Jason Hartman starts the show by discussing the difference between a black swan and a white swan event. Later he discusses inflation and specifies the term concerning asset prices versus consumer inflation. He hosts Jason Hartman Sean O’Toole as they finish a two-part discussion on Property Radar. They look into the data they discover and how inflation fits into all of this. In addition, they discuss the susceptibility of boom and bust outcomes as a result of the US being the reserve global currency. They end with some insight on iBuyer and its impact on the real state market.
Sean O’Toole 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 multimillionaire 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 on Now, here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 0:54
Welcome to Episode 1566 1566. Thank you for joining us today as we have part two of shonto tool talking about foreclosure radar and property radar, we’ve got a lot of data to get to today, continuation from yesterday’s episode. And if you skipped yesterday, you can just keep on listening. It’s not in any particular order. So it’s easy, easy, you can just go back and grab that episode whenever it’s convenient. And be sure to join us for our upcoming pandemic investing class. It’s just a one day class. That is it pandemic investing calm, we’ve got a whole bunch of great new data to share with you data material, how people are reacting to these crazy times in which we live and what that means to your investment strategy. So be sure to go to pandemic investing calm and get your low priced early bird registration. It’s online, it’s on zoom. So it’s real easy. Go check that out pandemic investing.com. And be sure to join us. Gosh, that’s in like 11 days. So be sure to get your tickets ASAP. And we’ll look forward to seeing you there. And here is part two of Sean O’Toole with foreclosure radar and property radar. You’ve got some charts and graphs. And I’d like to dig into those if we could if you could share your screen. And let’s look at some look at some data here.
Sean O’Toole 2:29
We’re talking about here a second ago is the I was running around doing a presentation in 2016. That I think is particularly, you know, interesting given just where we are today. And so in 2016, I was basically running around telling folks look, you know, I actually said I’m going to stop doing economic updates. And I did in 2016 I stopped doing economic updates because nothing was changing right? prices were going up slowly because of a lack of inventory sales were flat, you know, just wasn’t much interesting happening. And I basically said three things right one flat Is The New Black. Right things are going to be pretty calm, slight price increases, but pretty common real estate markets until we have a black swan. And Black Swan is you know from an SN two labs book.
Jason Hartman 3:23
I’m a huge fan of his work. He’s great, but it just it what’s interesting is I was calling this a black swan when it first hit. And and celeb was actually on TV and I saw an interview where he said this is not a black swan. It’s a white swan. For what?
Sean O’Toole 3:40
Actually it’s funny you say that because he and it’s funny. He said White Swan because Michelle Walker wrote a grey Rhino, which was basically to say, you know that a great Rhino is the obvious changers we ignore right. It’s a highly probable high impact yet neglected threat. Right? We have a lot of you know, you know, the power grid, you know, lots of things that we are not taking care of that we should be taking care of. So, yes, I totally agree. But back then, the I don’t think her book was out yet. And the lab was not talking about white swans yet. So we use black swan.
Jason Hartman 4:17
Yeah, absolutely. Okay. Take us through this a little bit.
Sean O’Toole 4:21
Yeah. So you know, basically the the thought here was that I thought there would be something that comes up at some point that rocks the boat, right. And I walked through a whole bunch of things from technology and automation to cyber security, you know, nuclear war war, right, terrorist attacks. You can see there in the bottom right corner, this slides from 2016 you’ll see a quarantine area. And so that was actually one of the things that I put out a you know, Bill Gates and lots of other people were talking about the possibility of a pandemic, but it was just one of the things that I said, Look, there’s, there’s things that can happen that are coming up. And but my point to have folks in real estate at the time was that, you know, it’s not going to be the same as 2008, which we just talked about a little bit, because, you know, Janet Yellen was Fed Chairman at the time, right. And I argued basically that she had a shrink ray, and would use it to turn the black swan into the I always forget the name of the baby swan. It’s a weird, it’s a different completely, non. I don’t know
Jason Hartman 5:25
that. But yes, the Fed, the Fed can basically change anything, right. And you know, it’s magical. You can just create money, or ease the money supply or ease the credit supply in some way. And it just changes everything. You know, what a lot of these doom and gloom ORS that have been predicting the end of the world for decades, and it just never happens. They’re just constantly wrong. They sort of act like things happen in a vacuum, like, Okay, well, the economy is going to do this, that and the other thing, but they forget that there are all these response mechanisms, you know, and seems pretty ridiculous. A lot of times,
Sean O’Toole 6:05
yeah. Well, you know, yeah, there are all these response mechanisms. And you know, and what’s interesting is that we’ve been in this boom, bust cycle really, since, you know, 99 the.com, right, I was, I was a tech guy in Silicon Valley, and definitely experienced the.com bubble, and we rescue that, really, with Fed policy, low interest rates that blew up the housing bubble, right. And then we rescued that, you know, again, by blood, kind of creating a strong soft market and other things, right. And so we keep having these these boom, bust cycles. There’s winners and losers, you kind of mentioned earlier that it’s not evenly distributed, or the wealth gap is growing, I think is a direct result of the way we’re dealing with these crisis.
