The Lasting Effects of the Pandemic on Real Estate Investing - with Mark Moss

I think that this is going to have a long lasting knock on effect. Mark, I think the mentality, the psychology of people has changed, maybe for an entire generation. I think this is big. I think people will have an ongoing, what I'll call a ptsd, a post traumatic stress disorder. Even after this blows over, even after the virus fades into oblivion, there are still going to be big changes in our mentality.

Hey everyone. Welcome to another episode of the Market Disruptor show. Today I am joined by Jason Hartman. He is a real estate investor and has a lot of insight into the pandemic and what's going on interview I've really been excited to have. So anyway, Jason, welcome to the show.

Hey Mark, thanks. It's great to be here. And I've been following your YouTube channel for a while. I just love the content and love talking about real estate and making money as you say.

I do like to talk about making money and investing money. So I know you have been doing real estate for a really long time, as have I, but you do it as a full time job. So you have a lot more insight. Why don't you just give us a little background on who you are and kind of what you're doing right now.

Sure. So I got my real estate license When I was 19 years old, my first year of college. I wanted to become an investor by age of 16. And I thought I just kind of learned the basics by getting into the brokerage side of it. And then I was very successful at real estate with ReMax for years and I bought my own real estate company, sold it to Coldwell Banker in 2005. People say my timing was excellent. That was in Irvine, California, not far from you. And then I got into the business of basically financial advisory for real estate investors. And Mark, that really grew out of my frustration with Wall Street. I thought Wall street has a great sales force, but I personally believe a mediocre product. And I thought real estate has a great product but a very mediocre salesforce. And I thought why can't you put together that idea and make like a financial planning firm for real estate investors where people could come in to one place and they could invest nationwide or even worldwide and be in diverse markets, have a portfolio strategy, use financial planning techniques to really build and manage a portfolio on an ongoing basis. So that's what I've been doing for the past 16 years and is financial advisory for real estate investors.

Yeah. Cool. I bought my first real estate property at 18.

You were ahead of me.

Yeah, well, usually wanted to start at 16. And that was in 1995, when California was recovering from that housing crash after 92, and the banks were selling properties. Zero down. And people are like, how the heck did you know how to buy a property at 18? And it's like, I didn't really know how, but anyway, cool.

That's how we learn stuff. I was 20 years old when I bought my first property. And I bought it from a client of mine. He actually purchased this property from me. He was an investor buying several properties in Orange county and Riverside. And this one of them, he said he didn't like it. He asked me to list it for him and sell it. And I said, jim, I don't want to sell it for you. I want to buy it from you. And that was my first deal in Riverside? No, it was Huntington beach, actually.

My first deal was in Riverside. Cool. So that's good. So you've been doing that, advising clients. I like how you said something that you said you've been helping people invest into diverse markets.

Right.

And that's something that I talk about on my show all the time, which is about asset allocation, diversification for safety. And we want to invest in the different sectors of the market, but even in those markets. So, for example, I want to put some into real estate to protect against what I have in stocks and gold, etc. So I have real estate, but even I want to diversify in my real estate portfolio. So maybe I want single family apartments, some on the east coast, some on the West Coast. Is that kind of what you're talking about?

Absolutely. You know, I have some of my core content that I created back in 2004 was called the Ten Commandments of Successful Investing. And one of those commandments is thou shalt diversify. And the following commandment is thou shalt be area agnostic, meaning stop deciding on an area or neighborhood and start looking at the deal. And the metrics don't get attached to any one area. And so there's an old saying in real estate that all real estate is local, all real estate is local. And in the US there are about 400 local markets, and they all act somewhat differently. And when you listen to these talking heads on television or you read them in the national media, they try to lump the housing market in quotes into this one sound bite. And they say, well, you know, housing is doing this or it's doing that. Well, my question has always been, where is the housing market? Is it in LA or Miami or Seattle or Memphis? Where is the housing market in a Country as large and diverse as the US there's no such thing as a national housing market. There are about 400 local markets. So diversification is really key.

Yeah, I love that. It's something I talk about a lot on my show, obviously talking about money and Keynesian economics, Austrian economics. And the thought that you can have a few policymakers dictating policy for 330 million Americans just doesn't work because everybody has their own individual wants, needs, and especially when you get into regions, it just moves differently. And the housing market is definitely like that.

And what the subtext of what you were saying is, central planning is a disaster. Yeah. Karl Marx has proven that to all of us. Right?

Yeah. Now, so you diversify. But in 2008, which was the last really big housing crash that we saw, the whole country did drop at once.

