645: 5x Your Real Estate Returns; Housing Market Insights from a 53-Year Spreadsheet Analysis

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Welcome to the Holistic Survival show with Jason Hartman. The economic storm brewing around the world is set to spill into all aspects of our lives. Are you prepared? Where are you going to turn for the critical life skills necessary to survive and prosper? The Holistic Survival show is your family's insurance for a better life. Jason will teach you to think independently, to understand threats and how to create the ultimate action plan. Sudden change or worst case scenario, you'll be ready. Welcome to Holistic Survival, your key resource for protecting the people, places and profits you care about in uncertain times. Ladies and gentlemen, your host, Jason Hartman.

It is my pleasure to welcome Michael Zuber back to the show. He is the author of One Rental at a Time, which I think just the title of that book alone speaks to the right idea about real estate investing. You know, just this sort of progressive thing that you just do on and on and on, just very consistently. I really like Michael's philosophy on that and he's got some insights on the market. So we're going to do a little myth busting today as well, I think. Michael, welcome back. How are you?

Jason, thank you very much. I love what you do with. Being on. Your show is such an honor. It was always a goal of mine. So thank you for the opportunity and the opportunity to come back.

You know, you have a very good handle on market. You cover it a lot with your audience. What do you think is going on? I mean, there are just so many opinions that it's overwhelming.

Yeah. So I think there's a couple of things. So again, like yourself, I've been buying real estate, specifically rental properties, for 20 years, which means I started before the last crash. I happened to be lucky enough to sell all of my houses in 06 and 1031 into apartments because I saw pain coming. I saw it coming. So I sold. Right. I took action. I didn't know it was going to be that bad. It was twice as bad as I thought. And then I've been buying ever since. So a lot of people have come back to me and say, well, hey, you sold last time. You've got to be selling this time because the affordability numbers are horrible, if not worse today.

Yeah.

But I'm a data guy, I'm not a feeling guy. So something we're going to look at here was something I've now called a 53 year spreadsheet. I've gone back all the way to 1970, which is just before I was born.

Which, by the way, since we're speaking of years and age and stuff, I do have to correct you because you sort of made the casual statement, like you, I've been investing for 20 years. I bought my first rental when I was 20, and that was more than 20 years ago.

There you go. So we got, we got, we got 50 years of experience, plus combined. There you go. But the key is, I wanted to know because again, I took action last time. I saw the affordability, I saw the horrible underwriting, I saw the bidding wards. So I sold, I got out, I moved my money to apartments. I'm like, should I do that again? And I have a lot more now, so getting to apartments might have been the right idea. So I went back to 1970 and I collected a whole bunch of metrics. And we're going to show everybody the metrics. We're going to highlight some columns.

This is good stuff, folks. Yeah, I think.

But the key was, is have we ever seen a time where interest rates went up 500 basis points in a relatively short time? And if the answer is yes, what happened to real estate? Now, most people only focus on price. Most people only focus on nominal price, let alone real.

Right.

So that's where most people's heads are.

Yeah. In other words, nominal meaning in name only versus adjusted for inflation, what is the real price? The other thing, though, because There's a big YouTuber friend of mine who constantly talks about if you adjust real estate for inflation, it really hasn't done nearly as well as most people think. And that's sort of true. But here's the flaw and what he's not telling you, which is critically important. Most people and certainly all investors pretty much are leveraging their real estate, so they are multiplying their returns. So it would be a false comparison. And I know I'm on a little bit of a tangent here, but since I'm thinking of it, I want to say it, to say that real estate prices vis a vis inflation haven't done as well as we think. But once you consider that they multiply Those returns typically by 5x with leverage, it's done way better than inflation. I mean, just dramatically better. It's so outperformed the market. But yeah, go ahead.

