2167: Empowered Investing: Achieving Long-Term Financial Goals with Income Property Part 1

This show is produced by the Hartman Media Company. For more information and links to all our great podcasts, visit hartmanmedia.com.

By the way, I'm just going to give Jason a shout out. He came on stage at our event. At least at the black card event you talked about. You said inflation's coming. They, they are. Quantity easing is so much. Inflation destroys debt. And you, I, I don't remember. I think we had disclaimers, not financial advice. But I remember you on stage saying it might not be a bad time to get a lot of debt right now. And ta da, we're a couple years out. I don't know, it's been two years, two and a half years later and it's like, wow. The people that follow that counsel have done pretty well so far, which is pretty cool.

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.

And now here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome empowered investors. This is episode 2167. Thank you for joining me today. And let's get a little more empowered. So couple things. First, I've got so much data to share with you today. Fantastic visuals. For those listening on audio only. I will of course, as always attempt to explain them as best I can, but do try to catch our stuff. Since I'm not the fastest reader, I would listen to audiobooks first and I've been doing this for decades this way. And then I would get the printed book. Yes, this was before digital books. That's how long ago we're talking about. I would get the printed book and go through it afterwards. I would see the visual aids, but having listened to the audiobook, it prepped me and it made my understanding so, so much better. So I really would recommend that you do things that way. If you're listening to the podcast on AUD video, that's a great first step. And then go to YouTube or the other video outlets we're on and Check out the video when there are visual heavy episodes like this one, okay. So you'll really have a much better understanding. And I remember Earl Nightingale, one of my early mentors at age 17, explained that this to me a long time ago and I thought it was a really good explanation. He basically said that when you listen to something and your mind gets intrigued with an idea or a concept that is explained to you, you stop listening and you start to process that idea and you think about the ways it could apply to you in your life or the real estate market or whatever it is. Right. And when you stop listening, it would be like an old fashioned. Yes, a record player. Remember those? Yeah, they're kind of coming back in vogue now. It would be like picking up the tone, arm the needle on the record, and the record keeps spinning and going by and you miss that content that follows your interest in a particular idea as you're processing that idea. So it is important to go over things twice in that way, and I think that's a really good opportunity. Okay, let's get into it. Another question I want to answer, though. A lot of you have asked, well, Jason, why is your background different? Well, I am at my mom's Southern mansion and I know some of you are saying, well, that sounds really haughty and braggadocious and snobby. Like Tony Robbins says, I'm not telling you this to impress you. I'm telling you this because it impresses me. And, and here it is. You know, I grew up poor, okay? I mean, I grew up poor with a single mom. And I remember we lived in this crappy one bedroom apartment in Mar Vista for many years as she was saving for to buy a house. And it is amazing to me how far someone can go if they are willing to, to just focus on the long term. And the old quote, most people overestimate what they can do in one year, but they dramatically underestimate what they can do in five years. So of course, my mom did not achieve this in five years. It took many more years than that. But she had this dream of building her southern mansion, dream house. And she spent a couple of years visiting different places around the country and wanting to build this home that she had in her mind from seeing the movie Gone with the Wind as a little girl. So she found a location, bought, bought the land and built the house. It took a long time. It was extremely expensive. Her house is almost 10,000 square feet if you include garage space and all the stuff. So it is a mansion. It's literally A mansion. I mean, this home, if it were in, you know, Newport Beach, California, where I used to live, would probably be 25, 30 million dollars. It's not as much here in the south because you are in a linear market. And, and that's good. That's a better thing. You know, you can just have a much higher quality of life, much better investment performance in these linear market. Let's dissect that for just a moment. So the thing you have is a lot of times you will have short bursts of much better appreciation in cyclical markets. Remember, I always have taught you over the last 21 years to divide markets in three ways. Linear markets, cyclical markets, and hybrid markets. So in, in doing this, when you are in cyclical markets, even though if you hit the cycle right, you can really hit a home run and you're sort of the tortoise and the hare, right. You're slogging along, having slow appreciation in linear market. The cost of holding that property in a cyclical market is dramatically higher. And the risk of having to give up that property, being forced to sell that property because you are waiting for something extraordinary to happen, namely appreciation in a cyclical market is dramatically greater in a linear market. You're going to have sustainable investments. So remember linear, cyclical and hybrid markets, the three different types of