Jason Hartman records this show from the IMN conference. He starts with guest Robert Nickell, as they discuss the latest in real estate investing. The two look at how institutional investors are creating problems in the market place. Jason also talks about the idea of fragmentation in real estate. Later he discusses iBuyer and how much capital it has raised. As a result, home prices are increasing and there is a build to rent phenomenon that is occurring.

Jason Hartman 0:02
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.

Jason Hartman 0:52
Welcome to Episode 1093 1093. This is your host Jason Hartman coming to you from beautiful Scottsdale Arizona, my former hometown for six years. And I’m just visiting now because I am at the Ironmen conference. And we have talked to you from this conference before, in prior years. I am here today we are on the floor of the trade show area. So it’s kind of noisy, but we’re not going to be this noisy throughout the whole show. We’re going to walk out and just kind of give you the effect of being right here. This is a busy place. I’m with my old friend, Robert nickel. Now, what’s interesting about Robert, is he’s I don’t want to say this in a negative way, because I don’t mean it this way. But, you know, think of Mrs. Kravitz on that show bewitched, right. So think of my friend Robert is almost like a Mrs. Kravitz, right. He knows everybody’s business.

Robert Nickell 1:44
That’s I’ve never heard it put that way. But I’ll take that as a couple that

Jason Hartman 1:47
you do. And our listeners are going to get some great insight from you today. Because I know every time I talk to you, I get some great insight. So what Robert does is he has a real estate outsourcing company. They have big giant clients with mega amounts of cash and mega amounts of business, big property management companies. And they do the customer service for them and all sorts of call center type applications. And then they have small investors that send out yellow postcards. And you’re all receiving those because you bought properties from us. And now you’re on, on those mailing lists, and everything in between. So, Robert, first of all, welcome and tell us about some of your clients.

Robert Nickell 2:26
Hey, Jason, thanks for having me. I really appreciate it. It’s always fun catching up and talk in the market and the economics with you. You always have such interesting insight into what’s going on. So I really love catching out really appreciate you having me on. Yeah, our clients are it’s a wide ranging group. It’s one of the coolest things about real estate is that the client base is so diverse. It’s the people talk about the wild west or the fragmented market all the time and it’s really great. So

Jason Hartman 2:53
I always say embrace the fragmentation because that’s what keeps the big institutional investors out of our business. But guess what, the big institutional investors are really coming into our business. In terms of the overall market, Robert, they’re still nothing. It’s a tiny, tiny bit. But the direction is the interesting part. So we walked out to get a little quieter here. But the direction of it is really interesting. And that means this big wall street money, these private equity groups, these hedge funds, they have a lot of faith and a lot of interest in the single family investment market.

Robert Nickell 3:26
Yeah, and that’s what’s been really interesting about this conference is there seems to be a renewed energy in the room and from everyone that’s here from service providers, to the buyers of big institutions to the electronic platforms, the different technology that’s available today. I haven’t felt this amount of energy and I haven’t seen a room this flushing cash in a long, long time.

Jason Hartman 3:48
Now that may be a bubble indicator, right that the room is so flush with cash, but we will see we will see how that plays out. You know, we all saw it back in 1999 2000. When the.com bubble was there, there were all these programs everybody was talking about, Oh, I got to start an internet business. Right? And this is a little bit reminiscent of that but in a different way. You know, if you looked at some of the cryptocurrency conferences from the past few years, you know a lot of our friends were going to Bitcoin conferences, a lot of them were speaking at Bitcoin conferences and cryptocurrency conferences, and obviously that crash because there’s no real value but the difference with real estate is it is real, as the name would imply, you know, it’s here to stay. Now what we’re talking about though, is some of these companies in the industry and what they’re doing and you know, Robert, It never ceases to amaze me how ingenious the human mind is, and how many ideas people can think of and how many problems they can solve. Sometimes problems we didn’t even know we had, right?

