THIS is What Billionaires Do

This is a new thing today. First episode with a cat. This is Sugar, and Sugar is a resident of Bali, Indonesia. I checked into this new hotel yesterday and they had a house cat. And I promptly adopted this cat. Do you hear a purring? You hear that? Oh, yeah. What a baby. She was so cute last night. She slept with me almost all night. Now she's on the computer. I love it. Hey, that's one thing you don't know about me. Maybe I love animals. I just love them. They're great cats and dogs. They're awesome. You know, some people love dogs and I love dogs, but they hate cats. Why do they hate cats? I love cats. I love dogs. Love them both. They're awesome. Anyway, welcome. Good day from Bali. Here we go. Okay, so today we've got a great show for you. Oh, gosh, you're the cat. Yeah. There you go. We are going to talk about one of the most important strategies, and that is refi till you die. Refi till you die. But before we do that, I've got a few things to dive in with you. So this article was in the Wall Street Journal just, I don't know, two days ago. I think it says Wall street is betting billions on rental homes. Now, if this is the smart money, maybe we should be following the smart money. Real estate investment trust Avalon Bay recently purchased a set of 126 build to rent townhomes in Texas for $49 million. Rapidly expanding renter pool is a direct response to the widening gap between how expensive it is to rent versus how expensive it is to own a home in the US especially as mortgage rates stay heated at nearly 7% with no immediate signs of cooling. That's an odd way to describe it. I would just say heightened, but okay, that's what they're using. This says a few important things, people. Number one, this gap is almost the widest it's ever been. It's not the widest, but it is close to the widest it's ever been. And what I mean, I mean the gap between the cost of owning a home and the cost of renting a home, meaning it's very expensive to own. So this gap between renting and owning is huge. So what does that mean? That means that we are going to see upward pressure on rents. I know everybody got so spoiled during the pandemic. They saw rents rise and go through the roof and now they're thinking, you know, rents have kind of just softened a bit. They're not going up like they were folks. That was abnormal. That was the outlier, that was not the normal experience. Rents, largely, except for apartments, are still going. Okay. Some areas of the country we've seen rents soften a little bit, but again, not a big deal. Still tons of upward pressure on rents. Again, this stuff takes a little time to play out, but all of the evidence is there to show that it will play out. And I haven't been wrong about this yet, right? In my 21 years or so talking to you on this show, I've only really been wrong about one major thing, and that is interest rates. I suck at predicting interest rates because interest rates don't go with the market. They go with the market distortion of the Federal Reserve. And that's why they're really hard to predict. All right, so here are the mortgage rate predictions. Now this is from U.S. news and World Report and this is Three Surveys. It's Fannie Mae, the largest mortgage player in the world. It's the Mortgage Bankers association, otherwise known as the mba. And it is those criminals at Wells Fargo. And yes, I can say that because I don't think it's even alleged, right? They had so many scandals. I mean, Wells Fargo, but all the banks have had big scandals. I mean the corporatocracy, they're just taking advantage of everyone. You can see why Luigi did what he did, right? You can kind of understand it because I wonder how many people did the health care CEO kill? You know, it's just the way our world keeps track of things and doesn't punish these crooks at the top. White collar crooks, they hardly get any punishment, right? Even though they ruin people's lives. People commit suicide because of them. In the healthcare example, they're denied treatment and they die. They die waiting in line, you know, what's the word? Deny, defend, oppose, you know, it's disgusting. Anyway, that's another issue. So what are the mortgage rate predictions? Well, they are headed lower, but not by as much as I would have thought and not by as much as some of the other predictions earlier this year had them headed. So they say by Q3 of next year, Tom, we're going to be at 6.25%. And going into the following year we're going to be at about 6.1%. That's the most optimistic prediction. But that's the prediction I'd actually put the most faith in. Not because it's optimistic, just because it's from none other than Fannie Mae, the largest mortgage player in the world. Government sponsored entity has probably the most influence over the Federal Reserve, arguably. I mean, the Federal Reserve is designed to be independent. It's not really, but that's the theory. But if anybody has a lot of influence over them, I'd say it would be this one. Much more so than the NBA or Wells Fargo. So take it for what it's worth. Wells Fargo in the NBA their predictions are a little less rosy. They say by the end of the year we'll be near the same rates at about 6.25, 6.3, 6.4 in one case. That's the NBA. They're the least optimistic in that scenario. But into the following year they're at 6.3, whereas Fannie Mae's at 6.1. So hey, we'll see what happens. But if there is some kind of crisis, right, whether it be engineered, whether it be an on purpose crisis or a crisis that happened because of the government or the powers that be being just