Jason Hartman 6:47
Oh, definitely. Because Because all the banksters just keep getting richer, every time there’s a crisis, and everybody else gets their money inflated away. You know, so you’re, you’re absolutely right, you know, the people close to the money, always benefit, and everybody else gets the scraps. And sometimes those scraps actually make things worse, not better, at least in the long run.
Sean O’Toole 7:08
Yeah, and no question. Right? And but when you have these fed responses, right, that we’re just not very good. The concept of let’s pump money back into the economy, right? So we’re having COVID itself is going to cause a deflation, right? And so you pump money out there, which causes inflate should cause inflation, but to the degree that it offsets inflation is just reflation and gets you back to flat, right. So you know, that’s kind of the goal with these these policies is to get us back to where we were. The problem is, we’re not very good at handing out that money, as we saw with PPP, as we saw with the unemployment insurance, right? So we put out unemployment insurance, and then people don’t want to go back to work and small businesses can’t reopen. Because people are making more money, Stan home, right, or, you know, PPP where you get people that don’t need it, getting it and buying Ferraris and other people who do need it can’t get it because the stars aren’t aligned for them. Sure. We’re just not very good at distributing the money. And that creates these this unequal divide where it goes,
Jason Hartman 8:08
absolutely. I’m sorry, it goes
Sean O’Toole 8:10
up for sure. Is asset prices, right is why housing right now is not surprising me at all.
Jason Hartman 8:18
That it’s booming. And prices are increasing. Right? Right. Yeah. Yeah. So where it always goes, that was a really key line that you said, where it always goes, meaning the inflation always goes is it goes to asset price inflation versus consumer inflation. Now, we’ve definitely seen, you know, a decent share of consumer inflation recently, with Grocery prices at a 50 year high. But if you know, if you go with this, the core rate of inflation, then they’re going to exclude food and energy. So, you know, I’m not even counting that. But energy has been pretty deflationary lately. So we’ll see. But do you think asset prices will continue to soar? I mean, that seems to be the trend right now. But is that going to continue?
Sean O’Toole 9:04
Yeah, you know, it’s funny, just everything I watched I see you have some art behind you our cars,
Jason Hartman 9:10
classic car, believe me?
Sean O’Toole 9:11
Yes, classic cars, single family real estate, like lots of lots of things like that are all doing very well right now. Right? Because basically, what you have is you’re printing more money, right? The money becomes worth less. And so you want to have tangible things so that you’re not losing, you know, dollars losing value. So right, you know, so this is really predictable. And this is kind of what I was saying back in 2016. We know what’s going to happen, right? We’re gonna have a crisis, the feds gonna come in, they’re going to print and we’re gonna see asset price inflation. Now that it’s not quite that easy, though, because right like, Okay, I’m going all in in real estate in San Francisco, and then it’s a pandemic, right? Or nobody’s working from home and I went all in on office right now this is where diversification is still important because you don’t know what that crisis is going to Look like, did they just coast today? You know, whatever, right? On this kind of boom, bust crisis cycle, I think is our future, as long as we’re the world’s reserve currency. And I
Jason Hartman 10:12
think there’ll be another one. Okay, so why does being what was does having the root, the dollar being the reserve currency has to do with it? Why does that make us more boom and busty than another economy, that’s not the reserve currency,
Sean O’Toole 10:25
we have a lot more flexibility in our ability to print money, right, and still buy goods cheaply, right? So we basically export inflation, and put that burden on us to take it on ourselves. We can talk about the impact that has on the world and the view of the world of us and the rest, but it has a
Jason Hartman 10:43
lot. It’s not very fair, for sure. Right?
