2168: Uncovering Hidden Wealth: Beating Inflation and Understanding Housing Demand in Real Estate Investing Part 2

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I just.

Want to say thanks to you because I would never been able to retire if I hadn't got hooked on to you 10 years ago. And I really owe this to you that I've met my goal, you know, to retire early and not work for the man and kind of be my own boss and, and I would never been able to do that had I not. I guess I was a little discouraged 10 years ago, but hooking onto your podcast and learning from what you were teaching has made this all possible.

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 an 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 2168, where we continue my discussion about the psychology of investing and a variety of things in terms of market predictions, forecasting, and how to beat inflation from two days ago. So before we get into that, what I want to do is I want to remind everybody that income property is just like an iceberg. You know the metaphor, right? What sank the Titanic? The iceberg. Why? Because most of the iceberg is below the surface of the water. Most of it is what you don't see. And that is the hidden wealth creator with income property. The stuff you don't see. The stuff that's simple that you do see, that most people pay attention to, but wrongly, because they're not seeing the big picture, are what monthly cash flow and overall appreciation. Those things they see because they're obvious. But what isn't obvious are the other at least four dimensions of real estate. So you've got principal, pay down your tenant, paying down your mortgage. Now I don't want you to pay down your mortgage because then you get less inflation induced debt destruction. But regardless of what I want, it's happening in the background. And you've got tax benefits, depreciation, the holy grail, of tax benefits and other business expenses that you can write off that you couldn't normally deduct. But what is the other big hidden tax benefit? It's huge. And no pro forma that we're ever going to show you, at least not that I can figure out how to design. I've thought about it many times over the last 21 years. But that is the ability to reinvest all of your profits in the next deal without paying taxes, right? The ability to do 1031 tax deferred exchanges and reinvest all of that money just makes the huge difference over the course of several years in anybody's life. You know, you buy stocks, a business, bonds, any other asset class, basically you're going to be in the position of paying the government before you get to reinvest your money. So that's another one, right? You've got these great tax benefits and you've got leverage. That's the other big one that is working for you. With income property, you can be much bigger than you really are because you get to control a much larger asset than you can actually afford because the bank is your partner, obviously. But of course, the one I really want to talk about before we start today is inflation induced debt destruction with a specific example. So here it is. Here it is, folks. Okay? Just think about what happened 10 years prior to the COVID era when we saw so much appreciation in real estate. Hey, we got the dog in the picture. You know, she wants to be in the picture. But then when you're actually filming, she disappears on you. There she goes, see?

So during the COVID era, we saw obviously a lot of appreciation with real estate, right? We saw people seeing their values go up almost 50%, sometimes more, sometimes a little less. But overall. And if someone bought a property 10 years before that, in 20, 20, 11, 2011, they would have paid for that property. The median price was $225,000. Their median mortgage payment would have been $1,019 per month. And 10 years later, their mortgage payment in nominal dollars, not real dollars would be $18 cheaper, $18 less. And the price of that house would now be $397,000. But in real dollars, adjusted for just the official inflation rate, not the real inflation rate, which makes this dramatically better than I'm talking about, makes it better because inflation is manipulated and the CPI is a lie. The CP lie that payment in real dollars was only $730. Now the other part where you get this beautiful inflation induced debt destruction, the hidden wealth creator with Income, property. The other part where you get that of course is the principal balance of the mortgage. Most people just see their tenant paying down their mortgage every month and that's great, that's fine, that's nice. But what you really get is inflation paying down the balance of your mortgage every month. So as the dollar is debased, it debases your monthly payment and that gets lower. But also it debases your entire mortgage balance. So say for example, someone bought this property for, we'll do round numbers, $200,000 or. Well no, that's actually very likely. Say their loan balance 10 years earlier is $200,000. We have 27% inflation, so we're going to take $27,000 off of each hundred thousand. So times two, 27,000 times two is $54,000. So inflation paid off $54,000 of their loan balance in, in that 10 year period according only to the official inflation numbers in real life. We all know they're understated. We know inflation in real life is much higher than that. So in real life they got a dramatically larger inflation induced debt destruction mortgage payoff of their mortgage balance than anybody thinks. So the consumer price index, the CPI is massively understated. We all know this. The they manipulate it in three major ways, weighting, substitution and hedonic indexing. And you hear all of the doomers out there and the bloomers talking about how the real estate market is going to crash. You know these perma bears have been saying this forever, right? And yet things just keep on chugging away. But what they never answer is the compared to what? Question they never say hey, compared to what? You know, what else are you going to do with your investment dollars? What else are you going to do? No other asset offers these beautiful multidimensional benef like income, property, especially inflation induced debt destruction. This is real world stuff. This is not theory, this is not hype. It happened to tens of millions of people just in the past 10 years. Why don't you get into the game if you're not in it and let it happen to you more? Because the future is most definitely inflationary. Peter Schiff will tell you that we're going to be on a panel together on the real estate guys cruise here in just a couple of days. And he's right about the inflation issue. I just interviewed Lynette Zhang, same thing. Inflation, inflation, inflation. It is the future. It is the most likely future, the most obvious future and almost the certain future. I mean it's almost 99% certain? Nothing's certain, but I would certainly bet a lot of money on the future being inflationary. So with that, you've got to arm yourself with the investment that not only hedges inflation, but beats inflation massively. Okay, let's go ahead and get to our main segment today. So here we go.