Yeah, well, 2008, remember, was the worst economy we had seen in seven decades until now. Okay. So that was the worst thing since the Great depression in the 30s. And so that was a pretty significant change. But again, like you, we like to invest for yield. We invest for cash flow. So we're not beholden to the idea of appreciation. If it comes great, we can spend it as well as the next person. And we love appreciation. But we consider that to be the icing on the cake. Not the cake. The core is cash flow. And interestingly, even in very bad times, in the. The Great Recession, the global financial crisis, whatever we want to call it, cash flow held up pretty darn well. In fact, had the government gotten out of the way and stopped distorting the market back then, and these distortions in the way I'm really referring to here were in the form of keeping everybody in their house. That was the 2008 campaign mantra. But when you do that, when you don't allow foreclosures and you make it difficult to evict people, you inhibit the market. And the free market is great at one thing. And that one thing is called price discovery. And you've got to have price discovery or capitalism just doesn't work. Once the election of 2008 was over and that distortion got out of the way, this mantra of keeping everybody in their houses, which is BS because some people could never afford those houses. Houses. And there's a whole discussion about that that we don't have time to have. But the point was, you've got to do these foreclosures and clean the system and allow for price discovery and let the market move on. By delaying that, you only make it worse in terms of the government distortion.

Now, for everybody that's made it this far with us, I have questions that I want to ask you, but I want to dig in a little bit more here. But we're going to talk about what to expect in the real estate market. Now, I want to discuss that with you. I want to discuss what we can expect from the real estate market in the near future. Is it still going to be a good investment? And if it is, what types of properties, where those good investments will be, and what people should be thinking about or looking or doing. So I want to get to all those things. And so anybody who's listening, we're going to talk about that. But I want to dig into back hear what you said for a minute. And so, first of all, in 2008, when the market crashed, the whole country did come down. But where I'm at, in Southern California, specifically Orange county, we saw prices drop 60% in Phoenix, in Florida, we saw prices drop 50, 60%, but some parts of the country only dropped 10.

Yeah, yeah, absolutely.

And so back to your diversification. Yes, the whole country came down at once. But if I would have been diversified, I was only in Orange county, so I took a massive hit. I got wiped out. If I would have had properties in other parts of the country only came down 10%, my portfolio would have survived much better.

Right? Yeah, I agree. We've all heard of the famous piece of literature called the Tale of Two Cities. Well, this is a tale of three markets. There are three types of markets in the entire world. You can categorize any market into one of these three linear markets, cyclical markets, and hybrid markets. And I grew up in Los Angeles and lived most of my adult life where you live in Orange County, California. Beautiful place, and I love it. And my idea of being an investor back then was buying Orange county properties, which are too expensive to make sense as an investment. And one of my ten commandments, back to that is commandment number five, called thou shalt not gamble. Okay. And when we buy properties in these expensive cyclical markets, and those include the entire west coast of the US Pretty much. Okay, so all of Southern California, all of California, basically South Florida, where I'm not too far from now, Miami, Fort Lauderdale area, the expensive northeastern markets, New York, Boston, Washington, D.C. et cetera, these are all cyclical markets, and they're all expensive markets. These are nice places to live, for sure. Okay, they're great. But they're not great places to invest, necessarily, because they never make sense from a cash flow perspective. And how do we evaluate cash flow? Well, there are many ways, and you're a sophisticated investor. You know how to do that. But there's a quick, easy rule of thumb, and that is just looking at the rent to value ratio. So we like to get properties that rent for close to 1% of the value every month. So $120,000, house in Memphis or Little Rock or Indianapolis. These are all markets we like and we invest in. That'll rent for $1,200 a month or close to. That is great. Okay. That's a linear market. That's the opposite of cyclical. So those are good. In Southern California, your typical deal would be a 600,000 DOL that would rent for maybe $2,800 a month. And so that's less than 0.5. And the key to real estate is staying power. Staying power. If you can stay in the game, you'll almost always make money in real estate. Okay. But the thing that allows you to stay in the game is a good rent to value ratio or good cash flow. If you don't have that, it becomes very hard to stay in the game during bad times.

Yeah, exactly. And I love, I love that you say that. That's exactly my philosophy. So we see eye to eye on that. And that's what got me into trouble in 2008 was in Southern California, you can't rent the properties for them, for the mortgages, you can't carry them. And so when the markets dropped 50, I thought I was good at, you know, 70% LTV. But then the market dropped 60% and I couldn't carry the properties. You know, I had way too much. And it was, it was too much.

But hey, listen, you were. Don't feel bad. You were in the same boat with tens of millions of people. So you had good company.

