2219: Mortgage Rates, Investing Strategies & Inflation Induced Debt Destruction with Josh Mettle Part 2

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I'm in St. Augustine now. You know, if I had never worked for you and had that wonderful experience and gotten to know you, buying this investment property was life changing. It has not only been very profitable, but it's a wonderful place for our family. And I just, I mean, I'm here right now and just thinking about and wanted to thank you for that.

Welcome to the Creating Wealth. Welcome to the 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 2219. Greetings from Denver, Colorado. More specifically, beautiful Cherry Creek. I've been here for about a week and always love this place. Except for the Venezuelan gangs taking over apartment complexes here, of course, thanks to Kamala Harris letting in 11 million illegals so she can get a bunch of new voters. Absolutely unbelievable what's going on in this country. At the time of this recording, we have a major hurricane bearing down on Florida and all we can do is hope and pray for the best because this one looks bad. Although the most recent report that I just saw a few minutes ago is at least an improvement from where it was. It was downgraded one notch and so that is hopefully some good news. We will see how it goes. Today we've got our second half of Josh Metal and this is a good show, good interview, talking all about mortgage rates, strategies for investing using debt, and the most powerful, most historically proven investment class in the entire world, income property. So let's go ahead and get into that and next time we talk, the hurricane will have passed and let's hope for good news there. You know, though I do need to make a comment about that. People always mix up the way these natural disasters affect the real estate market. And I've commented on this before, it's not new, but they always Think there's, you know, there's all this damage and devastation, and so prices will drop and everything will be a fire sale. And most of the time the opposite happens. What happens is there's a housing shortage. There's a whole bunch of new contractors, workers, insurance people that get shipped into these areas. And you have fewer available units now due to the damage. And then you have more demand for the commodities, the raw ingredients that build a house. You know, you need more lumber, you need more concrete, you need more labor, you need more energy, you need more glass, you need more steel, you need more petroleum products. And all of those prices go up. The packaged commodities, the ingredients to a house. Right. And so people just get it totally wrong. They don't understand how the markets work, how the supply chain works, how real estate works. So stay here for the accurate information because, as you know, if you're a regular listener, we take a deep look at this stuff, and we know how it really works here. All right, let's go ahead and get to our interview with Josh Metal and that continuing discussion. And before we go, let's hear an interesting clip of the day.

Going to try my best. I've been trying to make this video for the last 15 to 20 minutes. Just blows my mind, you know, the level of depravity some of these people are going to go to. There is a FEMA man who came on and explained something very serious about the $750 that you guys don't know and that they're not going to tell you. And unless you have a magnifying glass in the contract that they're going to sign during your inspection, you'll never see it. So you're going to hear it from me and hopefully from everybody else who is going to share this around. The $750 is a loan. It's not free. They're not giving it to you. It's a loan. And if you don't pay back that 750 loan within a year, they're going to seize your property. So do take the money. Doesn't matter how hard you feel life is right now, don't take it. It is carrot on the string they're trying to bait you. Don't take it. Do not take it. One thing that you're going to notice, folks, is they're not giving that money to people who have a little bit of money. They're not giving it to people who have jobs. They're giving it to the welfare people who have nothing, who have absolutely nothing. And they're Going to take advantage of people first.

It's amazing. Any property I've sold in the past few years and I've, you know, done 1031 exchanges on many of them, etc, or even selling my own principal residence more recently. Cash buyers. It's just amazing how I would get cash offers. I never used to see this. Years ago everybody was financing. Hardly anybody was cash. If it was a cash purchase, you thought, oh here's some like old rich guy. But now buying with cash is kind of like a common occurrence. A semi common. I mean it's almost half the transactions. Yes. So you know when you look at mortgage applications. Yeah. You can have doom and bloomers like Nick put out a video. Oh, mortgage applications are way down. The world's going to end. There's going to be a crash. No, he just fails to mention, and I know he's doing it on purpose because he's a smart enough guy to know the truth. He just fails to mention all the cash buyers. Right. It's. It's unbelievable. Yeah, it really is, but.