Robert Nickell 4:51
It’s really amazing. The that’s part of why show up every time right is because there’s that FOMO that fear of missing out because there are so many new ideas come through The economy’s been so strong for a while now. And we talked about the the room being flushed with cash that creates so much opportunity for the deployment of that. And that goes into all these different sectors, from the technology to the service providers to all the way down to the operators. And the institutions are really having a major influence in that right now.

Jason Hartman 5:18
They definitely are in one of the things speaking of the the money, you know, it’s like this industry, like many others, I think, is is actually getting over funded. I’m going to venture to say that, as I look at the amounts of money some of these companies have raised, I think they’re over funded a lot of them and that causes this malinvestment in the marketplace. It causes a lot of you know, look at I’ll say it, I’ll call it stupid money. It’s just stupid money. You know, it’s like a drunken sailor, right? And so what you have here is you have the extension of a lot of these ideas that are really frankly being overextended. That’s my opinion. You might disagree a lot of people might do disagree with me. And what I mean by that is, you know, during the.com boom and bust way back, you know, 18 years ago, 19 years ago, you saw these crazy ideas getting funded, you know that, that remember that pets.com mascot, you know that sock puppet thing. And all this silly stuff that just really, you know, the businesses get refined as the economy changes and and what the economist Joseph Schumpeter talked about and creative destruction. So you have it on both sides, you have it on the way up, which I think is the phase where now and then you have it in the way down in a recessionary time where there’s a different form of creative destruction, but there’s a lot of disruption going on in the real estate industry right now. And it’s, it’s really fascinating. You know, at lunch today we were talking about the consolidation and the I buyers Okay, I like iPhone, I buyers, right? iPhone, iPad. So think of it like that. And these are these companies that are sort of these internet real estate companies, if you will. Do you care to elaborate on what that means? For our listeners,

Robert Nickell 7:00
yeah, it’s this. This is what’s creating all the rage around the conversations of brokerages going out of business that united talked quite a bit about today. And that, you know, that’s what’s fueling that conversation is the ability for someone to go to these different buyer platforms, they type in their address with the click of a button, they have a cash offer right there in front of them.

Jason Hartman 7:21
So in a VM and automated valuation model spits back an offer. But the reality is, it ain’t quite what it seems, you know, yet, because that offer will get whittled down a bit. It’s maybe not quite as good. But hey, it’s better than what we had. Because what we had before in the olden days was the primitive thing of the realtor coming out and doing a comparative market analysis. And the interesting thing though, is you live in Dallas, and what you told me today was shocking. Okay, I don’t live in Dallas. I’ll be in Dallas next month. Speaking at a conference, Ryan Moran’s conference, my friend. You know what you told me today was shocking. I’m gonna let you say it. I’m Not gonna repeat it but the billboards that tell us about that.

Robert Nickell 8:03
Yeah. So if you take the major highway systems in Dallas, you go north and there’s a there’s a highway system 635 in Dallas more Tollway. It’s a pretty affluent area. And if you drive just straight North for the first 15 miles from that highway, the vast majority of the billboards almost every single one of them are the buyers. The ones that are not I buyers are either engagement rings, or traditional broker tried to keep up with the buyers move into a flat fee listing totally changing the way they’re marketing the platform. So not only that, but the conversation from the sellers is totally changed. The normalization of the buyers in the market is totally taken effect in several zip codes in in Dallas.