Yeah, yeah. Well, I was young at that time. And so you know what? I. I'm a student of history. If anyone want, you know, everyone here watching my YouTube channel knows I always try to go back to history to understand what's going on. And so I looked at, well, California real estate only dropped really one time from 89 to 92. And over that time, it dropped 30%, but it really only dropped. The worst in 12 months was 6%. And I was usually in and out of deals in about 12 months. So I said, okay, 6% was the worst. Let me double that. If it dropped 12% of my. Okay, yeah. If it, if it did triple, if it dropped 18%, would I be okay?

Yeah.

If it dropped 18%. I'm okay. Triple the worst in history. But then it did 60 and I was like, oh, but you talked about investing for cash flow. I think maybe just explain that real quick. A lot of people think that investing in real estate is buying low and selling high. But you're saying that's not the right way to invest in real estate.

Not at all, not at all.

Explain that.

You know, most investments that people talk about commonly are one dimensional. And the strategy is just as you said, Mark. Buy low, sell high. That's the whole strategy. There's nothing else to it. Buy low, sell high, make money. Now the next dimension would be buy low, sell high, get income. Like dividend paying stocks or cash flow real estate. Buy low, sell high, get income in between. Right, that's better. But income property is a multidimensional asset. So it has so many dimensions where you can make money. And all of these dimensions allow you to adjust your strategy as times change. So you can buy low, sell high, you can make income, you can get tax benefits, you can get leverage which allows you to do much more than you normally could. Meaning it's the most debt favored asset class in America. Of course it's the most tax favored asset class in America. And you can improve the property, you can improve the strategy, the marketing. There's so many creative things you can do. And this is why income property is the most historically proven asset class in the entire world because it's multi dimensional. And that's very handy.

Yeah. And what I constantly pound the table on, on my channel and to my audience is investing for cash flow. So buy that crypto, that bitcoin that's going to go up 100 times or buy this gold stock that can go up 5x. But what do you do with those profits? I like to take those profits and always put it back into cash flow. I work off of something called the four pillar investment strateg. And one of the four pillars is cash flow. It needs to be a big piece of your portfolio. I think it's a lie that we've been fed that says save your money for 40 years and live off your savings.

Yeah. No way.

You'll get killed.

Yeah. Taxes and inflation will destroy you. Saving money does not work. People that still have that mentality are living off a playbook that ended in 1971 when we went off the gold standard. Okay. Money became an asset that is just constantly being debased by inflation. And you know, if it's in a savings account by taxes also because you pay Tax on the smidgen of interest that you get. So saving is a dangerous strategy. You want to invest, not save. You do want to. I don't want to say that the concept of saving is bad because the road to wealth for an individual or a society is always capital formation. You've got to. You don't want to spend all your money. You do need to save it in order to invest. But your strategy is great because you can play with maybe 10% of your net worth, play some speculative bets that might pay off 100 times over. It might be cryptocurrency, it might be a startup business on a private placement memorandum or something like that. Most of them you'll lose money on those deals. But the one that hits could hit really big for sure. Just ask any of the early investors in some of these crazy tech companies. Right. Peter Thiel, I love his work. And he was one of the early investors in Facebook and PayPal. And those were like giant home runs. But you don't do that with your core money. Right. 70% of your net worth should be in core conservative assets. And when you make money in those home run assets, then take some off the table. Like Kenny Rogers used to say, you got to know when to hold them. No one to fold them. Right. No one to walk away, no one to run. Take them off the table. Put them in the long term conservative stuff and you'll be good.

Yeah. So let's move on. Now that you've kind of set that stage, we understand investing for growth, investing for cash flow. Like I said, I love to invest for cash flow. I take my growth and I put it into cash flow. But when we invest into cash flow, we're investing into properties that we're hoping to make money on for a long period of time. And I'm worried what the long term picture looks like. So especially today, you've already said that 2008 was the worst crisis we've seen until today. Until today we're a much bigger crisis, as you said. What does that mean? What are you seeing in the real estate market today and what is the outlook going to be for that cash flow?

So I think this pandemic and its impact on the economy is very serious. No one can accuse me of being an optimist with what's going on, because this is very serious. You cannot simply shut off the global economy and easily wipe out 2/4 of GDP, which come to, in a global sense, somewhere around 40 trillion. That's with a T $40 trillion in GDP. And I think that this is going to have a knock on effect. Mark, I think the mentality, the psychology of people has changed, maybe for an entire generation. I think this is big. I think people will have an ongoing, what I'll call a ptsd, a post traumatic stress disorder. Even after this blows over, there are still going to be big changes in our mentality. And the question is, look, I think the economy will come out of this and we will have a smaller economy. The economy will not be as big as it was. That means global GDP shrinks unemployment higher. Not good news. That's all bad. There's nothing good in there.