Yeah, I mean, it's funny how people. Again, there's a lot of, lot of negativity around housing and people preaching crash. A lot of people bring up this nominal versus real, but the debt also gets adjusted. Right. So let's not get it twisted. You're getting a 30 year loan and I would argue that if you have an interest rate sub 3, it's going to be the best asset you have because you've basically borrowed below the rate of inflation. So all of that. But back to my stated goal is I want to know what happened last time rates went up. I wanted to look at price. But there's also this little sneaky thing called transactions. Because as an economist I understand the supply and demand curve can both lines.

Can move transaction volume correct.

Total transactions correct. Because again, what I saw and called now two years ago was ultimately what we were going to have based on history is a transaction crash. We're down 40% and going lower, but prices would be stubbornly high, if not flat. And that's exactly what's transpired. So I'm going to show you the data that led to my opinion. We're going to go through some highlighted columns and I'm sure we'll dig into some others. You ready for this?

Yeah, go for it.

So again, just kind of level set what we're looking at here, this again is a 53 year spreadsheet, goes back to 1970. All of the metrics are down the left side. The year is at the top. Just so you know, it's not me. I sourced all the data from St. Louis Fed so you can go check all these numbers. So every, every metric has a source, unless it's math like some subtraction or whatnot. So all the data is there. This is not just made up. But here's the deal, we're going back to interest rate environments because again, that was the question, right? Have we been in an environment where interest rates skyrocketed? So if you start in 1978, you will see an interest rate of 9.64%. Now that comes from December 31st because when you put a spreadsheet together you have to, you have to make like for like. So all of these numbers were the interest rate on December 31st at the year. But what at the year end, what you will see is from 1978 to 1982, interest rates went up 700 basis points. There's 16. Actually if you go back to 1981, there's 16.64%.

And just to give it some context, this is the end of the Jimmy Carter presidency, the beginning of the Reagan presidency and Paul Volcker as our Federal Reserve chair, who was the guy that is credited the late Paul Volcker for breaking the back of inflation, definitely causing us all to experience some pain, but also ending the inflation spiral. And I don't think Jerome Powell is going to be able to do that. But that's another discussion. Discussion. Go ahead.

But here's the key. So we have had another environment where rates went up. In this case exactly 700 basis points. So when I saw that, I'm like, great, what happened to housing? Because again, a lot of people says if rates go up, housing has to crash. Right? That's what people say. So if you look at row 8 nominal home appreciation, and let me highlight this in a. Okay, slightly different.

Keep in mind though, the, the difference is because we've said it a lot on this show, and I'm sure you've said it before too, Michael, that this is the fast historical increase in interest rates. What you're talking about is a four year period versus ours is a one year period. But you know, again, our increase hasn't been quite this much yet. Hopefully it's not going to be. But yeah, go ahead.

Yeah. So again, when you go back to history, you can only use the data that was there.

Right.

And again, we did see a bump of 300 basis points in a calendar year, but in the end we have seen 700 basis points. And if everybody's right about housing, housing should have crashed in prices. That's what everybody thinks. So I wanted to know what happened. Well, if you start looking at 1978, 1978 was last boom. Year was up 14, nominally, 1979 up 12%, 1980 up 3%, 1981 up 6 and a half percent. Now, if you adjust for inflation, you will see the numbers below that. They're not quite as rosy, but in the end we had rates go up 700 basis points and price was not negative, at least nominally speaking.

Yep, interesting. You know what? I'd love it. I think you need to add one more row to your spreadsheet and do the leveraged appreciation.

Oh yeah, I could do that.

So in other words, what you would do here, folks, this is the thing that everybody's missing. Okay, folks is, I mean, everybody's missing a lot of things, but one of the things they're missing, okay. When these clickbait people talk about the housing market, they just don't understand the multidimensional nature of the investment. Right. And so what you do is you take an under row eight, you put leveraged nominal appreciation leveraged. And so you just multiply all those numbers times five. We're literally doing this. Now, folks, for those of you listening on audio, we're Doing this right now, I can use Excel, assuming 20% down. Okay.

Yeah. So let's. Let's go back and let's go do all of these.

Yeah, this is going to blow your mind, folks.