So that's another huge part of the buyer demand that isn't accounted for in the application data. You're absolutely spot on. Let's hit the demographics if I could because I think that to me demographics are destiny. That is the future and the past. If you study the crash of 2006, 2008, yes, there was a lot of loose lending standards. Yes. People got over exuberant. Yes, all those things. But 33 years before 2006 was 1973 and that is when you saw Roe vs Wade and the legalization of abortions and contraceptives became mainstream. So 33 years later, you saw the birth rate drop in 1973, 33 years later in 2006, the people becoming the age of a first time homebuyer, which at the time was 33, it's a little older now, dropped off a cliff. So you had demand dropping.

Right.

When you had home builders building more homes than they ever had. And it was a demographic issue on top of that other layer of instability in the mortgage world. But we need to think about what's happening with demographics now. So let me just show you a quick slide that we put together and then I'd love your your feedback and I can put a link to this. We did a YouTube video really explaining this, but we looked at the baby boomer generation. Those people are between 60 and 78 years old. There's 71 million in that cohort. Their homeownership rate is 74% by the age of 30, 48% of them were homeowners. By the age of 40, 65% of them were homeowners. So you can see a trend. The older they get, the higher percentage of homeownership. 48%, 65%, 74%. All right, Gen X, this is my generation. There was a drop in the population size. So this generation is 44 to 59 years old. 65 million cohort current homeownership 65% by age 30, 42% were homeowners. By age 40, 59%. Same trend. As they get older, the percentage that own homes rise. All right, here's where it gets juicy. Millennials, 73 million. That is greater than the boomers. They are currently 28 to 43. The current homeownership rate is 45%. As a 30 year old, millennials had a 33% homeownership rate. And the estimate is as they move forward and as the four, as the millennials are turning 40, which is going to be the oldest part of this cohort, 55% of them are homeowners. So that tells us that we have, as these millennials get older, they will move from 45% owners to 55% owners as they move from 28 into their 40s. And if we go down here, we've broken this down. 17% of millennials still live at home. And by age 40, there's 4.4 million new millennials that need to buy a home. But then check out Gen Z. Gen Z is almost as big as the boomers. They're 12 to 27. There's 69 million of them. There's only 8% current home ownership rate. And if we forecast, if we just estimate that by age 30, 33% of them are going to be homeowners, that means that we have another 17 million Gen Z years because they're going to move from an 8% homeownership rate to 33% homeownership rate. You'll have 17 million buyers by the age of 30. So in the next 10 years, Jason, these estimates would show that Gen Z and millennials alone, this doesn't include immigration, this doesn't include any more Gen Xers that may increase their homeownership rate. But just from Gen Z and millennials alone, there's 21.4 million homes needed. And you and I know we're only building about 1.6 million homes per year, and we lose about 200,000 a year to fire and tear downs for rebuilds and those types of things. So Maybe we build 15, 16 million homes over the next 10 years, but we need 21.4 million homes over the next 10 years just for Gen Z and millennials.

Yeah.

Demographics are destiny.