But give us the good news.

Yeah. The good news is, the good news is if we position ourselves right for an. There's a lot to talk about here. And you and I talked about this six week course that I'm working on and you so graciously offered to help me with that. And George Gammon, our mutual friend, has helped me with that a little bit too. There's a lot to talk about here. But right now, just a couple of things. So the one trend is the sinking economy, bad news. The other trend, as far as real estate goes, is the opposing force of this mass migration that I am predicting out of high density living environments toward low density living environments. And back in 2012, I was predicting what I called the rise of suburbia. The rise of suburbia. Now, suburbia is a very American concept, started really in the post World War II World and made famous by something called Levittown in Pennsylvania and New Jersey, okay. Where they built tracts of homes in an assembly line fashion and it was outside of the city. And when you go around the world, there's not much suburbia. That's a very uniquely American idea. Okay. And I think there will be a mass migration out of cities where people can easily socially distance and they can feel safer. Because even after this pandemic is over, people are going to be concerned about the next one. I think for many years people will be looking at other people, sadly. And I don't think this is good. Okay. By any means, with some degree of suspicion. Could they be carrying a disease I could catch? Right. One of the deepest human pieces of programming is self protection, self survival, self preservation. Right. We're all wired for that. And the danger zones in high density living environments are elevators, mass transit, and then of course, crowded restaurants, coffee shops, everything else.

So you see this mass migration to suburbia because of that, which makes sense. Right? And I agree that PTSD is probably going to be real. The Lasting effects. But at the same time, we had, I think we kind of had a trend where we've seen lower birth rates, we've seen people having kids later in life, if even at all. And that has been driving people to the cities. And we might even say, and this might be a deeper conversation, but how the government has even been trying to push people to the Cities, that's the.

UN Agenda 21 you're probably referring to. Right?

Right. So we know there's a global initiative to get people into cities. We know China has worked really hard to get people out of the farms into the cities. So there's an agenda to move people to cities. But also, like I said, just people getting married later, having kids later, not having kids at all. And they want to live in the cities. They want to live and walk and all that. So there's been that trend. And you think, but this new trend could override that and now switch the other way.

Well, look, there will be people are individuals and so they all will do their own thing. But what I will tell you is if we just look at some numbers. Let me share some numbers. Now, 84% of the 327 million people of the US live in urban areas. 84%. That is a giant number. And yes, there are definite advantages to living in cities. I personally like them. I like walkable environments, okay? I'm a fan personally of that and I'm single, okay. So I like environments where you can socialize easily and you can walk to the coffee shop and all that kind of stuff. Right? So this is not my personal view on things, okay? I just think a lot of people will have this PTSD and will be concerned about elevators, mass transit, crowded places in general. So 84% of the country lives in what's considered an urban environment, okay? Now the average population density of the US Is only. This is a small number, okay? Because there is a lot of land that's spread out in the U.S. even though most of us don't live there. It's only 87 people per square mile, Mark. Okay? But the average population density of metropolitan areas, 283 people per square mile. Now get this one. The population density of New York City, where the death rate has been the highest and the infection rate has been the highest is 27,000 people per square mile. So just look at the difference. And I've got a couple of other numbers, maybe some what we'll call back of the napkin math. I can share with your listeners as well. But you might have a Question about that.

Well, that's a lot of data and it's good data, but I want that synthesized. What does that mean? Does that mean that we would expect to see the big cities probably hit the hardest on real estate and the suburban areas of real estate do better?

Yeah, absolutely. Okay, so a few more numbers here. Right? And this comes from a company called Yardy Matrix. You're undoubtedly familiar with yardi. They're the big property management software company. So they have a lot of data on rental properties. Check this out. Part of this pent up demand or shadow demand for suburban housing. Part of this, 84% of these urban dwellers. There are over 12,000 buildings in the US that are considered mid rise or high rise. That means five or more stories where people really do need to use an elevator. Four stories, maybe they'll take the stairs. Okay. But five stories, you're taking an elevator. Okay. And so this represents 2.3 million units. 2.3 million units. Back of the napkin math. This is only rentals. This does not include owned properties that are condos. Okay. Or co ops. Doesn't include that. Only rentals. 2.3 million units. Mid rise and high rise. If only 15% of these people decide they have the urge to move when the lockdowns lift, that's 340,000 housing units needed. And if you divide that over 50 MSAs or metropolitan statistical areas, that puts demand of another 7,000 housing units needed in each of these 50 markets. In an era where we have a massive housing housing shortage already, and this is only rental units, not owned units, not condo units. And not.