Jason Hartman 8:47
So how much market share Do they have these I buyers versus the traditional real estate companies and let me just kind of preface what I think this means to investors. You know, you might be listening to this thinking, Well, you know, this is For traditional owner occupied homes, right? No, it’s not. This is very significant, because what’s happening here is that in the real estate business, there’s a fairly high amount of friction. What I mean by that is, when you trade a property, you buy it or you sell it, you know, the closing costs are high. The process is rather old fashioned and slow. And, you know, you put the house on the market, you find a realtor, first you put the house on the market, you wait, you wait, then you go through this big closing process. And that’s complicated. The amount of friction is pretty heavy in that scenario, versus buying and selling a stock versus buying and selling, you know, precious metals, or anything else. There’s a lot of friction, right? So the friction is reducing, they’re still going to be even after this disruption that I believe is underway. A lot of friction, but market share and what it means to investors was my question, I go on tangents, if you haven’t noticed. Yeah, yeah. So If you like when we talk market share, there’s ways to through public record, you can go and track who’s buying in the market, who’s listing the properties, who’s selling them, and who’s, who’s gaining the traction, it’s pretty easy for anyone to track who’s actually converting on the transactions. And in the zip codes that the buyers are focusing on, are doing north of 25% of the transactions, and sometimes significantly more than that. And what that’s doing is it’s essentially limit eliminating the sign brokerage, the family names that we’re also used to, it’s eliminating their opportunities within those areas. It’s crowding them out. And the reason this is happening is because these I buyers, are looked at by investors as platforms versus traditional companies. And so they are they’ve got so much money, because they’re getting funded by VCs and private equity groups and so forth, that they’re just crowding out. Right. And I’ve talked a lot in prior episodes about the rather dysfunctional way capital formation. works in America and really around the world. But that’s another conversation for another day. So they’re crowding out the traditional brokerages, certainly to an extent. But are they making any money? We really don’t know, because they’re not publicly traded companies. And that sort of leads me to a kind of a not directly related conversation. So dive into this one when you want, but consolidation and dumb money and how a lot of these companies just don’t make any money. So you’ve heard Doug on the show many times over the years. Doug has a great saying and you know, I’m glad that after 10 years of talking, he’s finally become an investment counselor with us, which is super exciting. And one of the things Doug says to me, he has these great wise little quotes and you know, he’s spoken at several events. You You heard him if you were at our profits in paradise event in Hawaii last month, Doug says, Jason, real businesses make money. Real businesses make money. In other words, they don’t just raise Money, they actually make money. Okay? And, and a lot of these companies just don’t make any frickin money. A lot of these big institutional real estate investors with thousands and thousands of homes actually don’t make any money either, because they’re great at raising money. But that money that they’ve raised causes a dysfunction and thinking, because it forces them to deploy that capital, they’ve got to go spend the money or they’re not going to get more. And so the metric versus running a profitable business is, hey, let’s just have a big business. And then someday, maybe we’ll be profitable. Sorry, to hog the mic. You got a lot to say I’m sure

Robert Nickell 12:35
ya know, what’s interesting is just like, for guys like me, my business has to be profitable. If I’m not profitable, I don’t exist, because

Jason Hartman 12:42
Congratulations, you run a real business.

Robert Nickell 12:45
Right? So I would I would love for that. Well, I don’t know. I don’t even know

Jason Hartman 12:49
that I have a real business.

Robert Nickell 12:50
But the point that just brings us back to the point is that it’s the paradigm shift and understanding what these companies are really doing. What they’re doing isn’t they’re not building Cash Flow Statement. They’re not it’s not about the p&l. That’s not how they operate like the rest of us. They’re going from market share. And it’s a race to the top who can do the most who can become the monopoly within that space. And then it’s about the exit afterwards. So it’s a very, very different mindset. And if you trace the incentives, like you talked about having to deploy that capital, right, well, that’s exactly what’s going to happen because these companies are incentivized to deploy the capital.