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. So all of these charts that I've shared with you on the show are not adjusted for population size. Now, I did do a study on that and, you know, I can't remember if I've shared it on the show yet, but I will. Okay, I'll share it again because, you know, you kind of have to repeat yourself a little bit for people to get it. You got to keep beating the drum. But suffice it to say, 45 million increase in population, what does that do for housing demand? Well, let's take a look. So the immigration is the wild card, right? We've talked about that. But just take a look at these projections. This green line on the chart is population, population growth. Then you have net immigration and then you have births minus deaths. And a lot of the doomers, right? A lot of the crash Bros, they're saying, oh, well, you know, the baby boomers are going to die off and that's going to leave all this extra supply in the market. Well, I've addressed that. I shared with you a John Burns real estate consulting port. And you know, again, his specialty is consulting for real estate developers because they have to decide far in advance how much land should they be buying, how many homes should they plan to build, how much supply of building materials will they need, Lumber, concrete, copper wire, glass, steel, et cetera, et cetera. They have to decide this stuff way in advance and they have to make big business decisions based on that. But here again is the data. And remember at the beginning of this episode, I talked to you about how you'd really have to start to get cautious in the 2000s? Well, I'm probably wrong about that. It depends how much building takes place between now and then. But if you just look at population, here's where we're going. And by the way, these numbers have been scaled back because we're looking at 342 million people today. Okay. And 373 million in 2053. That's the population numbers now Again, how much housing stock will be built? How much existing housing stock will become obsolete? It'll just become too old to have any real economic, economic value. These are all the questions in play. But remember, the 2050 projection for population used to be 400 million in the United States. It's been scaled back to only 373 million in the US by 2053. It used to be 2050, 400 million, you know, three years either way, not a big deal. All right, so that's what we're looking at. And then we have to ask ourselves, well, where the US is a giant country? Net migration, domestic migration by county. Right. This chart shows you where people are going and where they're leaving. They're typically very generally leaving. Cyclical markets. There are business unfriendly markets, landlord unfriendly markets, high tax markets, high what I call government intrusion markets. And they're going to lower density markets that are more linear in nature and that are more landlord friendly. So that's where you should invest. All these are the right markets. And by the way, you can find a lot of these great markets that we like@jason hartman.com properties and you can see great investment opportunities in these markets. Okay, a 10 year situation of low supply. If you look at this chart, this is from the Fred website, it says new privately owned housing units started. These are housing starts. And they show you that from about 2006, where we reached our peak of construction, we saw as the Great Recession came into play, just a massive, massive decline in construction. And you know what? It took a long time for builders to start ramping up that supply side again with new housing starts. And they still haven't even really come back to the prior levels. But why is this important? Well, it's not about what the construction is today versus back then. It's about all the years of low, low supply that created this ongoing deficit of housing supply. Now, one of the more conservative estimates on the housing shortage is Robert Dietz with the nahb, the national association of Home Builders. He's been on the show before and you heard him talk about this in his estimate or their estimate is really quite conservative compared to some other estimates. They estimate that we have a shortage of 1.5 million housing units and others say 4.4 million units. Right. That's according to Fannie Mae, the biggest mortgage player in the entire world. And up to 7.3 million units is estimated by the National Low Income Housing Coalition. So whatever you think the housing shortage is is up for debate. But the point Is there's a shortage. And it just cannot be denied that there's a housing shortage. Now the other issue you get is you get the price range issue, you get the price segments that vary dramatically. And this housing shortage is the most acute in the low income entry level housing segments. Okay? And you see during COVID that housing supply contracted dramatically and the building stopped, but then it restarted. We had supply chain problems, et cetera, et cetera. They considered, you know, home builders and home building to be a necessity thing. So they didn't constrict them for too long, the building. But again, where we are now is we are just not able to address the housing demand and the structural, pardon the pun, housing shortage continues. Renter nation. Ken talked about this. Well, remember multi dimensional asset class. So prices and rents, non correlating indicators, or I guess they're reverse, they have a reverse correlation, right? So when you have a lower homeownership rate, you see people forced to stay in the renter pool or new adults moving out of the house, leaving college, whatever it is, they are renting rather than buying the new households that are formed. And so we see we have a low, lower homeownership rate and a higher percentage of renters, which pushes rents up. Congratulations, investors. That's exactly what you want. You want to serve this segment of the population who needs to rent and they're going to pay you higher rents. Multidimensional asset class, even if prices don't continue to go up. Don't be the shallow crash, bro. That's all about prices. Understand the multidimensional nature of income property. And then you look at this. Houses are too expensive to underpin lofty rents. Look at this. This is, this is like just playing right into our hands as investors, right? This chart says median U.S. rent increase or decrease year over year, single family homes and apartments. Now we know that apartment supply is very oversupplied. We have a record number of new apartments coming online this year and we see rents softening in the apartment market. But it's interesting because I looked at some apartments recently to do some market surveys of my own and oddly I don't see much distress in several major cities in the apartment market. But again, this is location dependent because as the old saying goes, all real estate is local, whether it be prices or rents or certain price segments, it's all local. All real estate is local. And remember, the only apartment supply that is being built is class A because they won't let you build class B or class C in the apartment market. Haven't been allowing that for literally decades. Okay. Houses for rent are benefiting from the least affordable home sales market in many decades. As a result of sale prices reaching new record highs and mortgage rates hovering near a two decade high. That's exactly what you're seeing. Houses for rent are benefiting from this lack of affordability, high prices, high rates and investors, you are in this wonderful multi dimensional asset class. So there you go and you are buying. Investors bought 26% of the country's most affordable homes in the fourth quarter of last year. The highest share on record. Even during the go go times when prices were going through the roof during the pandemic era, you have now purchased more than at that time. So crash Bros be damned. You just wrong all the time. You're just constantly wrong. If you consider investors to be the smart money, remember this include institutional investors, not just mom and pop investors. You're buying 26% of country's most affordable homes. Good for you. Price tiers. Let's segment by price tiers because of course the entry level housing is where you want to be as an investor. That's the best part of the market. And this Redfin study shows you again that that is what investors are buying. They're buying 26% of the low price segment. They're buying 16% of the high price segment. Even the high price segment investors are buy and then they're buying 14% of the mid price market. So there you have it. Okay. Investors bought nearly one of every five homes sold in the fourth quarter. Okay. And this is overall, in all price segments, investors bought 18.5% of US homes sold in the fourth quarter, up from 18.1% a year earlier. Their market share likely rose because they didn't retreat as quickly as individual buyers. Okay, so there you go. That's the overall investor market share share, but not the affordable investor market share, which is much higher. Back to the housing shortage discussion. Here's what 11 major researchers think of the housing supply in the U.S. fannie Mae, the biggest mortgage player on planet Earth thinks we have a housing shortage of 4.4 million units. Zillow, they're huge. Obviously they think we have a housing shortage of 4.3 million units. Bank of America, one of the big banks, obviously one of the biggest banks in the world thinks that we have a housing shortage of 4 million units. Freddie Mac, the second biggest mortgage player on planet Earth, thinks we have a housing shortage of 3,800,000 units. Realtor.com 2.3 million. Morgan Stanley, 2 million JP Morgan 2 million. John Burns 1.7 million. Moody's analytics and by the way folks, all of these people have been represented on the show, okay? Every one of these firms has been represented on the show over the years, whether it be Lawrence Yoon with NAR, which says we're 3 million units short, or bank of America or Freddie Mac or any of these, right? They've all been represented on the show before. John Burns been on the show many times. 1.7 million units. Moody's analytics they've been on the show. 1.7 million units. Zonda, which is owned by my longtime friend Jeff Myers. He's a former client from years ago when I was very young in the real estate business. One million units. He's the most conservative. You know, he doesn't think the shortage is that bad, only 1 million units. But all of them say there is a shortage and then there's some more data on it. Okay folks, let's wrap it up for today. So we will say over and out. Thanks for listening. And if you have any questions or looking for good investment opportunities, of course, go to jason hartman.com reach out to one of our investment counselors. They can help you. And also consider joining our Empowered Investor Pro group where we have monthly Zoom meetings and we can really dive in to self management and a variety of other resources for you as investors. Also, one more thing, never miss our free monthly Zoom meetings again. These are not webinars, they are Zoom meetings. So you can interact, you can get your questions answered. This month we've got Tom Wheelwright, author of Tax Free wealth and the Rich Dad Advisor series. He's a great CPA with a lot of good information and he'll be on with us for over an hour. Coming up, all you do to register for those free Zoom meetings every month is go to Jason hartman.com Wednesday Jason hartman.com Wednesday because they are the second Wednesday of every month. Until next time, happy investing and stay empowered. The following is a blog post found.

