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Our great podcasts, visit hartmanmedia.com this is a trailing 35 year average, meaning that the 35 year old person. Right. That's why you're doing the trailing. Right. Elaborate on that. Well, no, it's just because that's the, the year that they're forming a household or, you know, buying.

So typically. Right. And it's getting later. Right. Probably when I was young, it was probably 27, 28. When, you know, you either got out of college or, and you got your first job and then you met your spouse and then you chose to have children. You're now 27, 28. That age is pushing up to 35, which is why our average resident is now 39 years old. So the underbuilding, as you can see from this chart, it's the red is significant. And it's been happening for what, 12, 13 years.

Yeah.

And if you look out to 24, were a little bit under the average. So that you're not catching up. And that's what this bottom right sort of chart shows. The shortage is growing, not getting worse. We're going to need to build a lot more homes to just catch up. Yeah, that's going to require a significant amount of investment to catch up.

Absolutely. So let me share these numbers. Okay, so there is disagreement on how significant the shortages. It goes anywhere from 1 to 6 million, depending on which of 11 major groups, you know, including Fannie, Freddie, Zillow. I mean, they all put out.

Yeah, yeah.

And I've shared those before. Okay, so anywhere from 1 to 6 million homes is the shortage. Right. And here you're using a baseline of 3 million. You're kind of going in the middle saying, okay, we're going to take 3 million and assume that's the shortage today.

Correct.

Here's how much worse it gets. It gets worse every year. Next year it's 3.2 million. The following year the shortage is 3.3 million, and then it's 3.4 million. And then in 2028, it's 3.6 million. So no matter what baseline number you start from, Whether it be 1 million, 3 million or 6 million, the shortage is getting worse, not better. Okay. And here's the thing that none of these charts share. And Richard, maybe you can speak to this, because I've had a hard time coming up with good, solid numbers on this, but I know it's true because I experience it. But what this doesn't tell, you always ask what, what does the chart. What does the speaker. What are they not telling me? What they're not telling you is the price of these homes. The price segment, okay? Builders aren't building many entry level houses. They're building more expensive houses because they're more profitable. It's very hard to make money on cheap entry level houses if you're a builder. So, you know, they're going where they're. It makes sense for their business.

Correct? Right. Because they have a profit margin just like anybody else. That's whether they're selling homes or they're selling, you know, bicycles or widgets. Right. They have a profit margin. And the profit margin is higher on the, what they call move up homes. Right. Your second home or your third home, that's one thing. The other thing is Jason, which amazes me. My father was a home builder in the, in the late 50s and early 60s. We have not changed how we build.

A home in years.

You buy the land, you scrape it down, you pour a foundation, you have a different crew come in, they put the framing up. Electrician comes. I mean, we have an iPhone.

It's an extremely inefficient process. There's tons of ways better way. It's, there's got. The better way is to build components and factories and bring them to the work site. Okay? But you know, that's a different discussion.

That's a topic for another show. But that's the fundamental issue that's affecting why we can't catch up.

Right? And let me tell you, folks, there is a huge stigma against manufactured housing. I think that needs to go away, but it's not going away anytime soon. In my opinion, the 3D printed homes are not the solution. Those definitely don't work. I mean, they, you know, you see all this stuff on social media. Oh, look at these $10,000 homes. No, they're not $10,000 homes. That's just the 800 square foot outside walls of the house. It doesn't include electrical, plumbing, H vac, kitchen cabinets, fixtures, toilets. It doesn't include anything. Okay, like these are just lies. They're clickbait headlines. Buying a house on Amazon, right? You know, Amazon sells homes, okay? You can, you know, manu manufactured houses, but you have to do all sorts of engineering and site planning. It's so much more expensive than it looks.

But to your point, someone who's smarter than us will figure out, because there are people working on it, how you can manufacture a component home that if you or I walked in, we couldn't tell that from you. Know, a $400,000 starter home, it's hard to tell.

Already. Some of these manufactured homes are really quite good.

Exactly, exactly.

They're still, you know, the lenders see, the lenders know there's a stigma. So the lenders, not only do the buyers have a stigma or the renters, but the lenders have a stigma and they won't loan on them the same.

Way or won't loan as much. So that makes it much more difficult. Right, but that's a systemic problem that, that someone will have to address if we're going to solve this shortage.

Absolutely. Okay, let's go to the affordability analysis. So if you're watching on video now, you see this affordability and the constraints issue here. But Richard, go ahead and explain this to us.

Sure. So on the left is the monthly housing cost, and this is everything, the entire cost of the home. So obviously the mortgage payment. So you see that $2,298 here in the gray. And then you have PMI, right, because most of these mortgages have PMI, right. Primary mortgage insurance, because they're putting less than 20% down. You have the maintenance, property taxes, insurance.

Right. Remember, you have PMI as the owner occupant, but you don't have PMI as the investor, because as an investor, you have to put 20% or 25% down.