markets around the United States or around the world. Right. And I've explained this all a zillion times on prior episodes, so I won't go into it now, but that's where my mom's southern mansion is. It's in a linear market. And so it's much more possible, much easier to maintain a cost of ownership in hard times. I mean, real estate is always going to have cycles like everything else. And you want to be able to maintain the property and afford the property during those down cycles in the market, which will always come. We're certainly not in one now. A lot of the Crash Bros have said, hey, we're going to have a down cycle. The end of the world is coming. They've been saying that for a long time and they're still saying it. They're coming out even stronger now as we see the market, the buyers really trying to cope with these much, much higher interest rates. And they are rejecting many things, but prices are still appreciating and it has surprised a lot of the Crash Bros. Now what they're doing is of course is they're selectively choosing certain markets like Phoenix, Austin, Los Angeles, you know, some of these markets, San Francisco, of course, that have had struggles in various points or segments of their market. And they're of course cherry picking the data to make things look like the market is crashing. But they're wrong and they'll continue to be wrong. And I'm going to show you why again today, okay? You know, the crash bro mentality, the doomer mentality is really something that stems from the people who missed out, the people who are jealous, the people who are envious, the people that are mad at themselves because they didn't have the confidence, they didn't have the willingness, they didn't have the guts. And I'll say it, they didn't have the balls, okay, to delay gratification for a bigger long term future. You know, they kept trying to time the market. They thought they were smarter than the market. You know, Mr. Market will always win. Remember the old quote? I think it's Warren Buffett, or maybe it's his mentor Benjamin Graham from a long time ago who said and this is to the investor who's complaining that the market is irrational, right? Well like the old saying goes, the market can remain irrational a lot longer than you can remain solvent. And that is very important. Now I don't think the market is irrational at all in terms of the housing market. I think it's very rational. And I'll show you why today. I'll show you some great data, some data that you haven't seen before and some data borrowed from my friend and business partner Ken McElroy, the rich dad, author of several books in that series. Of course you know Ken McElroy, he's been around for a long time. Okay, so let's go ahead and dive into it. But remember, the thing that separates the winners from the losers in life are those who are willing to to delay gratification for a bigger long term goal. And the Crash Bros, the doomers, they just get it wrong over and over again. By the way, before we go on, another way they get it wrong is they have this completely shallow, stupid misunderstanding of the way income property works. Remember, I've taught you for 21 years now that income property is a multi dimensional asset class. And those who believe that it's all about buy low, sell high have a really, really scary, shallow, shallow understanding of the way income property works. You can make a lot of money in a market where prices are going down because it's a multi dimensional asset class. Remember when prices decline in a real estate market, everybody gets fearful and they are unwilling to buy. So all of these would be home buyers. They stay in the renter pool and they push rents up. These are contrary indicators, prices and rents. So again, I'm going to show you some data on this that you haven't seen before. Some new data for the show today. But just understand that most of the doomers, most of the crash bros, I mean among their many levels of misunderstanding and complete incompetence and stupidity and you can probably tell I get a little annoyed by these people. Yes, they troll me on Twitter, they troll me on YouTube and everywhere else and they say, oh Jason, you're just a perma. You're, you know, you know, I'm the opposite of a perma bear. I'm a, I'm a permanent optimist. No I'm not. I'm a realist. I use data, they use cherry picked little data here and there on one dimension of real estate rather than all the multi dimensional factors. And they're just wrong. They've been wrong over and over and over again and they keep going back to the 2008 crash. And what they don't realize is that I and many other investors made very good money during the Great Recession. Okay, it's folks, it's just, it's a multi dimensional asset class. The shallow, incomplete understanding of the asset class is those who believe buy low, sell high is the whole game. That would be like saying with the stock market, for example, you know, if you're a dividend investor in stocks, it would be like saying, well, you know, the stock pays a great dividend but it went down in value. Well, if you're a dividend investor, who cares? You're not selling, you're just taking the dividends. Right? And there are so many dividends from income property, at least six dimensions that I've talked to you about many, many times. It's just a fantastic asset class because it allows you to adjust your strategy as the market changes. Sometimes you're in a capital appreciation market, sometimes you're in an income market. You're always in a tax benefit market. And you're always, well, at least historically for over 50 years now you're in an inflation induced debt destruction market. You're always in a mortgage principal pay down market. I mean there are so many