On jason hartman.com blog navigating market analysis and Forecasts Data to hold the Strategic Decision making Today's ever changing market makes it vital that businesses have accurate market research and forecasts to keep abreast with competition. They empower entrepreneurs with priceless knowledge of what's happening on the market, consumer preferences and future prospects. Along this article, we will see what are the techniques of market analysis or whether there are some new trends on motion or simply how your business can use this data to make efficient decisions with an advantage. Understanding market analysis, market Analysis is a process of assessing a number of things that affect supply, demand, fluctuations in a specific industry or a relatively small market segment. It integrates both the qualitative and quantitative methods to yield objective results. Key components of market analysis include the Identifying market trends while application the historical data. The likeliness of noting the typology may occur. In this case the one should establish the phenomenon. Monitoring up to date market dynamics, including shifts in consumer trends, innovations and policy amendments helps you capture the attention as well as understanding the market as much as possible. Building on with those techniques. For example the SWOT Strengths, weaknesses, opportunities threats Analysis to evaluate the market environment Assessing competitive landscape Study rivalry in order to know their strategies as they have their strong points and weak sides Identify the market space in some and narrow large gaps to come up with possible areas for innovation and differentiation Doing the balance between the company and the brand image that match in the market and customers point of view and the competitor's impact Understanding consumer behavior Tailoring the target marketing with the help of demographics, psychographics and consumer behavior in order to have a competitive edge in the market Carrying out surveys, head counts and market research to understand the preferences and needs of the customer Foresight to future needs of consumers by the business and tailoring its product or service offerings accordingly. Forecasting Market trends prediction is of paramount importance in this context as it enables forward looking market trends, comprehension and evidence based decisions. Making while predicting the future with absolute certainty is impossible. Businesses can employ various forecasting techniques to make educated estimations. Quantitative forecasting methods Time series analysis with the help of historical data to forecast future trends based on patterns and co occurrence regression Identifying connections between variables to look into the likely future outcomes Market modeling Building mathematical models to duplicate market conditions and forecast the potential results in varying circumstances. Qualitative forecasting approaches.