Yeah, absolutely right. The shortages will persist. So, Josh, this is really, really telling. So the first thing I want to say is there is some disag among demographers as to the exact numbers of the boomer and Gen X and Gen Z. Okay? So I have commonly said that boomers are about 76 million Gen Z. Much lower. Like 48 million millennials. Higher at 80 million. But it doesn't matter. The point is the same. Okay, roughly. You know, the demographers do disagree a little bit, but the point is pretty much the same. But always ask yourself, what is he not telling me? Okay, what did Josh's chart not include? What didn't he say? And now there are many things he didn't tell you and he didn't say and many things his chart didn't include. But I'm going to tell you a really big one, and that is that the baby boomers are dying off and the millennials are in store to have the biggest wealth transfer in the history of planet Earth. Never before has there been such a big wealth transfer as there will be in the next 15 years. This transfer is about $80 trillion. Some say more, some say less. They're all estimates. Nobody knows the exact amount. Some say 85 trillion. Some even say higher than that. But compared to what? You know, when people throw out these big numbers, I don't know what they mean half the time. So let's just compare those numbers to a couple of things. The GDP of the country, all the economic value of everyone working in the United States for an entire year is about $25 trillion. Okay? So that's at least triple the GDP of the United States. That's going to transfer from one generation to another. The GDP of the entire planet is about $120 trillion. So that's almost the entire human race. Eight billion people. Their entire GDP for a year. Is this the amount of this wealth transfer? It is enormous. It is going to change everything in so many ways. What are those millennials going to do? They're going to go out and buy more houses. They're going to go out and buy more assets of every type. This giant wealth transfer is coming, and nobody can stop it, because so far, we have not found the fountain of youth, and I don't know that we will in the next 15 years, but it's pretty staggering. It really is there is a definite housing shortage. Don't fall for the doomers who are just trying to sell clickbait. You know, it's upon us. You can. These are just numbers. The data just doesn't lie.

Josh, I'm curious. You mentioned that the millennials are going to get this windfall of inheritance.

Why some Gen Xers and some Gen Zers too.

Okay, got it, got it.

Okay.

Yeah. My question was, you know, because just in my family, right, I'm a Gen Xer, my mom is a boomer, and that. That wealth will. Well, actually that wealth won't transfer to me because we have a trust and it'll actually end with my kids. But I would guess that there's a lot of it going into Gen X as well.

Yeah, no question about it. This is a giant, giant thing. But even with that trust that you have a generation skipping trust, you know, you're probably going to have some control over how it's managed and how it invests.

I get all the cash flow, baby. I get all the cash flow. They get the principal.

Yeah, exactly. Good stuff. Okay, so did you want to look at another chart?

I would love you to explain to me one of your most recent YouTube videos. You had had a great explanation of how when mortgage rates go down, more people qualify for homeownership. And I think that dovetails well onto the slide that I just showed with the huge demographics coming into the homeownership market. Would you be willing to explain that?

Yeah, sure, sure. So Basically, we used 7% as a baseline when mortgage rates went up. And we just said, hey, if rates drop, 50 basis points, 100 basis points, 150 basis points, in other words, a half a percentage, 1% or 1 1/2 percent, what will that mean? How many new buyers could suddenly qualify for the median price single family home? And the answer is a half a point drop is 2.8 million new buyers, a point is 5.4 million new buyers, and a point and a half is 7.7 million new buyers. Now, the reason the 5.5% mortgage rate number is in yellow is because at the time I didn't think that was likely, but now I do think it's very likely because Fannie Mae and Freddie Mac, the two largest mortgage players on planet Earth, okay, they both say the same thing. They both say we're going to see rates in the mid fives. And so think about what happens when all of these people enter a housing market or, you know, of course all of them won't enter the housing market. So that's not a fair statement. Some will stay in the rental market even though they can qualify for the median price home. Some won't buy it even though they have the ability to get. But say approximately a third come into the market. Right now we have just over 700,000 homes for sale. I mean, folks, if a million new buyers drop into the market and start bidding on the existing inventory of only 700,000 homes, what's that going to do? What if 2 million people come in? What if 3 million people come in, which is very possible. I mean, nobody knows how many of these buyers that can now qualify will actually buy. Some might just stay renting. I'm assuming maybe 60, 70% of them will continue to rent even though they can afford to buy. And if they don't buy a principal residence, they might certainly buy a rental property or two. And that's just going to push prices up, up, up. You know, during the Great Recession, Josh, you'll remember, we heard a lot about shadow supply, right? And you know how the banks were withholding distressed houses and they weren't dumping them onto the market. And the government wanted them to do that because they didn't want to make the market even worse. Right, by dumping these properties suddenly onto the market. Well, right now what we've got is we've got shadow demand. We've got all these people, record numbers of young people living at home with their parents who are very slow to form households. But they're eventually going to do it. They're eventually not going to want to live at home and they're going to want to have their own house. You know, even if they wait, their parents are going to pass away and they're going to inherit that money. So they're definitely going to buy a house. Right? And there is a flip side to that. That's Nick and the doomers talk about. They say, well, all of these baby boomers that are dying off are going to put their houses on the market. You're right, that's true. And I did a study on that. And I don't know if you saw the video. I don't have the slide handy. Otherwise I'd love to pull it up. But the amount of new properties that come onto the market, with people dying in the2030s, in the next decade, it's not that big a deal. It's just not that big a deal compared to the obvious demand that is there with just subtle population increases. But look at the current administration. They've let 11 million illegals into the country. They're just giving the country away. It's disgusting. But those people need to live somewhere too, okay? They're living somewhere. The demographics coming at the purchase market and the rental market over the next 10 to 15 years are phenomenal. I mean, they're just phenomenal. The only thing that could change it is maybe a pandemic that kills a lot of people. Okay. Or a massive great new technology that allows us to build cheap homes really quickly. Right. That could be a disruptor. Right. And it's not going to be 3D printed houses. I've looked at that in depth. I don't see the big disruptor.