Jason Hartman 13:28
Okay. Okay. So, you know, we haven’t had a nanny lately, but a few years ago, we had a few institutional clients that were buying properties from us, okay. And they’ve got all this money, they come in, they want to buy a few dozen properties. And honestly, they’re not good at getting deals. You know, they’re not bargain hunters, and they’re not picky. I’d love to have a lot more of them as clients actually, you know, our traditional clients seem to be a lot smarter about it, but hey, it’s their money versus the institutional buyers. You know, it’s like government money. It’s not my money. It’s just the budget I got, I got to deploy it right or I’m not going to get more. And that great book, the greatest management principle in the world from, you know, like the late 80s by Michael bow or Michael above, I don’t know how to say that is he said this great saying what gets rewarded gets repeated. I love that quote, because in every area of life, whether it be welfare, whether it be government budgets, whether it be these companies that think, you know, I think dysfunctional way about business, where it’s more about raising money than running a profitable business, right, what gets rewarded gets repeated because if you, you know, if you don’t deploy the capital, if you don’t spend all the money, you’re not going to raise more, right? To some extent. I mean, that’s not exactly perfectly true, but conceptually, it’s true. Okay. So consolidation Let’s finish that topic and then talk about build to rent and affordability okay. And and that’s a very important subject to the investors listening in the consolidation. What’s interesting is you got all this dumb You know, there’s dumb money floating around. And you’re seeing companies get acquired that are sort of related businesses, a property management company, for example, acquiring a platform. I don’t know if you want to call them and I buyer. Some of the problems with today’s world is these ideas are nuanced. The different business models are kind of nuanced. And, and there’s so many really unique, great ideas out there, that it’s hard to label them sometimes. So yeah,

Robert Nickell 15:30
yeah. And that’s, that’s kind of the thing with that consolidation, you’ve got these companies who have traditionally been really, really good within a single niche or whatever their their specific space is. And it’s really interesting to watch them hitch their wagons on to two other companies that Yeah, we’re in the same space. We’re all in the same industry, ultimately, but they’re really pretty different fundamentally. And to me, that says a lot about the way these companies view the landscape and where it’s headed. It’s a really interesting position where you’re not just doubling down on your own model but looking to go a little bit wider with some of these other companies is that is stability need is that I, it’s to me that raises a lot of questions about about the where we are clearly with margins, compressing, inventory shrinking, it’s affecting everyone across the board.

Jason Hartman 16:17
Yeah, no question about it. So the inventory is still quite a significant problem. Hey, there’s john burns over there. He He spoke at our event in January. Those margins are compressing. It’s a real challenge for institutions that need to deploy capital because they they are forced to take, I’ll just say it kind of crappy deals a lot of times, and it always amazed me like if you look at the apartment world, and you look at these institutional apartment owners, they’re buying and building apartment complexes all over the country. That just the cap rates are terrible on these deals. You think like why they even bother with that deal? But you know, one principle to keep in mind for real estate Investing is that rarely does the deal look great when you buy it. You know, it looks great in the future. So you know if you got all this institutional money and you buy or build something that isn’t really that great today, but then you turn around and you wait 10 years, you know that suddenly that deal looks a lot better. You know

Robert Nickell 17:24
what’s really interesting about the buyers and then deploying so much capital in purchasing it. So at the rate they are, is it is driving up pricing. and affordability is already such a major issue across the board. It’s not just an investor issue. These are teachers and pharmacists and the average Americans looking for great homes within good school districts. It’s a problem across the board this idea of affordable housing. So these buyers are coming in with almost unlimited demand. There’s only so many houses in the market that fit their box within that affordability index. And as they continue to buy more and more in your column that Dumb money, it’s that getting as much market share as they can acquire. Through that process. They’re driving pricing up, which is it’s helping to expedite the problem, right. The problem is that there’s not enough affordable housing. And then yeah, it’s just making it worse. And these libraries can be just unlimited amount of money driving pricing up within that market. And so to me, what’s really going to be interesting that this whole conference has been dominated by this conversation of affordable housing. So since the recession since the big crash that we had, that everyone talks about from 2008, it’s been really interesting wild ride from 2008 to today. But for me, what’s going to get really interesting, what’s really going to be crazy to watch is what happens from today going forward, you’re talking about the consolidation, when we look at which which is just we’re obviously in the age of operations, age of consolidation, because that’s what’s happening right now. And then you look at what these buyers are doing within the market and you already look at the demand that cannot be satisfied across the board. prices going through the roof. The affordability conversation has absolutely dominated this conference. It’s dominated almost every conference I’ve been to this year. And I don’t think that conversation is going away. I think that is what’s going to be really interesting. Who can solve that problem? What are we going to do? And it’s the other, there’s been two conversations here, affordability, and the second ones build the red. It’s the only two conversations in this whole conference.

