And if we weren't discontent, our progress would be lower. We wouldn't strive for things. Right? Any of you, if you're listening or watching this and you own a home, right, or you rent a home, think back to the time when you either purchased or rented your first place. Did you get everything you wanted? Of course you didn't. Of course you wanted more than you got, right? That's pretty much human nature. Everybody wants, you know, is their first home. They want a big, you know, four bedroom, sprawling, beautiful home with a white picket fence and 3,000 or 4,000 square feet. Right. That's probably what they wanted. What did they get? Well, they got a little a starter house that was 1300 square feet. You know, maybe it's attached on one side, right. Or maybe it's a townhome or a condo. You know, nobody ever gets completely what they want. They have to compromise in their expectations. Right? So what do they do? Well, the deck is reshuffled. Incomes don't go up. Sure, okay, fine. In real dollars or maybe even in nominal dollars. And so as there's more price pressure and prices go up because of the continued shortage of rent and purchase opportunities, then they simply have to adjust their expectations down. And that's the reality of the situation. People's expectations have to adjust. And that's exactly what happened. Because they are always asking the question and the market is always asking the question and forcing the question onto the market. And that is compared to what? Right, Compared to what? The example I've given Before is a $1 million home in Jacksonville, Florida versus a $1 million home in New York City. You get a lot more. You get that beautiful, I've shown the example before, that beautiful 5,000 square foot home in Jacksonville and in New York City you get a little tiny 650 square foot condo. It's the exact same $1 million. That's the way the expectations adjust. No one moving to New York City in their right mind expects to get a 5,000 square foot house in the middle of New York City for a million dollars. Right? It simply doesn't exist. Right. Even for a trillion dollars, it doesn't exist because the house doesn't exist. It's not there. Okay? And no one moving to Jacksonville expects to pay a million dollars for a little tiny 650 square foot condo. Right? So expectations adjust. And that's exactly what happens to the marketplace. The expectations adjust. One last thing I want to leave you with for today, and that is Apple, okay? So as I'm recording this on an Apple computer, I have Apple computers and I have non Apple computers. You know, this is the most successful company in the world and obviously we know that many of us use their products and they are really good at getting people to spend money because every single year they come out with new products and they always build in obsolescence. They always withhold features, which is actually terrible for the environment. By the way, if the woke people at Apple were really in favor of the environment and weren't so greedy, what they would do is every feature they could make available that they could do at that time, they would sell it with the most current iteration of the phone or the watch or the. Or the laptop or whatever. Right. They would do that. But they intentionally withhold features. And look at all companies do this pretty much. I mean, auto manufacturers certainly do it. They withhold things so you'll have to buy the next one. And they're very good at doing that. So people generally want to get the new model all the time. So if you're an Apple customer and you buy their products, how much do you spend with them every year? Do you get a new phone maybe once a year? Maybe you get a new phone every two or three years and that phone cost $1,000. Okay. And maybe you get a new laptop computer and that computer cost two or three thousand dollars. Maybe you get a new one of those every three years. And then maybe if you're wearing the watch like I am. Right. You get a new one of those maybe every other time. Maybe you don't get the new one every time, but you get it every other time. Right? So if you average this out, let's just say, for example, you spend $1,000 a year with Apple, maybe you get the new earbuds or some accessories or whatever. Right? Or AirPods, I should say. Earbuds. That's the old one. See, I've upgraded. Everybody's upgraded, right? So when you get the new one, you keep spending more money. So let's just call that a thousand dollars a year. They're pretty good at capturing your money. This is the most successful company in the world. No company is more successful at capturing the consumer dollars than this company. Right. Well, guess what? Your company is. Yeah. You have a company that is actually better than Apple at capturing the share of the consumer's dollar. And if you own investment property, you need to think of that. Even if you haven't formalized the structure, and hopefully you have go to Jason hartman.com protect and protect it with a structure and have a real company. But even if you don't think of it like a company for a moment, your company is capturing a much bigger share of that consumer's income than Apple. Dramatically more. Think about the share of income that you capture. This will really make you appreciate how great your investments are as an. As an income property investor, as a rental property Investor, generally speaking, 33 to 40% of your tenant's income, the person renting your house, the people renting your house goes toward rent. And in Miami actually now 50% in many cases of income goes toward rent. So if you look at that every month from the beginning of the month to the 12th day of every month, 12 days, that tenant is working to pay you or your company, your business, your rental property business. And you know, they always talk about the IRS and how you have to work so long every year just to pay the government, right? Well, out of a 365 day year, 40% of that is 146 days. So the first 146 days of every year your tenant is working to pay you. That is an amazing capture of share of income. Just appreciate how incredibly powerful this investment is. Income property, the most historically proven asset class in the entire world. Income property, the most tax favored asset class in America. And typically taxes are the single largest expense, number one, numero uno, highest expense, largest expense in anybody's life. So hopefully that makes you really, really appreciate how incredible this asset class is. All right, next episode is episode 2000. It's a big deal for us. What are we going to do for episode 2000? Well, it's coming up in just a couple of days, so stay tuned and we'll look forward to seeing you on that episode as well. And until then, Happy Investing. If you need to reach out to us, do it through jasonhartman.com or 1-800-hartman. If you're in the United States, you can pick up the phone, call us 1-800-hartman for the US that's a US phone number only, but around the world, Jason hartman.com We will look forward to seeing you on the next episode. Episode 2000 and Happy Investing.

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