So this is a percentage. So this should probably be. Would it just be 5 or would it be 500? Let's see. There we go. And now we just drag this across.

Look at this. This is incredible. And then you subtract inflation, because remember, everybody, your real estate deal is leveraged, but inflation is not leveraged.

Correct.

So inflation only gets the rate of inflation. You know, it doesn't get to multiply itself times five.

Okay, so you would do that in the same row, or would you want to do that in a separate row?

Well, I would do the. The real home appreciation is now a new formula, because I was thinking. Yeah, it is the leveraged return minus the rate of inflation.

And just so people know where inflation is, that is row 26. And we'll just add this. We'll drag this over.

So, Michael, this is fascinating. Now that your spreadsheet shows the real appreciation with leverage. In other words, formula for that is you take the appreciation rate and then you multiply it times five, assuming there's 20% down or 20% equity, either way. Right. And then you subtract the rate of inflation.

Correct.

And then you get the real home price appreciation. And it was phenomenal. But in 1982, it did go negative. So why don't you just go through these numbers with us a bit?

Yeah. So if we focus on the spreadsheet, row eight, that is nominal home price appreciation, and that, again, comes from the St. Louis Fed. But that's just a single number. What we then do to your point is most investors will buy with 20% down. So again, if you want to get the benefit of leverage, we have to multiply that by five. But when we're really looking at real appreciation with leverage, we also need to know that there's this stealth tax called inflation. And for this scenario, we took the cpi inflation, it's the most reported, and we've kind of put that together so folks really can get an appreciation for what was going on in the housing market with leverage and the inflation rate. And it's really shocking, both on the good side. Right. The big positive numbers and on the negative numbers. Because there are some negative years.

Yeah, right. But the negative is pretty minimal. And the positive is insanely positive. I mean, for example, who would have thought? Because they don't know how to do the math. Okay. But if you're doing the math, right? In 1979, the last, you know, year. Well, not really the last year, but almost the last year of the Carter presidency, okay? Which you see that nominal home price appreciation, even with Paul Volcker increasing rates, is 12.4%. But inflation is out of control at 11.25%. Okay? Now look, nobody here is under the delusion that the government, the cpi, is giving us the real rate of inflation, okay? So even if we adjust for that, still these appreciation rates are phenomenal and we're not even talking about return on investment from rents and so forth. But then in 1979, your real appreciation rate with the leverage minus the inflation rate is 50.5%. So if you're rounding properly, it's 51% appreciation. But look at how radical it shifts. One year later, 1980, it goes down to only 2.4%. But then the next year it goes way up again to 22.1%. And the next year it goes down to negative. And this is the only negative year, negative 4.1%. And then the following year it basically 11 x's that and goes positive 41.2%. Now, again, this doesn't tell you everything because if you had a property with negative cash flow, you're paying to sustain that property and you would have to subtract whatever you paid from those returns, okay?

Correct.

But, you know, we're assuming you're breaking even here. If you have positive cash flow, you did better. Okay? So this doesn't tell the whole picture. It doesn't talk about the tax benefits, which is a positive thing, of course, or anything else. But, you know, this is really, really enlightening. What do you think?

No, it absolutely is. And again, at the end of the day, I go back to why I put this together. I put this together because I had to make decisions about my portfolio. Last time I decided to sell. This time I was looking at the environment. I was seeing historical evidence of significant interest rate rises and I wasn't seeing the deterioration in price. So then I asked myself, well, if price isn't deteriorated in affordability, is undoubtedly horrible, what else could be adjusted? And that is supply, AKA transactions. So what I would ask you to look at here is look at total transaction. We've highlighted the row in pink. It's row seven. We see a total transactions. This is new home sales and existing home sales. Total will round it to 4.8 million. Now you won't be able to see it on the screen.

What year are we looking at?

1978.

Okay, so in 1978 there were 4.8 million housing sales. That was the sales volume transactions. Correct. Okay.

New and existing. So new homes and existing. And again, my whole question was what happened last time? Rates went up.