Does it say what the average rent is on those 7,000 units that are needed?

No, I don't have that.

So then what you're saying is that based off this pandemic and people being afraid to shake people's hands and see people in the elevator, which I think I kind of agree with that. You think that this could cause this mass migration where we have housing shortages? Yes, that could one hurt the areas that they're leaving from, which are these metropolitan areas, but also drive up demand and then prices in these other areas?

Absolutely. So the question of the day is this, what will be stronger? Will it be the downturn in the economy or will it be the mass migration that real estate investors positioning properly can take advantage of when people leave downtown la, downtown San Diego, downtown Seattle, San Francisco, New York, Boston, Chicago, Miami. Right. And they leave these areas for more suburban lifestyles?

And another thing that would accelerate that also due to the pandemic, is that I was talking to a commercial real estate. I actually had dinner with a commercial real estate person last night and we were talking about how the pandemic has basically taken all these people who would never work from home. Oh, no, I can't work from home. I have too many distractions or I own a company. I could never let my people work from home because I need my team. But we were forced to. And now, like her, she, she works for Wells Fargo and she could never work from home. She has a young kid and all this, but now she is. And now she's found that she's way.

More productive and probably likes it better.

She never would have gone for it, but now she's doing better. And all these companies, I never would have let my staff do it, but now it's working better. I think we're going to see a mass shift to people working from home, which then allows them to live anywhere in the country they want.

Mark, I'm so glad you mentioned that because, yes, many more people than we ever realized can do their job, job remotely. So there's the remote workers. And a big part of that is. Let's talk for a moment about roommates. Okay, Roommates. This is a significant one because a lot of, I don't want to say most, but a lot of roommates, probably most, are professionals, young professionals maybe, Right? And those are information workers who can work at home, Right? They're living the digital lifestyle and they can work at home. So, so think about this conversation that has probably happened now millions and millions of times since this whole thing started. Okay? You got two young professionals who used to hardly ever see each other. They were roommates sharing a two bedroom place and they'd come home to sleep and maybe grab a meal and go, you know, they're socializing, they're working, they're really into their careers and doing that, and they hardly ever see their roommate, right? But now they're both working at home and they're saying, hey, you know, buddy, I really need that second bedroom for my home office. And then their roommate says back to them, you know what? I was thinking the same thing. I need a second bedroom for my home office. And you know what? My employer is about to give me a $400 a month allowance to work at home because they're defaulting on their office lease and they're going to give up the office. So they're going to give everybody a little spiff to work at home. And so now you've literally doubled the demand for housing in the Roommate sector. Okay, now the question is, how many roommates are there in America? Well, get this, this is not a recent statistic, this is eight years ago. Okay, But I'm doing more research and trying to get better info. And by the way, we're going to have a census pretty soon here that's going to really give us better data. But I would envision that this number has only gone up in the last eight years. So as of 2012, Mark, 32% of the United States adults were cohabitating as roommates in what's considered non romantic relationships.

Interesting. That's a lot.

So if those people, if only half of them split, that is millions more housing units needed. Okay, so this is hugely significant. The housing demand is going to increase quite dramatically in the right places.

So we've talked about the pandemic and how it could change society. Wanting to have separate housing, wanting to move other areas, geo arbitrage as we call that, where I could live somewhere else and take advantage of the cost savings. But what we haven't really addressed, which is even the bigger elephant in the room, is, well, you did address, you said the economy is going to shrink and it's not going to come back. So the economy is going to shrink. We're Talking, you said 2/4 of lost revenue, which is $40 trillion of lost revenue. That's revenue that won't come back. I'm a hairdresser and I didn't do hair for two months. Well, those people aren't going to come order twice the hair products. Right. Like I lost that money, it's not coming back. So we lost two quarters, $40 trillion off the global GDP. The result is a shrinking economy. What does that mean for real estate prices? And then you add the migration on top of it. So are we looking at a massive real estate crash? Only in certain areas. But some areas will boom or what are we thinking?

Again, it's the tale of three markets. Because coincidentally as we're talking about the high density living environments, the vast majority of the high density living environments are cyclical markets. They're downtown San Diego, downtown la, San Francisco, Seattle, downtown Portland, Boston, New York, Washington.

Explain what the cyclical markets are. You're saying they rise and fall all the time?