I mean, even at that, even if the technology did come along, you'd have to go municipality by municipality and have them rewrite all of their building codes. I mean, just locally, we tried to put tiny homes on, on lots and we fought with municipalities for two years and we finally just gave up and said, screw it. You obviously do not want cheap housing. That's not. It can't be your real man.

It's not what they really want. They say they want it. They're just trying to score political points. It's kind of like Kamala Harris saying she wants an opportunity economy. Well, there's no specifics. I mean, you know, it's just, it's a joke. It's really just a sound bite. And, you know, in California, you know, this, they changed the law and they made it really easy supposedly to do ADUs, you know, accessory dwelling units, but talk to the people that are actually in the ADU business. And it is so expensive. They're like a thousand doll dollars a square foot. To put a stupid little 400 square foot Adu on the back of your, you know, big lot that you happen to have in California. It just doesn't work. None of this stuff really works. It's insane.

You can't get a positive cash flow when you're building for a thousand bucks a square foot.

No, no, you can't. You know, even it's 400 a foot, I can't. It doesn't work. The economics just won't work. So, Josh, let's wrap it up with anything else you want to talk about or, you know, anything. We didn't discuss questions. I didn't ask you.

I want to pivot just a little bit back to inflation induced debt destruction because I've really spent the last five years since, since I started following you, continuing to think about this and, and developing my thinking. And one of the gifts that I have is you know, I still own that first aplex that I ever bought with my mom back in 2000. So we've owned the property, same property, 24 years. And when you look over things over long periods of time, like you did so well with your breakdown over three decades in the inflation induced debt destruction work that you've done, you can see the power of that. For example, that building, Jason, when I bought that building, the average rent on the units, two bedrooms, beautiful overlooks, great Salt Lake views right by the Capitol. The average rents for the 800 square foot units with decks, two bedroom, $300 a month. Today we get 1595 plus 50 bucks for storage, plus we pay for parking, we charge for parking. So think of the math there. We went from $300 a month in income to 16 $50 a month per unit in income. That's more than a 5x500% increase. And what happened to my mortgage payment over that period of time? Went down because I've refinanced it three times and it's actually paid off now. And we should probably re leverage it. But it's like, you know, there's a lot of, lots of fish to fry out there in our investments. But let me, let me just show you a progression of the thought on this inflation induced debt destruction that I've put to work on my own portfolio because I think it might be helpful for people. So there's a blended rate calculator that we use from a company called MBS highway who does a, has all kinds of real estate.

He's been on the show Barry.