And by the way, we are below that number now.

Oh, no question we are.

I mean, but it's, but it's actually, and let me, I'll just say it now so I don't forget, it's actually dramatically worse now because we have as a comparison, like on a per capita basis. Right. As a comparison to the population which is much larger now, and the number of housing units, which is also much larger now. The market in terms of sales volume right now is dramatically worse than that. So we are in this frozen, weird market.

Yeah, most people would call that turnover. Turnover is much worse today than it was in 1970.

Lower turnover.

Correct. Lower velocity. So but back to my question is what happened? So if I were to ask the audience, just a guess, in 1978 we did 4.8 million transactions. We've just highlighted that interest rates went up 700 basis points in four years. What year or how many years, depending on how you want to answer it, did it take for us to take out the 1978? 4.8? Like how long did it take for us to do total transactions above 4.8 million?

Okay. And the answer is.

So the answer is a lot longer than most people think. So again, you can see the transactions, they come off 4.8 to go to 4, 5, down to 3.5. But we don't actually get back to 1978 numbers until 1996. Wow. 18 years.

So the, the real estate industry, not, we're not talking about the market, we're not talking about investors, how much money investors made or didn't make. We're talking about the industry size, the brokerage industry, the title company industry, the mortgage industry. Well, you know, mortgage industry, you know, you don't have to have a transaction to do a refinance. So that's really actually different. And rates went down so much. There were probably, you know, plenty of refi. Refi businesses. So. Yeah, very interesting. Okay, so, so tell us what does that mean to you?

When I put together, and again I made this real decision, I put this together about 18 months ago, I decided that I wasn't going to sell any of my single family homes. And again, I'm somebody who sold in 06. So this was a different decision because I saw what was going to happen and that was there was going to be a marketably Drop in transactions. I estimated 40 to 50%, which has now happened. And values would be stubbornly high, if not go up. Because what's going to happen and now is being reported by everyone is people are going to treat their mortgage like an asset. It, they're, you're gonna, you're gonna hear people called lock in. You're gonna hear all these things and we're gonna have luxury properties sit on the market. But the entry level stuff, the Fed broke the housing market and this spreadsheet told me is the Fed could break the housing market for more than a decade. So I'm prepared for transactions to be right around 4 million for the next five or six years.

Yeah. So it's like throwing a stone in a pond, right? That generates a lower income for everybody in the real estate industry with the exception of the mortgage people, which now it's terrible for them and a lot of them have washed out. So you can, you know, if you have your pizza delivered, it might be from a former mortgage broker. Sorry, mortgage people. I, you know, your business is very volatile, but you make tons of money when it's good. So that will have a, a little bit of a shrinking effect on the economy. But that's just the transaction industry, right, the home renovation industry. My thesis has always been, since the beginning of COVID that that industry is going to actually boom quite well with lower transaction volume. I think more people do home improvements. It's just my theory. I haven't really researched it, but it just sort of seems obvious to me.

I think there's a couple of things there. I think, I think we clearly, I think evidence is on your side. 20, 20, 21, 22. I think we're creating probably an air pocket right now where people are just trying to figure out everybody's already done their backyard, they've done the fence, they've done the patio. But again, consumers are very predictable that in a year's time they'll be like, oh, time to update it. We've, you know, we've got to do this, we got to do that, we've.

Got to remodel the kitchen now.

Yeah, yeah, exactly. We got to do the master bath or we got to do that. So I think your thesis, you know, minus this little air pocket is right on because people are going to age in place. Historically, people have stayed in their homes for about 8.1 years. I have a sneaky suspicion in a decade that's going to average 12 or 13 years, we're actually going to have people pay off their mortgage Jason, that's going to happen.

