CW 505 – How Declining Home Ownership Rates for Millennials Creates Opportunities For Real Estate Investors with Jason Hartman

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Welcome to Creating wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven't thought of before. And a new slant on investing fresh, new approaches to America's best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine, self made multimillionaire who not only talks the talk, but walks the walk. He's been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason's footsteps on the road to financial freedom. You really can do it. And now, here's your host, Jason Hartman with the complete solution for real estate investors.

Hey, welcome to the Creating wealth show. This is episode number 505, 505. And this is your host, Jason Hartman. Thank you much for joining me today. So, you know, on many, many previous episodes, I have talked about the amazing, literally amazing demographics coming at the rental market over the next decade plus. And potentially, you know, I don't really have any way of empirically knowing this, but potentially they are the best they've ever been in U.S. history. It is, it is nothing but amazing. Every part of this which we have talked about in depth on many prior episodes, it's amazing. I mean, you look at the millennial generation and they are this huge cohort, the largest demographic cohort in American history, slightly larger than the baby boomers. And they grew up seeing their parents go through a housing crisis and a stock market crisis and an employment crisis, or I should say unemployment crisis. They saw their parents get burned and they are in an anemic job market. It's hard to find employment. You know, it's, it's not going to be the typical thing that used to exist, by the way, where the typical millennial, well, they weren't a millennial back then. They were a Gen Xer. My generation, the typical Gen Xer, you know, they'd be 26, 27 years old and they're buying their first house, right? Or even younger many times. But nowadays that has just changed because with an anemic job market, they've got to have mobility. Mobility is the best thing you can have on the, on a resume, as I often say. Here's another article that just kind of, among so many other reasons, the massive amount of student loan debt, not having faith in that American dream of homeownership and an anemic employment market and needing mobility. And, you know, the list goes on and on. Family formation starting later. People not really getting married at any big rate anymore. You know, this massive growth in the single population, the largest voter bloc in the last three presidential elections, which most people don't even consider that a voter bloc. Right? Because singles are of both genders, they're of all ages, they're of all races. So, you know, it's not considered a voting bloc, but it really is. I mean, single is a voting block, and it's the largest voting block in the last three presidential elections. So here's a Business Insider article I came across that says apartment renters just aren't crazy about buying a home. It's just really interesting. It comes at it from an interesting angle because it says, and I'll just read a little bit of it to you, it says on an almost daily basis we hear the question when will the millennial first time buyer emerge? When will While predicting the behavior of any cohort still recovering from high levels of unemployment and a record amount of student loan debt can be tricky. The response of some of the largest apartment REIT operators. And a reit, of course, is a real estate investment trust. These are the big owners of many apartment buildings, right? Is an unhesitating no time soon. When your apartment lease expires, you have two renew or move out. Each quarter, we track the percentage of residents who move out of an apartment to purchase a home. Other reasons for moving can include job change, eviction, rents rising too high, etc. By studying publicly traded apartment REITs who manage a combined 520,000 units, we learned the following number one during the housing boom of the early to mid 2000s, roughly 1 in 5 renters leaving their apartment opted to purchase a home. In fact, the national home ownership rate peaked in 2004. At the same time, the percentage of those moving out to purchase a home was peaking. Now my commentary. Remember, I've talked to you many times in prior episodes about what I call the three dimensions of real estate. Now there's really more dimensions, but these three dimensions that I talk about commonly are people buying, people renting, and interest rates. And of course, the values of homes reacting mostly to interest rates and housing affordability. And when I do this, I always talk about, you know, I give an example of my friend Nancy, who I ran into at the car wash sometime circa 2003, 2004 in Irvine, California. And she worked at the time. Maybe she's still there. I'm not sure. For the Irvine Company, the Largest apartment owner in Orange county, if not all of California, possibly. They're certainly a giant, giant company. You know, I said to Nancy, the typical question, I said, hey, how's business? And she said, oh, it's, you know, it's really kind of tough right now because everybody is moving out of apartments to buy homes from you. Now, back in that era, I was in traditional real estate. It was before I sold my traditional real estate company to Caldwell Banker. And, you know, I thought, well, isn't that interesting? Interest rates are very low. Prices are going up. Housing affordability was still reasonably good. It got bad later in the boom. And that's, of course, a sign of a bubble coming, and that's how countercyclical it is. So when interest rates are low and it's easy to qualify for loans, remember back then, you could fog a mirror and get a loan. Then you have this kind of market where everybody just moves out, okay, and they buy. And now you have kind of this weird scenario because, of course, interest rates are extremely low, but the lenders are making it pretty difficult to qualify for loans, Right? So that's kind of an odd situation on it. You also have a time right now where in most markets, housing affordability is quite desirable. It's very good. People can afford to buy, but they can't necessarily qualify for loans. Now, you add on to that the additional layer of psychology, and it's what I talked about when I started this segment of the show