Barry's amazing. He's, he's a great friend and an incredible guy. So this is all of the properties that we own and the mortgages that we have against those properties. So we own. In our real estate portfolio we have $43 million in indebtedness at a blended rate of 4.014%. So once we calculate that, we built a little tool, that, which we call the inflation destroys debt calculator where we plug in the total mortgage indebtedness, the remaining term of the years. Now I just, for my portfolio, I just put 30 years. And my rationale behind that was I anticipate to refinance these because most of these are commercial properties and they have 30 year amortizations, but 10 year terms.

But I just, it's complicated. I understand that. But the one thing you could do is you could do a blended year calculator.

Okay, explain that to me, please.

Well, just like your blended rate Calculator, you could blend the maturity dates. Right, got it. So you know, if you have, I don't know how many properties that was, Maybe that was 20 different properties or so. You can just take the maturity date of each mortgage and just average them.

That's a great up level. Thank you. Thank you. So I took all of the mortgage indebtedness, I took our blended rate. We plugged in inflation. Is that, as you said, this is the CPI number.

Right.

But here's the cool thing, Jason. This is like blew my mind when I did this work that the $43 million in mortgages, if I pay it off over 30 years, my monthly principal and interest payments, 223,000. My interest rate, 4.014, is my blended. But check this out. My nominal payments, which nominal means name alone. That's how many dollars will leave our business accounts to pay those mortgages in name only.

Just, just what the checks say. It doesn't mean that's the value of.

Them unadjusted for inflation. What, what did you call a hundred dollar bill in 1924? $100 bill. What do you call it in 2024? $100 bill. But the only difference is it only has about 3% of the buying power today.

Right. So. So in should be called a $3 bill.

Should be called a $3 bill. That's right. But in nominal terms, I'll pay 80 million back on 43 million in indebtedness. But in inflation adjusted payments, I'll pay 45 million on 43 million in debt. So would you borrow 43 million for 30 years if it only cost you $2 million or a million and a half dollars in interest? And so your inflation adjusted rate is 0.08%.

Okay, Josh, wait a minute. This is a live calculator, right? Or is this a slide?

I got a slide. Sorry. I could pull up the live, but I, I don't have the link right in front of me. I apologize.

Because really, if you put the real inflation rate estimate going forward.

Oh yeah.

I mean, you, you could easily say it's going to be with all this, with $35 trillion in national debt and all of the unfunded mandates coming at us, I mean, you could easily say, I think that inflation on average over the next 30 years is going to be 8%. I mean, like, I don't even think that's a very conservative number. Right. I think it probably would be much higher. But if you put that in at 8%, you'd be instantly getting paid to Borrow, you'd be getting paid really well tomorrow.

You'd have a negative carry cost on what you're actually borrowing. You'd pay back less. And to your point, when you teach inflation induced debt destruction, that doesn't include the tax deductibility, right? I haven't even factored in the tax deductibility. So my point was sharing that with everybody is that one of the major speed bumps or the things that causes people not to invest in real estate is they're conflicted about debt being bad. And if you start to think in terms of decades into the future and you understand how inflation destroys debt, you will make completely different investment decisions. And I could just tell you there's no way that we would have went on a $30 million buying spree from 2020 to 2022 if I didn't have this, this knowledge because it created courage in the direction that I was heading. So I can share the site where people can go up and use it for free if you'd like. I'll email that to you afterwards.

Yeah, please do. That's great. Well, Josh, it's always a pleasure talking to you. We got to have you on more often because this is just such interesting stuff. You've just got such a data based approach to it, a very analy to it. And you know, I can see that the passion comes out of the data. So that's, that's always good. Go ahead and give out your website.

The mortgage world is really where I spend a ton of my time. And you can find us at medical professional home loans.com you can find us on YouTube under medical professional Home Loans. And if you just want to reach out, you can of course find me on all the normal social media channels. Just search Josh Metal. There's not too many of us out there.

Sounds good. Josh, thanks for joining us.

Pleasure to be here. I hope to see you again.

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