Sean O’Toole 10:45
It’s not very fair. So as long as we have that power, right. And this is the whole modern monetary theory, which I think both parties are embracing, frankly, whether they think they are or not, right? It basically says we can print all the money, we want to print and do whatever we want. And, you know, that is the cycle, I expect to continue to happen until we lose that world reserve currency status. Now. We’re big enough country, we import a lot of stuff. We’re dependent on other folks, we might have to play by this at that point. Yeah, yeah.
Jason Hartman 11:17
Well, the mmt thing, modern monetary theory thing that seems to actually, you know, really hold true. And I and I think modern monetary theory is largely a fantasy, okay, you know, that you can just spend as much as you want and have no consequences ever. Right? You know, that’s
Sean O’Toole 11:36
to be fair. And then he actually says there is a consequence that when you start having high inflation, you pull inflation into control with high taxes. And then that once you get inflation down, you lower taxes, and that you use taxes as the control to control the economy, rather than interest rates,
Jason Hartman 11:52
right. So the thing though, is that the IRS is the biggest taxing agency on earth, and you have to pay the IRS in their currency of choice, which is dollars. And the US is, it’s a huge debtor, Okay, I get it. But it’s also a huge lender, okay. And all of those loans have to be repaid in dollars. And that strengthens the dollar it keeps it puts a floor on how weak it can get no matter how much money we create.
Sean O’Toole 12:23
That is why we can kind of print like crazy, like we are.
Jason Hartman 12:27
I know, it’s it’s a pretty beautiful concept for the US. It’s not very fair to everybody else. But the US is obviously in the bully pulpit, you know, for better or worse on that do
Sean O’Toole 12:38
other things that I think a lot of people don’t realize, like a lot of people think that the trade deficit is a bad thing. But what the trade deficit really is, is we import goods, we export dollars, but they can’t spend those dollars, other than to reinvest it in our debt, which drives our interest rates lower. I know, our running a big trade deficit is part of why we have such low interest rates.
Jason Hartman 12:59
Yeah, so I know that all this stuff is like a lot of people just don’t understand how intertwined it is. It’s super interconnected. Absolutely. And the other thing the trade deficit shows you is it shows you how much lifestyle benefit Americans are getting at the expense of somebody else. Like, you know, this, this whole trade war is, I don’t know, it’s almost funny to look at, I hate how the media characterizes it, in the sense that they use it to bash Trump. It’s really a trade negotiation. And he is right about some things. But all in all, the US is definitely getting a good deal just because of its lucky position in the world, largely. But, you know, couldn’t I mean, is it even plausible that we would ever lose the reserve currency benefit? I mean, I can’t see that happening in decades, at least?
Sean O’Toole 13:51
Well, you know, so this is where, you know, I think we have to be a little careful with how anti trade and anti trade deficit we go, right? Because we were such an important trading partner for China for so many places, that as we take an anti trade position, or try to even bring stuff back here, we become less important as a reserve currency. And it’s easier for other countries to go, you know, forget it. Like, there’s a lot of those conversations around oil, where people are saying, hey, let’s trade in something else. So I think we have to be careful what we wish for there, that we are such a big consumer of goods and that we import so much and have such a big trade deficit is part of how we get to maintain the world’s reserve currency. China’s a lot less dependent on us now than they were five years ago, 10 years ago. And at some point, that breaks where they go, you know what, we don’t care anymore. Yeah. And Russia goes, You know what, we don’t care anymore.