where I talked about Generation Y, the millennial generation, and how they just don't really seem to psychologically have that same concept of the American dream. First of all, they're putting off marriage. They're putting off household formation. A lot of them are living at home with their parents. A lot of them are renting. They have massive student loan debt. They like mobility, and they like the social life that, you know, that renting offers. It offers usually a better social life than owning, unless you're a family and you live on, you know, family ish neighborhood and so forth. And that can be a different kind of social life. And so they're putting off this choice, right? And so you. You layer all this into the equation, and the decade of renters coming at us is like this tidal wave. It's, you know, like the movie, right? The Perfect Storm. And it makes being a landlord a very desirable thing, right? Now, the article goes on to say, since 2008, the percentage of renters moving out to purchase a home has remained below the historical average of 17%. Well, the homeownership rate has continued to decline. Now, when you look at stats like this, it's, this is just me talking. When you look at stats like this, it's important to make another distinction that is hard to survey. And so you have to sort of accept a lot of anecdotal evidence rather than, you know, really, really firm empirical facts, right? Because you can't survey individual homeowner, single family home landlords very well. You can only survey big apartments. So here, this article is based on, you know, surveying these huge REITs, these huge institutional landlords that manage 520,000 units. Now, many of you listening own, you know, 20, 30, 40 or even more single family homes, right? But nobody is surveying you, right? So you don't, you, you don't get stats very good on single family homes or individual owners because surely no one has ever called you and surveyed you about what your tenants are doing, right? So that's one other thing you always have to just consider with this. We have to always look at the apartments. Now, a lot of these people would much rather live in a single family home. And I think that's the big opportunity for us because by and large, our clients offer single family home rentals, and that can be a great opportunity for them. So, you know, there's a graph here that's included and it is staggering. It's amazing. You look at back in 2004, you know, up to really about 2007 or 8, and you saw that the homeownership rate was high, and then it started to plummet, which I think is actually a great thing. I think the homeownership rate is still a little too high. You've heard me talk about that on prior episodes. It's funny you would hear a guy in real estate say that. I know I'm probably the only one, but, you know, I think the homeownership rate realistically should be around 50%, maybe 55%. Now it's hovering around 64%, and it peaked out at nearly 70%. And we did that talk at our Meet the Masters event a couple of years ago called six Years, six Million New Renters. And, you know, it looks like we're going to be right. And one of the other things we pointed out is that if Fannie Mae and Freddie Mac were to stop being subsidized by the government, if they were to be allowed to fail or, you know, fail for whatever reason, or rein in their horns and become drastically smaller, as they should, another real estate guy saying something that you'll never Hear any other real estate people say, I think Fannie Mae and Freddie Mac should go away. They cause distortions in the market. Just as Sallie Mae and. Or is it, yeah, Sallie Mae with student loans. Okay, these are just silly, stupid government agencies. They shouldn't be allowed to exist. If they were to go away, we predict that that could mean an additional up to about 25,5 million new renters. Whoa, what an opportunity. Now you'd probably see home prices decline because remember, in that three dimensions of real estate, those things go countercyclically or they're non correlating indicators, I guess is the way I want to say that. Interesting stuff to keep in mind. Now I want to get to a couple listener questions, but before I do, I want to say something. Listeners, you need to listen to the prior episodes and you need to come to our live events. We've got our Memphis property tour coming up in just a couple of weeks. You should be there. A lot of the questions you're asking are answered at the Creating Wealth Seminar, the live seminar. And here you've got it with a tour and a private dinner and a semi private tour of Graceland. We may just have an Elvis sighting there too. So come to the, come to our live events. Okay. We don't have them that often, so we'll be in Memphis in a couple weeks. You've got the Creating wealth seminar, you've got the property tour, you've got some meals with me. You know, you can sit right next to me and ask me questions to your heart's content and I will answer them. But if you don't go to the live event, you need to buy something. You need to go to Jason hartman.com and you need to purchase the Creating wealth home study course. Okay, Just go buy that. Listen to it. What is it about? It's like a nine hour day condensed into about four. I think it's about four hours. Five. I think it's five hours of audio. And you can just download that, listen to it and you know, on the podcast it's great for news and current events and current commentary and these interviews with the great guests that we have on our show. But you know, again, it's piecemeal. The Creating Wealth Seminar is a course and it's, you know, it follows an outline, it follows a really nice overview and gives you all the stuff, the broad knowledge you need to know. Okay? So you need both of these things. You know, it's like saying you went to school, maybe you went to college and you got all of your basic academics taken care of there. But you still read the news and listen to the news, right? You know, that's what the podcast is. It's the news combined with some tips and some good commentary there. But do that, come to our live events, buy that product, go to jasonartman.com, click on Products and invest in the Creating wealth home study course. It's really cheap. It's 297 bucks. And we've had thousands of people have that course now. So take advantage of it. Okay? It's really a great thing. So let's get to a couple of questions here. This one comes from Matt in Colorado. Here we go.