complicit, right, they don't have to engineer it, they can just stand by and let it happen, right? You complicit as opposed to guilty of actually doing it, right? Actively involved. Or if it just happens, then we're likely to see rates go even lower than this. Even much, much lower than this. Because look back in 2019 or 2018, who would have ever thunk it that the rates would have gone as low as they did during the COVID era, right? So crisis notwithstanding, we could see much, much lower rates than this. But we shall see. So there are your mortgage rate predictions. Now home prices. Redfin is out with a new survey and Redfin does a really good job of forecasting and analyzing economic data. They got a lot of great data. I quote them all the time on the show in their survey. They're saying that home prices next year are basically going to increase by 4%. So 4%. You know, that's not incredible, it's not great, but it's certainly steady. In fact, the chart says home prices will increase steadily and it is from Redfin year over year. Change in median home prices of existing homes, 4% increase. Now that isn't activity, that's prices. And those things are very different. But I do want you to think about something very, very carefully in terms of sales activity and why that's meaningful. Home sales activity has been way, way down. That's why all your realtor friends and mortgage broker friends, they are complaining. They have been complaining for two years, more than two years, about two and a half years now. They've been complaining like crazy. Title people, escrow people, mortgage people, Notary people, everybody affiliated with this giant industry of real estate and real closings, right? Real estate brokers, they're all complaining like crazy because sales activity has been way, way down. So if you say compared to what? Well, what activity should we have had? We should have had about 1.5 million more homes selling every year. So you take just two years, for example, that would be a 3 million home sales deficit. Now, you could argue about the number, right? Some might say we should have 2 million more sales per year. And they certainly could make that argument because that's what we used to have, right? We used to have almost 2 million more sales. And so I'm just going to go with the 1.5 number. And over just two years, that's 3 million home sales. That did not occur. What does that represent? What does that mean? That represents pent up demand, shadow demand. And there are other big shadow demand factors that I've talked to you about before. Like all of these people living at home with their parents who are too old to be living at home with their parents, it's a failure to launch. And also all of the people living as roommates just kind of delaying household formation. You know, they used to say back when the show Seinfeld was popular, you know, maybe the best comedy ever written, I mean, it's just so good. You can watch those episodes over and over and they're just still funny, same jokes somehow they're still funny because it's so clever, it's so well done. During the Seinfeld era, right? A long time ago, they talked about something called the Peter Pan syndrome, right? And that was these guys like the Seinfeld characters, right, that just wouldn't grow up, right? They wouldn't get married, they wouldn't have children, they wouldn't form like a real household. Although those characters in the show did live on their own, but they just didn't kind of like grow up and do the normal things. And that's the Millennials. And it's going to be Gen Z too, right? The millennials are finally, even though they're very late, moving into doing all of those things, they're really late. And so a lot of pent up demand still lies in the Millennial generation. Those people that haven't made the move yet, haven't formed a household yet. And then coming right behind them is the same kind of ethos in the Gen Z group. That doesn't seem to be any different in Gen Z than it was from Millennials, but we'll see. You know, It's a little too early to tell. We will see how that all works out. But anyway, look, the forecast is rent's going up, home price is going to continue to go up, even if not extraordinarily steady increases. And remember that this survey from Redfin is 4% increase on existing homes, that is not on new homes. But remember something, the way most people will lie about this is they will say, look, home prices only go up 4%. The S&P will go up 8 or 9%. But that's without leverage. So if you have 10% equity in these homes, 4% equals 40% equity. Because you leverage that return, right? If you've got 10% equity, you're getting the multiplier effect. That's going to make you beat inflation dramatically. And that's a wonderful, wonderful thing. But you also get inflation induced debt destruction. You get all of these benefits of income property being this multi dimensional asset class. And that's what makes it the most historically proven asset class in the entire world. And that's why we love income property. This is the same strategy the billionaires use. It's the same strategy you see Elon Musk and Jeff Bezos and Mark Zuckerberg and all of the rest of them using, and that is that they leverage their assets and they use the borrowed money to fund their lifestyle because there's no tax on borrowed money and they want to keep the asset. That's what we want to do as real estate investors. We want to keep and control the asset and we want to extract wealth from the asset and we want to do that in a tax free manner. It's just such a beautiful asset class.