Jason Hartman 14:46
Yeah. Well, that’s the theory that Peter Schiff has been espousing for almost 20 years. I think, this decoupling idea which has been gloriously wrong, you know, so far and you is China until it isn’t? Right? Fair, fair enough. Fair enough, I totally hear you. You know, China is creating its own middle class. But it’s been a long slog, even though they’ve done it faster than anybody, it’s still got a long, long way to go, to get to a lot
Sean O’Toole 15:15
Jason Hartman 15:18
And the thing that’s going to hit China, at the time, when they’re just maybe hitting that power curve, of creating their own consumer class, is their demographic problem that is coming with a vengeance because of the one child policy. So, you know,
Sean O’Toole 15:35
what they are doing? And what we should be doing right, is they’re investing in infrastructure, they’re investing in a lot of things, you know, to the point where you have ghost cities that they’re building ahead of any need for but which, you know, you can debate the validity of that, right, for sure. But there’s still a major investment going on. And we’ve gotten soft, we’re not investing, we’re not rebuilding our infrastructure. We’re turning off power in California, because the power grid can no longer support the power needs of the densest, you know, state in the in the Union.
Jason Hartman 16:09
Oh, it’s it’s truly depressing in a lot of ways, Shawn, because you look at like, you know, I remember last time I was in San Francisco last year, and I, you know, I’ve been there a million times, but I went to look at the Golden Gate Bridge with my girlfriend, right? And I thought, when is when are we ever going to have like a great project like this again, in the US? You know, there’s been no, well, the World Trade Center, they finally rebuilt, it took forever. And I don’t know if it’s that incredible. Frankly, it’s not the tallest building in the world doesn’t hold any records that I can think of, you know, we haven’t been to the moon again. You know, I mean, I live
Sean O’Toole 16:47
in this railroad town. And you know, you can walk some of the railroad tracks around here, and you look at what they did, at the time they did it. And it is truly unbelievable.
Jason Hartman 16:57
Yeah, and we’re not doing anything like that anymore. It’s just, it’s crazy. But hey, um, let’s circle back to get more granular before we wrap it up. If we could talk about, you know, your company has property radar. So talk to us about some of the stuff that you guys are researching, and, you know, maybe any surprising things that people should know about real estate investing in markets. I mean, we’ve alluded to that we talked about people leaving or not leaving certain jurisdictions. Yeah, but tell us what you’re working on.
Sean O’Toole 17:28
Wow. So much there. So we’ve couple things we started off in the foreclosure space. And we still have, you know, I think the best foreclosure service out there, and, but we expand it in 2013, to cover all properties, not just those in foreclosures, and originally were really used as like a property information due diligence service, most of our customers use this today on the real estate investing side to acquire buying properties to buy off market properties. And realtors look for off market properties as well. And then we have like solar and folks like that, that use us to find property owners to market to. So that’s that’s really you know, we’ve, we’ve kind of went from marketing information to like, I mean, a property information to marketing audience creation. And but we still do dive in and do some analytics, we tend to do it at a, at a lower level. Now, for example, there’s a Senate bill in California, that’s changing some of the foreclosure laws. And, you know, they base this on the idea that there was a lot of vacant homes as a result of foreclosure. But they used to study from the St. Louis Fed, I think, that was not gonna number but but basically is a different place on the East Coast, where there was such a glut of homes, they ultimately had to bulldoze homes, because it just wasn’t people to buy them. And they’re using that logic in California to say, you know, we need to change the foreclosure rules, or we’re gonna have a bunch of vacant homes. And it’s just, it was never a problem. And and we’ll dive in and get that data and and say, Okay, look, on average, homes that were purchased by investors were flipped in 154 days. And if you think about that, that includes eviction, and rehab and marketing and the sales and all those different steps to banks, 278 days. So we’ll dive into things like that, or right now we’re doing a lot of looking at the eye buyers, right, open doors going public. And so we’re looking at what their activity is, how long is it take a deal? What’s the difference between what they buy things for and what they sell them for? So lots of you know, lots of really good stuff like that. But, you know, he’s like, what’s going on in real estate? And I’ve kind of stopped answering that question, because real estate is not one market in the US is the market.
Jason Hartman 19:50
Yeah, well, it’s about four it’s 400. MSA is almost right metropolitan statistical areas, I think 392 or something like that, if I remember correctly. It’s over 3000 it’s over 3000 counties. Okay. 144 Yeah. See there, there he goes, folks show off. But But even that isn’t granular enough with 3144 or whatever you said. Ease. County is way too big. I mean, even you know, you got to go. Even a city is way too big. Even a neighbor. I mean, you know, even a zip codes way too big right. I don’t know how many zip codes there real estate’s local for various hyperlocal hyperlocal. Right. So So now answer the question when it’s hyperlocal. Okay, what next?