Hi, Jason. My question is in relationship to mitigating risk for properties, what if you have, let's say, 10 properties in three states, do you have an LLC to manage the properties and then another LLC that owns the properties as assets, thus mitigating the risk. If there's ever any liability issue where a tenant possibly sues and tries to recover for an amount greater than what you're insured for. I'm just trying to understand how you silo risk between your properties so that you're not exposed should something accidental happened to one of the tenants and they seek to go after you for an amount in excess of your insurance. Thanks. This is Matt.

Hey Matt, great question. We have discussed that on prior episodes and of course at our live events. The first thing I have to say of course is I am not an attorney. I am also not a tax advisor. But you know, my personal experience with this and you know, and what I've heard from so many clients is what I can share with you. Number one, generally speaking, I think the use of LLCs and entities can certainly offer some asset protection. I think it is largely over promoted. It does create some complexity when investing in real estate. If you put your properties into LLCs, the single family homes, I'm talking about the single unit properties or anything up to four units, it can make it a little bit more difficult to get insurance. Okay. And insurance might be a little bit more expensive. There are fewer providers providing it to entity owners rather than individual owners. And also, in all my years of doing this, I cannot remember ever hearing a lawsuit where you had the typical slip and fall where you had the tenant claim they were injured and they sued the landlord and it created some kind of liability for the landlord. Certainly not to say it couldn't happen. It can happen, but I have never heard of it happening. It hasn't happened to me and I've had hundreds of tenants. You know, it's just. I think the risk is kind of overrated. I think it's pretty easy to insure around this stuff. Now, there are other types of risk too. You know, you could have a liability from another activity. You might get sued in your business or in another part of your life, say a car accident or something like that. And they might try and attach assets. And, you know, there are ways with LLCs to protect those assets from the external threat versus the internal threat, which is the one to which you're referring. And one strategy, if you want to go the entity route, you don't mind the additional expense and the additional complexity. It can certainly offer some greater protection if you want to go that route. You can have maybe three LLCs in three states. You mentioned 10 properties that you had, and I believe you said they were in three different states. So you might do one LLC in each state. You might have that LLC owned by another LLC in another state. And you might put that in a desirable state such as Wyoming or Nevada or one of the others that offers some greater protections for. For example, in Wyoming, they offer charging order protection so that if an external threat occurs and you are sued and you have a creditor come to you, they may be in a position where they will have to wait to collect until you take a distribution. And if you don't take a distribution, they just have to keep waiting, you know, possibly forever. So there are some reasons to do this. Talk to an attorney. We've had many attorneys on the show talking about this stuff before. At our Meet the Masters events, we have attorneys come and speak and any of our investment counselors at my office can refer you to an attorney who can help you with this kind of stuff. Again, I can't practice law. I don't know enough about it. There are a lot of complexities. But those are some initial thoughts to guide you and maybe bring up some questions when you do talk to an attorney. Okay, let's go to our next question from our listener, Steven, who has called in many times. And here's another question that we have definitely covered this one many times on prior episodes. And just to say I did not yet move back to the Socialist Republic of California. I'm looking for a place there. I do have a big tax benefit I have to move back and re establish residency for. So I do still live in Arizona at the time of this recording. But I'm looking. So I'm going to answer this question about renting versus owning. Here we go.

Hey, Jason, Dr. Steve G. Jones, clinical hypnotherapist here again. And I have a question about owning versus renting your primary residence. I noticed that you rent your primary residence and your reasoning, well, right now you're in California, I understand that, because not there yet. You had to move there to get some kind of tax savings. You wanted to be in La Jolla. So you're renting in La Jolla because property prices that are too expensive. I understand all of that. But before any of that, you were living in Arizona, renting a place that I think was a condo for about $5,000 a month or you were trying to, that was your goal, to rent it for around five or six thousand a month, I believe. And to me that doesn't make any sense because it makes lots of wasteful sounds like it's about $60,000 a year flush down the toilet. So I don't understand in the scheme of things and in the long term planning of things, I don't understand that it sounds like a live for today, don't plan for tomorrow type move. And I find that, I don't know, I'm not able to comprehend that as a person who is interested in building wealth over time, it just sounds extremely wasteful. So on the other hand, I understand you being a single guy and wanting to, you know, have the freedom to move around. But wouldn't it be better to have a stable home base now? Not considering this California thing? That's a different, that's different altogether. I'm talking about before you realize that wouldn't it make sense to have more stable base that you owned that you were paying down the mortgage on, not paying someone else's mortgage and from there you could go out and about. And I ask that because I'm in the same situation or I'm considering I'm in the same same situation as you and I'm considering that exact challenge, rent versus own. So I love to hear your reasoning behind why you chose to rent and how that makes financial sense. Because one more thing, you could own a primary residence and you could travel around the world like you do anyway and like I do. And those are all tax deductible because they're all business related. So please explain. Thank you.