ways you make money from this beautiful multidimensional asset class, the most historically proven asset class in the world. And understand this, for the trolls, the doomers, the folks who are always wrong out there, they say, well, you know Jason, you're just so bullish on real estate because that's what you do, that's what your income is tied to. Listen, folks, let me tell you something. If real estate wasn't the thing, if income property wasn't the thing, I would be talking to you about bitcoin or stocks or precious metals. I can make money in anything. I can do whatever I want, okay? I could recommend anything and make money from it. I mean, I mean, it's not like I'm stuck to income property. I could do anything. You know, I have many businesses I could easily start. You know, years ago during the Great Recession, I thought maybe I should become a gold dealer. You know, maybe I should become a precious metals dealer. The thought crossed my mind. I investigated that a little bit. But it's not multi dimensional. It doesn't offer all of the beautiful things income property offers. I could do anything. I could be a stockbroker. I could do whatever I want, okay? You know, it's not like I have to be talking about income property. And you know what? Somewhere in the 2000 and 40s is my projection. Income property is definitely not going to be the thing because we are going to start to see the results of our lack of babies, our birth rate problems. Now granted, you know, that may be solved through immigration or other things, but we are going to start to see the results of people just not having kids. And you know, in 20 something years it's going to change, but there's a lot of money to be made before then. Okay, let's get into it. All right, so I got a whole bunch of slides and data for you. Not sure what I'll be able to cover today, but we'll do what we can. So this headline was interesting. Housing market update. For the first time in nearly two years, there's no major American metro where home prices are falling. And this is from Redfin. And you know, if you looked at San Francisco, for example, I mean, San Francisco with all of its disastrous problems, even San Francisco is coming back. I mean, in the face of the largest, fastest interest rate spike in history ever. I mean, it's, it's amazing how resilient this asset class is. Truly, truly amazing. Okay, let's take a look at this. This is housing payments. I mean, what other asset in the world would be this resilient in the face of, of these massive increases in housing payments? I mean, look at what, what it looked like in 2021 just a few short years ago, in 2021, throughout the year you see housing payments throughout the year. You know, you could have purchased the median price home and your housing payment would have been just over 1500 bucks. And now your housing payment is $2900. And most people think, wow, there's going to be a housing crash. Well, why hasn't there been one? I've explained that to you in prior episodes. It's because the market is not about the new entrants coming into the market. That's only 8 million people since the interest rates increased. What it's about is the people who already control the inventory. That's over 130 million people who are very comfortable with these very, very cheap mortgage pay. That's what it's about. Now, this is called the lock in effect. And the lock in effect, of course, changes over time because as we see this much lower sales volume, much lower trading volume of properties down to, you know, 4 million or even below 4 million per year versus 6 million per year or in the 5 million range somewhere, depending on what you're, you're looking at. As we see this lower volume, slowly, we're seeing a peeling off of the lock in effect where all the new buyers are either paying cash or they're accepting much higher mortgage rates. So very, very slowly over time, as people just move on with their lives, as they capitulate, as they just accept the new reality of higher mortgage payments and higher interest rates and higher prices to boot, prices that keep appreciating in the face of higher rates, which most people just couldn't understand how that's possible. We see this lock in effect reducing, but it is a very, very, very slow process. Okay, so that's the house payment data. Now, what this chart doesn't tell you, right. Always ask yourself, compared to what? Right. And always ask yourself about how you can't hear the dogs that don't bark. Which dogs aren't barking in this chart? Well, for those of you who listen regularly, you know what I'm going to say. 40% of the people in the country have no mortgage at all. They own their house free and clear. They have 100% equity. They're incredibly comfortable. The other 60%, the vast majority of them have very, very low mortgage payments. So again, no urgency whatsoever. People could afford the mortgage they have on unemployment insurance. It's a total new world, folks. This is a completely different environment than we've experienced in the past. So housing inventory, well, it has definitely ticked up a little bit. I've reported on that many, many times. Housing inventory is higher, but compared to what? Well, yeah, it's more than double what we saw at the lowest point in history during the pandemic. But it's about half of what it should be to be normal. Okay, it's about half of what it should be to be normal. And people have massive amounts of equity in their home. Mortgage holders gained 1.6 trillion, that's T trillion dollars in equity last year. And they have an aggregate. And by the way, since this article came out, this is now you can add another trillion to it. They have almost $17 trillion in equity. That's the highest on record. Two thirds