It's 42% of the people, 42% of the country has no mortgage already. The interesting thing about it too is we're in this strange market where housing affordability is so low. And I saw this when I lived in Newport Beach, California, you know, where you have all these, you have a very rich area, you have all these rich people. Okay. And what was interesting about that is it's an area where like no new blood comes in because nobody would relocate there hardly, because it's just too expensive. Okay. So if you're moving from, you know, Phoenix or Minneapolis or wherever, or Atlanta or Dallas, you know, it's just way too expensive to move to Newport Beach. Right? So, so you would have this sort of like, it'd be the same people that would just hang out there for decades and decades. And the real estate industry was comprised largely of people who already owned a home, had a lot of equity and were selling that home to buy another home. And so housing affordability didn't matter to them very much because they weren't impacted by affordability. They were trading a large chunk of equity into a more expensive property where, you know, maybe the mortgage was the same or it got a little bit bigger.

Well, that's, that's the wrinkle. That's the wrinkle. We had 40 years of falling rates. So if you happen to be in Newport beach and had all the depreciation, you could trade up in Newport beach and probably keep your payment right about the same. Yeah, that is not the case today. If you're a move up buyer today in Newport beach, you're going to go from a 3% mortgage to a slightly bigger house at 8%. That math doesn't work.

And that's why everybody's going to age in place, correct? Yeah. Yeah. I'll tell you a funny thing about that. I remember talking to my friend Rick one day and I was, at the time, I was not in a relationship, I was single. And I said, hey, you know, Rick, what happened around here? You know, years ago there used to be all these cute 25 year old girls here. And he said, well, Jason, they're all still here. They're just 45 now.

I think that explained the real estate market really well. Yeah, so it's, it's interesting. So what else does this say about what we can expect and what we should do as investors, as homeowners?

Well, to me, investors is obviously where I focus. To me, this means the real estate market's slowing down. I Actually think we're going to go into a deep freeze. But I want people to hear this.

Will transaction volume get even lower?

Yeah, I think it's going to go to 3.75 to 3.8. It's going to go down about another 5%.

Okay, 3.75 to 3.8 million transactions per year, right?

Correct, Correct. But what that's going to mean is it's going to be easier to find motivated sellers. And my job as an investor is to deploy capital that produces an above average yield or cash on cash return. And I'm looking to do that going forward. There's going to be more motivated sellers. Death, divorce still happens, job transfer still happen. And if the house isn't perfect, I won't pass an inspection. You're going to need. You're going to need a buyer like me to come in and I'm going to offer a lower price. So I'm going to be aggressive.

I'm not sure I agree with you on that. I don't think there's going to be a lot of motivated sellers. I think you're going to have this constricted inventory that's going to make it unnecessary for those people to become motivated. Of course, there's always going to be some. Right, no question. But you know, the analysis I want to do, and I've been thinking about this for a while now, I want to do an analysis on rentals. Okay. So go back to your chart for a moment. Can you pull up your spreadsheet again? Let's look at transaction volume because this is something I've been thinking about lately. And let's look at volume in recent years. Okay, so let's just recent years go to, you know, the last five years or so. Okay. So row seven. So here. Wow. When. When did we do 8.4 million transactions? I. I didn't. I never knew it got that high.

Well, that's the min max. What year was that? It's probably in the bubble. Yeah. 2005.

Wow.

We did 1.2 million new.

Yeah. That's incredible. And that's why we had such an inventory hangover.

Yeah. People don't realize the amount of building that was going on in the 0405 versus today. It's wildly different.

I know. Today there's like no building. Yeah. Okay, so let's just consider this for a moment. Let's talk about renters in the rental market. Okay, so you have volume that has declined dramatically. Do you have any stats here on the first time buyer percentage of the Market.

I do not. No, that's not on the spreadsheet. It can be added.

Yeah, I'm going to call that somewhere generally in the 25% range. Is that a fair statement, do you think?

I would have guessed. Historical average is more like 20, but yeah, if you want to call 25 on the Rosie side, sure.

Okay, so let's assume that 25% of the buyers are first time buyers. Okay. So they are currently renting and then they buy their first home. Now let's look at for example your 2019 number. Six million transactions. Okay, so six million. I'm pulling up my calculator right now and let's take what we've got. You think it's going to be, what is it now?