Okay, so that question has been addressed many, many times in prior episodes and it's a good question. Here's the deal. If you are going to live in a home or a condo, well, I don't like owning condos at all. Okay. So I almost never think a condo is a Good deal. There may be an exception here or there, but almost never. But if you're going to live in a single family home that's worth less than about $150,000, it makes sense to own it. Okay? And because if you're going to rent that property, you're probably going to pay $1,500 a month to rent it, and that's going to be about 1% of the value. So in that case, I would recommend that you buy that home and you live there. Okay? It makes sense. But in La Jolla, for $5,000 a month, I can get the use of a $1.2 million or maybe even more home. Okay? And that is a phenomenal deal because I can take and acquire $1.2 million worth of other real estate assets in markets that make sense. For example, I could buy 12 $100,000 homes with that $1.2 million worth of real estate. And I could put those homes in three diverse markets, four in each, and I bet I could get them to generate $1,000 per month. So I would be getting $12,000 per month for my $1.2 million worth of real estate versus getting the use of a $1.2 million gorgeous home for myself for only $5,000 a month. That makes complete sense. You cannot argue with that. It is a great deal to be a renter of a high end property. Now, you referred to the property in Arizona that I was trying to rent, and I'm no longer trying to rent. That was quite a while ago. So you obviously listened to an old episode. This property, probably still on the market, is a really high end penthouse condo. And it was listed for $2.4 million. Last time I checked. It was about, I think, 5,500 square feet or something like that. And it was newer. It's beautiful. It overlooks Tempe Town Lake in Arizona. And that I did make them an offer that where I went up to $6,000 a month on. But if I'm going to invest $2.4 million in a real estate deal, I want to get 24 grand a month. 24. I want to get 1% per month. Okay? Anything else? It's better to rent. And look, here's the thing. You got to understand. I remember I was at church years ago and the pastor said, you know, he was talking about Ma and I was at church in Orange county, like the most materialistic place going, right? So I was there and he was talking about how that none of us really own anything. And I think this is a concept that is worth thinking about in this discussion of rent versus buy. Because none of us really do own anything. We're not taking any of this stuff with us. Right when we pass on, as the pastor said, we, we are all just trustees from birth to death. We get to own and control things while we're alive. And it is incumbent upon us to do the best job we can with our financial resources and to plan for the long term, but also live a little bit today. Don't deny living today either and balance that equation of instant gratification versus long term planning. If you live in a house that you own and you pay five grand a month to own it, you could rent that house out to somebody else and charge them whatever the market rent is. So when you're saying I'm just flushing $60,000 a year down the toilet, you're, you're just, you're just wrong about that. Okay? I'm not doing that at all. Okay? We're all renting. If you live in a house in which you own, you have lost the, you have an opportunity cost where you can't rent that house to somebody else, or you can't use that money tied up in that property or that loan that you got against that property for some other property that could produce a return for you. So this is the deal, okay? We're all renting. We're all renters. Even if you think you're an owner, you're in essence still a renter because there's an opportunity cost that goes with it. Okay? So I hope that answers your question that's been debated for many, many years. You know what? I was going to have Dan Mitchell, Senior Fellow from the Cato Institute, on as our guest today, but once again, I went very long. So we'll have Dan on probably the next episode. And be sure to go and get your final chance to register for the Memphis Page property tour. It's almost full and it's only a couple weeks away. We'd love to have you join us. We've got a private dinner at Graceland, Elvis Presley's former home, Graceland. So that'll be really cool. And we've got a semi private tour of Graceland too. So not only will we look at some good properties, not only will you get the Creating wealth in today's economy seminar, and not only will we be able to spend a lot of time together and have influence, informal conversations, but we will also have the Graceland stuff, which I think is kind of cool. I wanted to do it two years ago when we had a tour there and we just never pulled it off. So this time we did. So join us and I will look forward to talking to you on the next episode and seeing you in Memphis.

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Want to be able to sit back and collect checks every month just like a banker. Jason's Creating Wealth Encyclopedia series is for you. This show is produced by the Hartman Media Company. All rights reserved. For distribution or publication rights and media interviews. Please visit www.hartmanmedia.com or email mediaartmanmedia.com Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network Inc. Exclusively.