Yeah, yeah, yeah, yeah. Very good question. You know, I didn't really explain that enough. Okay, so cyclical markets, if you're looking at a graph, you would be looking at a roller coaster pattern. Glorious highs, ugly lows. That's a cyclical market. And that's where I spent Most of my life with you in Southern California. California, cyclical market. Okay. All of those places I mentioned before, any expensive market is a cyclical market outside of the U.S. i already mentioned the U.S. ones outside of the U.S. they would be places like London, Paris, Dubai, Hong Kong, Vancouver, Toronto. Vancouver, Toronto. Yeah. Thank you. Thank you. Yeah, yeah. Montreal, all of those expensive, very nice places. By the way, those are all cyclical markets that have overinflated. They were already declining before the pandemic. Okay? They were already suffering and showing signs of significant weakness. But now that weakness is going to be accelerated and they're going down that roller coaster hill and it's not going to be pleasant. And now not only are they going down that roller coaster hill because they were just overvalued and didn't make any sense and things were too bubbly and the bubble popped. But now you've got the mass migration out. I just interviewed on my podcast the president and CEO of Douglas Elliman Real Estate. Her name's Dottie Herman and that's a giant real estate firm in the northeastern U.S. mostly New York City. And she did the interview from her second home in the Hamptons where all the wealthy people from the city had escaped to. And she was saying a lot of stuff on my show, Marc, that frankly was very much against her own self interest that people were going to flood out of New York City. I mean, this is not good if you own a real estate company with largely based in New York City.

Right.

She was being very candid about it and it's a big deal.

So now I know you had Harry Dent on your show and I have been following Harry Dent's work. For anyone who doesn't know who Harry Dent is, he is a, I think a second generation economic economist. And he wrote a book that was kind of instrumental for me back. I read it in 2006. The Great Bubble Boom ahead. He's written several books, but his whole thesis is using demographics to see where the markets are going to go. And so his thesis has been that the baby boomer generation, they're the largest segment of population, they're retiring and they're going to leave their McMansions to go to sunny places where they can play golf and tennis 365 days a year. And there's no population, there's not enough population to come up and buy those houses.

Right.

And he says that demographics are very reliable because people are very predictable in their spending habits as they go through life. And I think kind of, I think we already have that natural phenomenon. And I made a video about that recently. And then you layer on top of this pandemic, and it only accelerates that.

I think, yeah, you're absolutely right. Basically, you've got the baby boomers, that's about 76 million Americans. You've got the Gen Xers, which is my generation, which is a small generation of about 46 million Americans. And then you've got the millennials, which is a big generation, the biggest one of all, which is 80 million, even bigger than the baby boomers by a small margin. And they do all have very predictable habits. I discovered Harry Dent. I read my first Harry dent book in 1995, and I thought, as an economic demographer, that's a really smart way to look at the economy. It was simple enough for me to understand and relate to. At age 46, people are at the peak of their spending, and at age, I think, 44, they're at the peak of their earning. Right. So this is pretty predictable. And I agree with you. The McMansions, there's nobody to buy them. Like, my mom has a McMansion, and I always tell her she needs to sell this thing. It's 9,600 square feet. It's ridiculous. But it was just her dream always to have a McMansion. Right. Although she didn't call it a McMansion. And so I told her a little while ago, after maybe one of my hair Dent interviews, when he was on my show, I said, mom, even though Gen X, my generation is not going to come along and buy these places from your generation. Even the millennials, they're just not the type that would ever buy a McMansion. They're too environmentally conscious, and they're also too portable. Life is much more portable nowadays. The idea of having a big piece of real estate is just not that attractive.

I said the exact same thing. The lifestyles changed. The nomadic lifestyle they have, and then. And then they have PTSD from 2008.

Right?

Yeah.

Because they saw their parents get burned in the housing market.

Yeah.

And so millennials are much more like lean and mean. And if you think about it, this is. This is maybe a smaller thing, Mark, but I think it is a thing. Like in the old days, my stereo system, for example, it was huge. I had giant speakers. And now I just have a whole bunch of Alexa devices around my house. Oh, wait, I better be careful. It's going to turn on, because Jeff Bezos is bugging every room I have. And, you know, all our stuff is a lot smaller. Our Technology, our computers, it's just a lot easier to move.

Yeah. So with that being said, then we have the economy shrinking, people going without money, without employment, and we have this migration on top of it. So do you're expecting the real estate markets and not the national real estate market, but certain pockets of the real estate market to start taking some pretty big hits?