Seasonally adjusted today is 3.96 is the last 3.

So 4 million. I was going to say 4 million.

So.

So we've got 2 million transactions. Okay, this is easier. I don't need a calculator. 2 million transaction deficit. Okay, That's a deficit. And I'm not taking the COVID era. I'm going 2019 to give it a more flow. Right. That's a more reasonable number because during COVID it went above that quite dramatically. Actually in 2021, we'll take 25% of that. That's 500 people that are trapped in.

The rental market and getting worse. Yes.

I want you to think what that does to rents, people, that puts upward pressure on rent like you won't believe. Now this is a little bit unnoticeable right now because people are getting fooled by headlines. One of the headlines is rents are decelerating. That's true, they have been decelerating. That's not declining. It just means accelerating more slowly. Okay, it doesn't mean decline, it doesn't mean stopping. But you have this massive amount of new inventory of apartments that have hit the market. Okay. And that's in a little bit of a bubble. It's going to take, you know, two, three years to work itself out. But if we see consistently lower sales volume and we call a quarter of that market to be first time buyers that are now trapped in the rental market, it. Folks, I've been saying for a long time rents are too damn low. And I know everybody thinks I'm crazy saying that, but look, now you're starting to see all these articles that say rent, it's, it's a better deal to rent than buy. And I think few people would disagree with that. And whenever it's a better deal to rent than buy, that Automatically means the rents are going to start inching up. Okay. And, and we are going to see dramatically higher rents in the future. And then the uninformed people will say, well, Jason, Michael, come and people can't afford it. Well, what gives? What gives is their expectation. They just get less. Yeah, they get less reality of it. They just accept less. And that's, that's what happens when you have bad fiscal and monetary policy and a messed up dysfunctional housing market, which is what we have. I mean.

Yeah, no, I mean the housing market is clearly broken coming into this analysis. I now think it will be broken for five to 10 years. You take this to the first time home buyer. We're down 500,000 year one. Then there's year two, year three. If the market really is broken for a decade, we could have 4 or 5 million first time home buyers trapped as renters into a falling supply. Because also what's going on right now is builders are pulling back monsterly. So I think shelter inflation is rolling over just the way they calculate it. But I actually this morning on the Daily Financial News said I think shelter inflation goes up next summer because the supply is just not going to be there.

Right, Absolutely. In your very comprehensive spreadsheet, do you have a homeownership rate in here?

I do. Very top row, row two.

Okay, so that's row two. Okay. So go back to, you know, the 70s where you started. Here, look at these numbers. Okay, so 1970 homeownership rate was about what it is now, 64%.

Yeah, it's a pretty tight band.

Yeah, yeah. Okay. Okay. And then by 86 it got to like 63%. Went down a little bit. Now let's go up more. It's pretty tight.

It's a pretty tight band.

Yeah, yeah. It got 1996, it was 65%. 2001, 67%. And here's that George era of the ownership society coming in, folks. That led to the bubble.

2004, I think was the highest at 69.

Yeah. So remember what I've told you over the years. I've been saying this for at least 12 years. Every 1% decline in the homeownership rate is about 1 million new renters. Yep.

Correct. Roughly. Yep.

Think about that. One million new renters with no new inventory of properties. What does that do to rents? They can only go up.

Well, there's, I mean there's, there's. Either that or we got to build a lot more apartments. I mean there are. People are talking about apartments being. People have to down select.

Yeah, right.

They're gonna have to trade a house for an apartment.

Yep.

And that's cheaper. And yeah, I single family because I, I spend a lot of time with single family. I own apartments as well. But single family rents are still strong. People want, people want space, they want a backyard, they want a garage for their stuff. If demand keeps going up like we've talked about, rents are going to go up and the people that can't afford it will go to apartments. They will down select.

The only way to fix this is to make it easier and cheaper to build more houses.

Supply problem. Not a demand problem. Supply problem.