So there, there's a reason our homes are one reason our homes are cheaper. You have insurance. Right. And you have typically a homeowner's association fee. So this is sort of all in. Now. This is. This is 67%. So this is at the high of our affordability. It goes. The difference can be as low as 40. Still significant. I will tell you, Jason, historically, over the last 50 years, renting a home has been somewhere around 15 to 20% cheaper than owning. And that reason is we're financing the down payment. Right. So we're providing the down payment. What's happened over the last three to four years is interest rates are up, home prices are more expensive, maintenance costs are up, insurance is up. And insurance is certainly not going down with the two storms we just experienced. And, you know, you have an hoa, so typically we are the hoa, so we don't have to pay an HOA in our communities. So that all of that combines to why we're so much cheaper. We maintain 5,000 homes. We don't maintain one home. So we can get the lawn, we can get the lawn mowed cheaper. We can get the garbage service cheaper, we can get the water Heater fixed less expensively. All of that combines to the savings that you see here on the chart.

Okay, so you're saying it's 67% more expensive to own the same apples to apples home than it is to rent it. The thing that people lose though, as renters is they lose the investment opportunity. You know, people treat their home like an investment nowadays, which, you know, I think makes sense. So they lose that, but they get a lower cost. Are you factoring in on this housing cost chart that you're showing, Are you factoring in the down payment cost, like financing it into the mix somehow?

Yes, yes. So that we're financing the down payment.

I know you are, but.

Yeah. So when this chart on the left, that would be subsumed. Right. Accounted for in the mortgage payment, if you will, this $2300 mortgage payment. But this does not reflect having to come out of pocket for whatever 5%, 10%, 20% of the home cost.

Okay, all right. So historical cost of owning versus renting is really interesting because anywhere from 2000 up until 2008, it was cheaper to purchase than rent. You're saying, okay, I got it, I see the way it works. And then from 2009 to 2012, it was cheaper to purchase.

So you see on the left these green bars, it was more expensive. There was only these four years during the GFC where it was cheaper to purchase because you could get a house for next to nothing.

You know, I think your chart misses the COVID data though. I don't think it has that. Right. I think during COVID it, you know, at the beginning of that era, it was definitely cheaper to buy. I mean, for a while, then the prices went up and then later the interest rates went up, so know got a lot more expensive. But.

Well, I mean, again, this is a data provider who we trust and has provided good data. So this would indicate. Right, in 20. Yes, it was very close.

Yeah, right. I, I would even disagree. I would say. Yeah, I mean, of course it depends. It depends on, you know, a lot of things.

But so we can get, we can give you that, say in 20 and 21 it was cheaper to buy, but with the increase in rates and what, what's really affecting this chart to the right is home price appreciation.

Right, right.

We've just had unparalleled appreciation in the last couple of years. And that coupled with higher rates just makes a starter home not affordable.

Yeah. And the other advantage though you have with owning, besides tax deduction, appreciation, investment benefits, is you have the certainty of locking in your price for 30 years, other than property taxes, your insurance, your maintenance costs, they're going to fluctuate a little bit. But the actual mortgage, especially if you locked it in during the super low Covid era rates, I mean, that mortgage isn't going up. So, you know.

Yeah, you're absolutely right. And look, what we're finding in our business is there is a percentage of our residents who don't want to own a home ever.

Yeah.

And that's driven by a couple of things. They want flexibility. So let's take our millennial couple, who's 38 years old, lives in one of our homes, and they might want to live in Atlanta for three years or four years, but then they may have to move to Denver or they may have to move to Dallas. And so they don't want to have to sell a house, buy a new house. So it's that flexibility. The other thing that we provide is no maintenance lifestyle. So they don't have to mow the lawn, the toilet breaks, they go on their little app and you know, someone's there the next day or that evening to fix. So that maintenance free lifestyle, those are the two things that, that are driving our business. And anyone who's going to get in the build to rent business that provide something different than homeownership.

Richard, talk to us about rent increases in your projection, you know, for investors on the ability to raise rents over time. You know, are you trying to raise rents about what, 4 or 5% a year? I mean, the last couple of years you could raise them a lot more than that, but now it's.

Well, that, that is, you obviously know a lot about the business because that's about where we are. What we call blended rent growth is in the mid single digits. So let's just say 4 to 7%.

Yeah.

When I say blended, that means people moving in, pay one rent. And obviously when you renew a lease, you pay another rent. So we have renewal rent, new leases. The blended is somewhere between, let's say say 4 and 7%. And during COVID people were doing 12, 15%. Yeah, I'm not a believer in that. My history is what we have a saying in this business called heads in the beds. So you want to keep your resident in the home, right. Wherever it is. Because moving a resident out, changing out residents, it costs money. Right. Because you get a month or two vacant, you have to paint the home, fix it up. And so it's better to keep the heads in the beds, as they say. And so I'm willing to Sacrifice rent to keep that resident in my home.