Jason Hartman 19:23
Absolutely. I want to talk about build to rent here, and maybe we’ll kind of wrap it up with this. But on the I buyer component, I just want to say, and I’m not gonna mention any names here, because I’m not gonna mention any names. But I will tell you that a gentleman I had lunch with today here at the conference, was talking about how he’s got give or take 1000 properties in his portfolio, okay. And he’s a, what you call a large mom and pop investor but not an institution by any means. And he has, you know, is constantly selling some properties off the line that are kind of some of the sort of dog properties that isn’t like that much right out of his portfolio of about 1000. Give or take. I mean, I have the exact number, but I don’t want to say the exact number because I might identify who it is. Okay, so I’m not gonna say the exact number, this round 2000 and thousand properties. And these are all single family homes, and basically to liquidate the dog properties. He gives them to an eye buyer and they buy him. Now that says a lot to me. He says, Yeah, my crappy stuff. I just give it to someone so calm. And that’s who who sells it for me or buys it from me.

Robert Nickell 20:34
It’s crazy, what stumbling around because there’s so much going on. You’re talking about all the nuances that things is going on. It’s such a fascinating time to be in the industry right now. The difference is it’s so fragmented, everybody’s trying to consolidation that’s happening. And then what it’s created the opportunities for people that have these massive platforms, they can really leverage the craziness that’s going on. It’s really fun to watch right now.

Jason Hartman 20:57
Yeah, it is. But I’ll tell you one thing, no matter what I mean, all of this conversation is still in the broader market. It’s a drop in the bucket, it’s a drop in the bucket. So all of this stuff we’re talking about, in terms of the overall marketplace, I want listeners to understand it’s a drop in the bucket. Okay. You know, there are what 1617 million single family homes in the hands of mom and pop investors. We’re here at a conference where we’re addressing a lot of this institutional stuff. And it’s really a small, small thing in the overall marketplace, but it could signify a trend.

Robert Nickell 21:35
Okay, that’s kind of the point right is being ahead of the curve of what’s coming, knowing early, really interested. That’s why it’s so interesting, because we get this kind of survey, the landscape of all these people are so excited this energy that’s here, the amount of information that’s being shared. It’s like, That’s why, you know, people are so excited because they’re sharing more information than they ever have it three or four years, it’s wild. And so that’s that’s the fascinating

Jason Hartman 21:58
I have never seen So many people talking about build to rent. That is a totally in the grand scheme of things a totally new concept. I mean, there have been little blips about it here and there. But inventory is so low that now developers instead of building to sell, and I’m talking about tracks of single family homes, they are building single family homes to rent them. This in the broad scheme of things. I mean, look, we’ve talked about this. We talked about this 10 years ago, there were like a couple examples here and there. But now it’s becoming a thing. It’s becoming an industry this the room this board, I was standing room, only three people deep for that session. And at the last Ironmen in Miami a few months ago, there was hardly anybody in the room at all. So I mean that and that just goes to show the lack of inventory, the margins are compressing, and there’s there’s no product available. There’s no supply whatsoever. So people are trying to get creative. The whole build to rent model makes a lot of sense. Yeah, it’s really interesting, but they’re building pretty expensive stuff there. So that model Makes a lot of sense it’s it’s pretty interesting. Here’s my friend Kathy you may know her voice but we’re not going to mention her last name or website or we

Robert Nickell 23:07
you might not know my voice because I have a cold and so I sound

Robert Nickell 23:10
different. Oh good, good. Okay, then we’ll disguise you.