It's a huge supply problem. Or maybe you, you know, tell everybody they got to take some new medicine which lowers the population. That's scary. Yeah. Well, actually. Wait, they did that already?

Yeah. This is just, this is just a giant problem that I don't see a fix for it now. You know, think our home state for both of us, California, they've done a couple of things that are interesting. You know, they made it really easy for people to add accessory dwelling units to their houses. I'm sure you.

Absolutely.

And more recently they just passed another law allowing people to sell those separately as if they were like a two unit R2, like a duplex property or a condo. But interestingly, this doesn't really solve the problem and I'll tell you why. Because the ADUs can cost around $500 a square foot to build. I mean, you add land to that and you've got a $700,000, little, tiny, tiny house in the backyard. I mean, that doesn't work. That doesn't solve the problem.

It's going to help with the margins. I think adding more units helps at the margins. It's going to be really good for, for, you know, for the baby boomers who bought their houses in the 70s and 80s to get income. It'll help with the margins, but it's not the fix. But, but you know, it's, it's not a bad thing. It's, it's a nice attempt.

Yeah, no, I, I mean, I agree that it, it'll create just a tiny bit of pressure release on the housing affordability problem. But again, unless you can allow people to build those cheaper, correct that off the shelf. Yeah. Or bring them in disruptive technology that makes it. And then I know I'm going to get a million emails and say, well, Jason, have you heard of Boxabl? Do you know about 3D printed homes? Yes. We've done shows on all of this. Folks, do you know you can buy a house on Amazon? Yeah, I know that too. I've done a video on that. None of these things work. They're much more expensive than you think they are. By the time you engineer them and everything, you're at least 250A square foot without land. No land included. Okay.

Yeah, yeah. I just did a show with a ADU expert and. And doesn't recommend boxable any other stuff because it does. It's hard to get a certificate of occupancy.

Oh, tell me about that.

Well, basically they're not on foundations. You have to run plumbing and all of that to them. They're also not engineered to the local building specs. That's why it hasn't taken off. Because every building department has their own thing. The first person to solve it. Like if you solve it for my market of Fresno California, that doesn't mean it's approved in la. It doesn't mean it's approved in Vegas.

Right.

Everybody has their own requirement. That's why it's not rinse and repeat. That's why Fresno California has five approved plans that you can go get for a couple hundred bucks and build. They're trying to solve it with approved plans. You know, you can't just buy a boxable or a Home Depot or whatever because you can't get a certificate of occupancy.

But all of that, go buy those plans and. And build. Is building a traditional stick built house.

Correct.

It's super expensive to do that.

Yeah. It streamlines the process. So you get it done three months sooner than going through architectural review because you just get a rubber stamp. You save about 10,000 bucks in architecture inferment fees because they're trying to encourage these. So it's a little cheaper and a lot faster there.

Yeah, yeah. But still, it's not cheap enough.

It's not. I agree. It's not cheap enough.

And what are the sizes of those houses? I mean, they're just tiny.

They're tiny. I think this, I think the small end is 480 square feet. The big one's 880 square feet.

Yeah. So if you think the first time buyer entry housing program for a couple with a kid or two is a 400 square foot house.

I think it helps generational living. Yeah, that's what I think it helps with.

Yeah. It could keep mom and dad out of an assisted living house.

That's the goal. That's how I see it.

Yes. Right, right. Very interesting. Or it makes a good place for your teenagers to, you know, do drugs or have sex.

Yeah.

So, Michael, what other things do you want to share with us, either from your, Your research here on your. On your spreadsheet or just in general?

General. I think at the end of the day, we have to realize that affordability is, Is near a record low. For everybody that wants to know, 1981 is the record low. 1981 is the worst affordability since 1970. The unfortunate part is we could be here a while. I think the only answer to fixing the housing market today is time. You need time for wages to increase. You need time for the Fed to stop higher for longer. The housing market will be broken for five to 10 years is my conclusion.