of these borrowers have credit scores above 760. Now that is an incredibly high FICO score, if you know how FICO works. Incredibly high. So again, these are people that are incredibly solid borrowers financially. The underwriting over the last 15 years has been scary how conservative it's been. And for any of those people listening who got a mortgage since the Great Recession, since the great financial crisis, the gfc, whatever you want to call it, you know, they underwrote your mortgage in an extremely conservative way. So again, these are not NINJA loans. They are not liars loans. Yeah, there's a few of them out there, sure. I mean there's fraud, it always exists. But this is why you have nominal distress in the mortgage market. Because the underwriting has been just extremely conservative over the last 15 years. The average mortgage holder now has over. And by the way, since this article, this article is just, you know, a little bit old. Over $300,000 in equity with 193,000 of which they consider to be tappable. In other words, they could borrow against that, leaving still a healthy 20% equity stake in their property. So again, completely different. Let's talk about those credit score mortgages. If you're looking at this chart, you see that the underwriting. There's almost no mortgage underwriting, no funding of mortgages out there with low credit scores. Yes. You know what they used to call submerged loans? I guess you could see there's a few of them out there. But look at how low the number is. I mean, it's incredible. People with credit scores of 660 or lower. Right. During the Great Recession you saw 40% of the mortgages some years made to these types of borrowers. And last year you saw 4%. So again, very, very comfortable. But you got to ask yourself, compared to what? You can't hear the dogs that don't bark. What dog isn't barking in this chart? This is only the credit score. It does not tell you about their income. It does not tell you about their loan to value ratio. How much equity do they have in the property. Right. They have massive amounts of equity. You just saw that. And I've shown you before charts. I don't have one today, but I've shown you the charts that show the average loan to value of a typical mortgage out there. And it is extremely conservative. They are making loans to people that have skin in the game. They have equity, they have a stake in these properties. So it's just completely different than before. Okay, let me show you some charts. Ken McElroy is my business partner in our collective Mastermind. You probably know that. And this is the collective inner circle group where we've got a few great partners. That's our exclusive mastermind group where we do some great stuff. But we also shared the stage at a conference just last week in Orlando that was Rebel Capitalist Live. And Ken and I shared the stage there. And I spoke right before he came on and after my speech. You know, I shared some of my data, my, my outlook on the market, some of my thoughts on different real estate investing techniques. And Ken shared some data that really, really blew my mind. And he has offered to let me share his slides today. So I, I fixed up his slides a bit for our own use in our format and I want to share some of that with you today. So Ken McElroy came on stage and he said, what is the main driver of housing in the United States? And I thought this was a really interesting simplified question. Ken says, what's the main driver of housing in the US and then he answered the question. He said, it's people. So let's take a look at the people. If they are the main source of prices going up, prices going down, rents going up, rents going down, supply and demand. What does that tell us? Well, Kim went on to show that the population in 2005 in the United States was 296.8 million people. And currently it's 341.8 million people. Now, there's a little bit of fudge factor here because of illegal immigration or, sorry as Hillary Clinton likes to call it, workers without papers. It is so ridiculous what these politicians do, the way they lie and manipulate through their words. But basically, folks, we've added 45 million people. And again, all of the inventory data that I share with you about what should be considered normal in the marketplace, remember, that's about 1.2 million homes for sale. If you're looking at active listings only. Not the way the national association of Realtors does it, where they talk about active pending and contingent properties. The way they look at the nls. I don't like the way they do the data, but it doesn't matter. You can compare our data which is active listings, or to their data which is active, pending and contingent. As long as you're comparing apples to apples over time, either one will give you the truth. It'll get you to the truth. But you've got to compare apples to apples so their data is always a little different. But remember, none of this data, our data or their data is adjusted for population. So if you look at inventory on a per capita basis, it should really be quite a bit higher than what's considered normal of the 1.2 million active listings. And we'll be back back with a lot more on this topic with this guest on our next episode.

Thank you so much for listening. Please be sure to subscribe so that you don't miss any episodes. Be sure to check out the show's specific website and our general website, hartmanmedia.com for appropriate disclaimers and terms of service. Remember that guest opinions are their own, and if you require specific legal or tax advice or advice in any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you're using and write a review for the show. We would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.