Definitely. And here's the thing people need to be careful of when they read the news media or they're watching CNBC and some talking head is on there talking about the quote unquote housing market, okay? What people need to be careful of is that the index for housing prices that is the most widely cited index is totally faulty. It's the Case Shiller index because that only includes 20 markets. And 15 of those 20 markets, guess what? They're cyclical markets, markets that we would never touch. Only five of them. Only one quarter of the markets in the Case Shiller Index are linear or hybrid. All the rest are cyclical. So it's totally weighted to view these crashing cyclical markets as though the real estate market, the housing market is crashing when it's not, okay? You try to buy in any of our markets and there's still a lot of demand. There are multiple offers even now. Sometimes some properties have multiple offers for little cheap bread and butter. 120, $150,000 houses, they're moving. This is not a $2 million condo in New York City, okay? That stuff is collapsing. $600,000 houses in LA are hurting too, okay? Because remember, it's even more than the elevator and the mass transit, okay? You know, when you live in a expensive cyclical market, almost every place you go is crowded. You go to Starbucks, it's crowded. You go to a restaurant, it's crowded. Those places are densely packed in every way. So even if you live in a single family home in one of these cities, you're still probably going to be concerned and suspicious and maybe have the urge to move to suburbia.

Just get off track. One second, just to make a statement, is that the problem with viruses is that they're here and they'll never go away. The only way to beat them is our immune system has to be able to beat them. The fact that what you're saying, and I agree with you, the social distancing through, never wanting to shake hands anymore, never wanting to hug anymore, will only make our immune systems even weaker.

Yeah, you're right. Because your immune system does get stronger by germs that it can tolerate.

I believe you're right. And these PTSD actions are going to drive us to more isolation, but then it only becomes a self fulfilling prophecy because now I get sick easier.

Yeah, that's, you're absolutely right about that. I mean, neither of us are probably medically trained, but yes, you're right. But that is a pretty long term effect. Okay. It's not that doesn't happen quickly, but.

Yeah, that doesn't have anything to do with our conversation. Now for those that are still listening, I am going to ask you and have you tell us what you think we should be doing, where should we be looking? But before we get into that, specifically, I'm curious. Now I made a statement on my recent video about real estate that real estate has been arguably the best investment in the last 50 years. I don't think real estate will be the best investment over the next 20, 30, 50 years. Would you agree with that statement?

Well, it depends because real estate can't be lumped into one category. If you were looking at real estate based on the Case Shiller index where 3/4 of it doesn't cash flow and is in cyclical markets, yeah, I would agree with you. You, but that's not the kind of real estate I would buy.

Got it, got it. Okay. So then you buy linear markets that are cash flowing.

Yeah, linear cheap cash flow markets with basic necessity housing. Okay. Remember when you have basic necessity housing, you catch people as they're maybe just moving out of the house and starting their life and their career or they're growing their family, right? They're going to rent that three bedroom, two bath house from you, that's 1,200amonth. Or you catch people falling down the economic ladder that maybe used to own a house or rent a house that was $3,000 a month. Okay? You're going to be surprised when this mass migration trend that I'm predicting, when it starts, it's like the Grapes of wrath of 2020, okay? John Steinbeck's Grapes of Wrath, right, which was a migration novel. When this starts, you will be shocked at the kind of people that come into these little inexpensive suburban markets, okay? Someone moving from New York to Atlanta or moving from New York to Ocala, Florida or Jacksonville, Florida. You know, these are markets where we sell properties, right? They've got, they're used to paying $4,000 a month and everything they've been spending money on, Mark, is super expensive. And now they can get a nicer house for $1200, $1500. Everything looks cheap to them.

I made this comment when I had George Gammon on and I'll see what you say about this, but I don't know the numbers off the top of my head. I did a report on this, but there's already mass migration going from California to Texas. You have mass migration going from New York to Florida. Millions of people. The exact numbers off top of my head now. But we already see this mass migration, California to Texas and New York to Florida. And we briefly talked about the demographics. Right. So we have all these old people retiring. And why do I want to shovel snow five months a year in Indianapolis or Cincinnati when I can go live in Florida and play golf and tennis every single day And I don't have to pay any taxes, no state taxes.

Right.

And the cost of living is so much cheaper. It's a no brainer, right?

It is a no brainer. You know, the cost of living is so low. No state income taxes. You'll want to interview on your show or at least read her book, Meredith Whitney. She was on my podcast a couple years ago. She wrote a book called the State of the States. So this trend that we're talking about is not a new trend. Okay. It's been happening for years. I mean, the middle class has been flooding out of California and New York for a long time. That's not a new thing. But it is going to massively accelerate with what's been happening with the pandemic.