And do you say that, you know, like, what's your prediction on what will happen? Do you see a Fed pivot happening, and if so, approximately when?

Well, it depends on what you call a pivot. I actually think the Fed pivoted last Sunday and they went from being the big bad wolf saying higher for longer to, oh, my God, the market's doing our job for us. We're done. So, November rate hike. No. December rate hike. I think the Fed's on pause for the next 12 months or so. So that is the Fed pivot. To me, if you're asking for a rate cut, I think they're going to hold on with a. With all their might till 2025. I don't know that they can. Stuff appears to be breaking the bond. Vigilantes are back. If you gave them true serm, they're talking Q1 of 25 before they cut. It's my, my guess. I don't know if, I don't know if they're going to be able. On that long.

Yeah, okay. All right. What else do you want people to know?

Real estate investing's never easy. The last couple of years, there's been a lot of financial engineers who got lucky and they're going to get hurt in a big way. But real estate investing is still the tried and true way for average folks like myself and Jason to get wealthy. You've seen there is a path.

Yeah. And everybody listening just one at a time. You don't need a hundred, you don't need 50. I think if you get to four, you change your life. And if you choose to get to 10, you know, that's great.

Yeah. Yeah. You know, that's such a good point. Just getting started and getting that one rental. If you already own a few, you know, depending on your income and your situation, if you can get two more Per year. I mean, you change your life at 4. Okay. And then you really change your life at 10. And beyond that you're just, you're getting.

You'Re playing with house money.

A fantastic level of. Yeah. Where your properties begin buying your properties for you. It becomes the what they tried to invent many years ago, the perpetual motion machine.

That's really what it becomes. Yeah. Any techniques or advice you want to share other than, you know, we've talked about the market, we've talked about of these, all our thoughts, our predictions, but specific advice.

Yeah. So I'll tell you, I'm always telling people what I'm doing. So there's a variable that I'm looking at today that he's an offer. And I've never used this variable before in 22 years. It is quite simply days on market. In my market, I don't write an offer unless the property's been on the market for 30 days or greater. I want to know that that seller is not getting the price, not getting the terms or whatnot. And I'll even wait sometimes for 60 days. I'm writing what I call disrespectful offers, aggressive offers on properties that are aged out 30 to 60 days. I don't need to buy every property, I need to buy one or two a year. And I'm going to write offers that, that produce great deals today. And to today, my metric is days on market. I've never used it before. I've always tracked it but never used it. It is the metric that I'm using today.

And what about where the rubber meets the road? And that's on management. Any tips on property management? Are you self managing all your properties?

No, I've had a property manager day one. My market's two and a half hours away from my, you know, California house. It's, you know, seven hours away from my Vegas house. I've paid someone. Property management's a hard business. I fired my first five. I like to work with somebody whose owner or principal is an investor. That seems to work very well for me. They put in the systems in teams to help with that. So that's what's worked for me. But no, I don't manage my own stuff. I would never do that. I don't want to.

Yeah, okay. Okay. So that's interesting. I would, I would have sort of picked you as a self manager using the hybrid self manager management approach like I do. I love self management. I'm a huge fan. It's amazing. I mean, I really just never Talk to my tenants. But what's interesting about what you said is that you went through five property managers that you fired before you got one that you liked.

Oh, yeah. Yeah. Property manager is hard. It's a hard business. Expectation management. I have high expectations. Communication. You can't be run over by the tenants. It's tough. So I have a Friday call for 15 minutes every week with my. I contact. We go through a list of reports. I spend about four hours a month on our portfolio, and that allows me to do lots of other things. Gladly pay it.

Good for you. All right, well, Michael, give out your website and tell people where they can learn more.

One rental at a time. I'm very good at. Everything I do is one rental at a time. Website, YouTube, books, all the. All the above. Jason, again, thank you for all you do. You've been doing this for so long. I've been following you for a long time. Thanks for the opportunity.

Hey, thank you. It's great having you on the show, buddy. And we will talk to you soon. 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.