Robert Nickell 23:13
Okay. All right, but this has been another great event.

Jason Hartman 23:16
Yeah, it has been really fun. We’ve been talking about affordability the build to rent model consolidation, I buyers and stupid money in the marketplace. Do you think there’s some stupid money in a marketplace that’s like overpaying for things,

Robert Nickell 23:28
lots of stupid money. There’s always stupid money no matter what the market cycles.

Jason Hartman 23:33
But I think there’s more now because there’s more money. More money and it gets dumber when it gets big. Right. It’s

Robert Nickell 23:39
more of it. Yeah. Excellent.

Robert Nickell 23:41
But that just makes more opportunity. Right? It definitely does. Yeah, it’ll be interesting to see how the I buyers I don’t know too many people who just click and say I’m gonna buy a house but probably some people will. There’s a few and sell a house. Yeah, but I prefer the hand holding

Jason Hartman 23:57
method, no question about it. Both of our companies. Hold hands

Robert Nickell 24:00
trusted, trusted boots on the on the ground. Right. Absolutely

Jason Hartman 24:03
good stuff. Okay. Thank you, Robert. Let’s wrap it up on that thought.

Robert Nickell 24:06
Again. I really appreciate your time. Jason, it’s been really fun talking to you about the the economics and the market dynamics of the IMF in this time. And it’s, I’m really looking forward to staying in touch with you and keeping track of what what’s coming down the pipe next. And it’s going to be really interesting to see what happens.

Jason Hartman 24:23
Yeah, it really is. It’s an amazing time to be alive, as I always say. And just keep in mind, what we’re talking about is very ahead of the curve, in the overall scheme of things. All the institutional players are a small drop in the bucket, but I think it is a trend, and that fragmentation is being kind of consolidated and taken care of in a lot of different ways. So thanks for joining us today. Happy investing and we’ll talk to you on the next episode. Welcome to the first property profile and the creating wealth show. This is producer Adam, and this new segment we’re going to be highlighting one or two properties that are currently available through Jason Hartman’s network. This house can be found on the property cast as episode number 152. This is a completely renovated 2240 square foot duplex that is located in Baton Rouge, Louisiana. That was just posted to the site yesterday. Baton Rouge is located on the Mississippi River and the capital of Louisiana. Well, Baton Rouge itself has flooded before this property never has. It’s the second largest city in the state, with a population around 227,000 and a metropolitan area in the neighborhood of 830,000 people. In the 2010 census, the population of Baton Rouge had increased point 7% from the 2000 census and found that the median household income was a little over $30,000 with family median incomes of just over 40,000. The residents median age is 30 with 90 men to every 100 women in 2010 portfolio com rated Baton Rouge as one of the top 10 places for young adults and Baton Rouge is economy is aided by being the furthest inlet port That can accommodate oceangoing tankers and cargo carriers. This property has a new roof new h back new flooring, fixtures and countertops as well as new bathrooms. It’s $149,900 price tag gives it a cost per square foot of $66. It rents out at $1,727 for an RV ratio of 1.15% with assumptions of 8% vacancy 8% management fee 6% maintenance and 25% down, which is $37,475. For those without a calculator handy, and an interest rate of 5.75%. You’re looking at a cash flow of about $512 at a 6% interest rate, which is what my wife and I are looking at for the investment property we have under contract. You’re looking at a cash flow of about $496. If you’re interested in this property, contact your investment counselor and tell them you want more information about Episode 152 of the property cast. For more properties available on Jason Hartman’s network, go to Jason hartman.com forward slash properties. Obviously, this information is not guaranteed and investors should do their own research, get professional advice, and conduct due diligence prior to investing, but we’re doing our best to help. Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out the show’s specific website and our general website Hartman. Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice and any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.