Consulting industry experts and thought leaders to gain insights into future trends and developments Delphi Method Iterative consensus building approach involving multiple rounds of anonymous surveys to forecast future events Scenario planning Developing multiple scenarios based on different assumptions and assessing their likelihood and potential impact Emerging Trends in Market Analysis the panorama of market analysis is constantly changing as a result of technology development, shifts in consumers, lifestyles and global economic recession. Some emerging trends shaping the future of market analysis Big Data Analytics Using advanced big data analytics software to process high volumes of structured and unstructured data to generate meaningful insights. Applying machine learning architectures for pattern recognition, correlation analysis and prediction Predictive Analytics Networking predictive analytics into decision making processes to suggest future trends, customer demand and the best use of resources. The application of predictive analytics in sectors such as demand forecasting, pricing optimization and risk management. Real time Market Monitoring Using real time market monitoring instruments such as tracking market events, consumers perception and competitors activities Ensuring that agile decision making is supported by timely responses to market volatilities and exploitation of emerging opportunities. Conclusion Market research, prognosis and analysis are the key instruments of the trade for firms in the business world of the modern era. By studying market tendencies, defining competitive forces and applying advanced forecasting tools, firms can work on fact based strategies, discover dangers and catch up with market windows. Ability to respond to new tendencies such as big data analytics, predictive analytics and real time market monitoring will be a key factor for staying ahead and surviving in a dynamic business environment. Among all business skills, the ability to use the market analysis in the strategic purposes will remain the most powerful.

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