So Richard, what is the delta between the new resident rent and the renewal rent? Do you typically see like that you get, you know, a certain percentage more on the new person than you do on the renewal.

Yeah. So in theory, right. Let's just take January 1st. You move a resident in and they've stayed 12 months. Although we are now offering two and three year leases. Just as an aside, do you put.

Escalations in those two and three year leases?

We do. 4%, typically.

4%. Okay.

And we make the three year rent the best deal for the resident, obviously, because we want to keep them in there. When I say the best deal, if you take the three year rent with a 4% increase and average it out over the time, it'll be a less rent than the first year rent if you only stay for a year, because we want people to stay longer. I don't know if that made sense. To get to your point. If someone moves in January 1st and then they, they stay a year and they get ready to renew, the market may have changed the market, particularly during COVID but even now may have gone up 12%. And so I want to keep that resident on his renewal or her renewal in the home. So if the market's gone up 12%, I might say, you know what, we're just going to raise your rent 8%. Whereas if a new resident comes in off the street, I'm going to say, you know, your rent's 12% more than that person who's been living there for a year.

It looks like the difference in that case is about, you know, a third, correct? Yeah, yeah.

And it just depends on the mark whether you're in Charlotte, North Carolina, Tampa, Florida, Dallas, Texas and even so much as sub, you know, some different micro markets within a particular, what we call msa. Yeah.

You know, a lot of investors are stressed about increasing costs, especially insurance rates. You know, I don't think they should be stressed about increasing taxes because that means the value of your property went up. So deal with it.

Right.

Be happy the value went up and your property taxes got reassessed. And you can always dispute that to, you know, get it down a little bit. But on the insurance subject specifically, what a lot of investors don't understand and a lot of business people or voters, I should say don't understand is that businesses are pass through entities. Okay? Look, when minimum wage goes up, when the cost of anything goes up, they just raise their prices and pass it through to the customers. Why would anybody think it's any different than on a real estate business. You do pass that cost through to the tenant, but you can't do it the next day like you can with a restaurant. Right. If minimum wages go up, I can raise my restaurant prices tomorrow if I own a restaurant. Okay, but you can't do it that quickly with real estate. But you do pass that cost through to the tenant. Right. I mean, maybe you can talk.

Absolutely. You have to. Because you, you've invested a certain amount of capital, as you well know, into this particular asset, into this home that you're renting. And as your operating costs go up, you need to recoup that. Otherwise you're not going to get the return on your investment. This is what I talk with the political and the folks who believe that we're evil, you know, because we charge rent. Well, we need to maintain that home and we need to make a certain return on our investment to maintain that home. And insurance is a big part of what we call non controllable expenses. We have no control. We can control how much we have to pay for light bulbs and paint to paint the home because we do.

Well, to some extent, you can't control any of that stuff really.

Well, True. But by scale and by managing properly. Insurance and property taxes are two things that are just. We have no control over. Yeah. Now with the more homes you own, cheaper the insurance is right per home. That's one reason we're cheaper than owning the home. But insurance is a, is, is a real problem. And you know, we've just had two hurricanes. It's not going down. We have fires out west. As, as you well know, the insurance market is not healthy.

No question about it. But my point being, investors should stop stressing about this stuff because you're, you're going to pass it through. Your real estate investments are passed through entities. The tenant is going to end up paying that bill. It's not going to be tomorrow because you have a lease. Yep. But you can't raise it right away, but you will get that money back and.

Right. And just like their groceries are going up and their cost of going out to eat, the cost of owning a car is going up. That cost will get passed through and you will recoup it over time.

Absolutely. Richard, any questions? I didn't ask you. Anything else you want to share before we wrap it up here?

No. I would just say, Jason, that for your folks listening and watching, this business is. I'll use a baseball analogy. This business is in batting practice. We're not even in the first inning. This, over the next 30 years is going to be a business to be reckoned with. And now is the time. Whether you're a small investor or obviously big institutions are getting in this business, they don't do this blindly. So it is a real opportunity to get in on the ground floor on something that, as I said, in probably 10 or 15 years we will look back and say, wow, this is. This is like the real thing.

Yeah, I know. You know, it always seems expensive at the time, but all you have to do is wait a couple of years and look in the rearview mirror and you'll think, gosh, that was a great deal I got.

Exactly. And Whether you own one unit or 1,000, you can make it work.

Yeah, absolutely. You know, as I always say, Richard, income property is the most historically proven asset class in the entire world. It's the most tax favored asset class in the United States. It's just such a great asset class because it's multidimensional. You know, we make our return in a lot of different ways. And that's what's really wonderful about it. Well, thank you so much for joining us today. Give out your website.

Sure. It's www.live quinn q u I-N-N.com.

Good stuff. Richard Ross, thanks for joining us.

Thanks, Jason.

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