Okay, so then I'm going to try to decipher this and you're going to tell us what we're looking at. So if I own real estate now and I'm worried about what's going to happen, or I'm a real estate investor, I probably want to get out of the cyclical cities, the urban environments, and move to the more rural, suburban type markets that could see this influx of people.

Yeah. The game in real estate is always, or in anything, there's a tidal wave. Get ahead of that tidal wave so you can surf it and that will, you'll surf it to riches and prosperity. And you don't want to be behind the wave. And the wave is this migration trend. And it's already been happening. Okay. Before any of this. Now we're starting to get a lot bigger.

Where George and I maybe saw a little bit of a disagreement. I wouldn't even say that, but I own. You mentioned earlier, Indianapolis. I own apartments in Indianapolis.

Yeah, I like Indy.

It's been a great, it's been a great market. They were giving away properties in the downtown area, people to revitalize them. Right. And now they're worth a lot of money.

Sure.

I'm afraid to own in these areas for the long run because of this migration. Why would you live in Indianapolis that's under snow four or five months here when I can go live in Florida?

Well, I mean, I agree with you generally that the trend is toward the sunshine states. Okay. So that's true. Because retiring baby boomers that don't have to stay in Michigan or even Indianapolis.

Or whatever, but even the millennials that don't have to live in Michigan or whatever.

No, I mean, there's, there's no question that the.

If I could be on the beach with spring breakers and in my Spring in my. And I'm a 30 year old, like, why would I live in Indianapolis?

Yeah, no, absolutely. But Indianapolis is a nice town. I mean, you know, that's, that's a nice place. It's got good employment prospects, low cost of living, families love it. I've owned several properties in Indianapolis and they're great. I'm saying that's part of the trend. It's not the whole trend. Okay.

Because as a real estate investor, what I'm concerned about, and I'm 100% on board with your philosophy of buying for investing for cash flow, but I want to make sure that that cash flow is going to be there for 10 or 20 years.

Yeah, yeah, yeah.

I wouldn't want to own a long term rental in an area that's going to be losing jobs. Right. I want to be in an area that's going to be growing so I can make sure that rent is going to be there for 20 years.

Right. But not every cold climate is going to lose people. Okay. I mean, people are still having kids, there's still immigration, there's all of this stuff. The major play is in the southeastern United States. I completely agree. I'm just saying that Indy is another good market and not everything is in the sunshine states.

Well, I live in Southern California, so the sunshine is everything to me.

Yeah, right, right, right. But people that are used to living in those environments, they don't think it's cold. That's just normal to them. You get used to it.

I took my family to New York last year during the winter and it was so cold. I'm like, don't people know they don't have to live like this?

I know. Yeah. It's crazy.

All right, so then beware of the silica markets in the urban areas. The suburban areas are going to do better. And the top end of the market, the McMansions are probably going to be hit the hardest and the starter homes are going to be the places that people want to look for.

Definitely, definitely. So avoid cyclical markets. Get into linear markets. Now, we did not discuss. So maybe it's just quickly worth a mention. Hybrid markets. Remember, there are three linear, cyclical, hybrid. Okay. Hybrid markets, just as the name would imply, mean in between the two. So an example of a hybrid market would be Denver or Austin. Atlanta's kind of becoming kind of hybrid, but we still have properties we sell to clients in Atlanta. And it's still good, but it's getting sort of hybrid ish. It's getting a little expensive. And so that's in between. So the best bet is linear. Linear is the safe, conservative bet.

Okay, awesome. Well, that's some good stuff. You've given us a lot of good information. I think made the strong case as demographics plus pandemic equals this amplified move. And I think we had some good action as to where we should be going and looking. I want to have you back on and we'll talk about maybe some training stuff that people can actually take, like real actionable steps to go and start moving towards this. What I'm going to do is I'm going to put a link in the description and in the comments that if you want to get early access to this training, you can just go ahead and put your information in there and I'll make sure that you're on the invite list for that. And then we'll have Jason back on and we'll really get into that. I think that'd be great.

Good stuff.

Okay. Did we leave anything out?

Oh, there's a lot of stuff we left out, but, you know, time waits for no man, so we gotta wrap it up. Mark, it's been great talking to you and your audience and keep up the good work. People really need to be listening to people like you that are telling it like it is, that aren't wrapped up in the vast Wall street conspiracy. I call Wall street the modern version of organized crime, because the way you're gon money and secure your future because there's a massive pension crisis that's only getting worse with the pandemic, of course, is to take control. And that's what you teach. That's what I teach. Get control of your investment portfolio. And I just want to wish everybody the best. Stay well and happy investing to all.

Thanks so much, Jason. Appreciate. It.