Sean O’Toole 20:41
What, yeah, what next? You know, and I do think you know, that’s, that’s, so what’s next for us is we are going national, right? Though our company’s been in five states, we’re going to be in all 50 states. And we’ve we’ve logged in loading all that data for the last two years, super excited about it, over a billion transaction documents, etc. So, for the first time, we’ll be able to start really doing that comparison, not just in the five states, Arizona, Nevada, Washington, Oregon and California, but for the whole nation. And we’re just diving into that now. Hmm,
Jason Hartman 21:15
good stuff. So maybe we’ll close with this, Shawn. But I buyers, you know, that’s Yeah, I’m wondering how significant their impact will be on the marketplace. And you know, a lot of these companies I mean, Zillow is doing it open door. There are others, of course, but these these I buyers that will buy properties sight unseen, they’ll give people instant offers. In some ways. This is really interesting, because it makes the real estate market a lot more frictionless. And that’s a market that’s always had a pretty high degree of friction. You got to get your house ready for the market. You got to deal with showings, hire a realtor, you know, deal with negotiation, and escrow lengthen, and the deal falls through and you got to go do it again. And then you got to buy a house and you’re displaced. And maybe you make a contingent offer. Like that’s complicated. And when I was in the resale business, for many years before doing the investor side of the business, I mean, that’s a lot of juggling.
Sean O’Toole 22:18
Right, no question. And all that juggling has created a huge opportunity for us on the investor side to come in and solve that problem for folks. Right. And, you know, I guess open door is just doing that at a larger scale. Right. And on much lower margins, potentially, certainly, they’re doing it on much lower margins so far, right there. You know, some of these things are they’re selling for less than they bought them for.
Jason Hartman 22:42
I wanted to get there. So go ahead.
Sean O’Toole 22:45
Yeah. So you know, as we dive in, and we look at that, there’s definitely and you see different results. So we talk a lot about ibuyers in 2019 60,000 homes, $8.7 billion point 5%. And one half of one market share, right? So still
Jason Hartman 23:04
very small impact, right?
Sean O’Toole 23:06
It’s a very small impact unless you live in Phoenix, and I think it’s like 5%, somewhere in there. Right? We talk about Wall Street domination trying to come in and take over all this stuff, you know, and here’s their pitch, right? This is an actual letter that one of our clients got for their home with, you know, estimated offer range. So you said, you know, they make an offer sight unseen. That was kind of the pitch. But that’s not what’s actually happening on the ground. It’s kind of you get this kind of range estimate. And they asked you to upload photos and other things, and then maybe they’ll fine tune it, but you don’t really get your final deal until they’ve inspected the property.
Jason Hartman 23:45
So I just did it myself with Zillow for my home, because you know, I’m thinking about moving. So I thought their offer sucked. I mean, it was not impressive. So I told him, I said your offers terrible. Don’t waste my time. But what I was getting at is you were talking about how maybe it was open door specifically or just I buyers in general, how they’re selling the properties for less than they buy them for. And this is the dysfunction of all these overfunded tech companies, right? They do all these dysfunctional market distorting things, like they’ll do deals that don’t make sense. Just to make the machine go. It’s like a really irrational proof of concept. You know, you’re in tech. So you know, the tech market is dysfunctional. I mean, I think it is
Sean O’Toole 24:30
right. So we looked at 371 deals from open door and their average and you know, profits tough here because, you know, we have to take guess at how much they spent fixing up the house, right? So if they spent more than we think then that it was worse, right like so. Their average deal though, is maybe 7500 bucks a profit on the deal itself. Now they may make money elsewhere in the transaction with like, referring mortgage or title or other things like that, but you know very little in the deal. Its itself that was Sacramento. So here’s just
Jason Hartman 25:09
an example. What’s that? What’s the upshot of that deal, though? That study? You did? Did they lose money on the deals? You think? Or did they break even? Or make money?
Sean O’Toole 25:16
Certainly with the cost of operating open door, they are losing a lot of money. Right? Is there a business making 7500 bucks a house with the average price of $380,000? I think that’s a tough business model period, especially with market risk, like, you know, that can happen and markets go down in value and the rest 70 $500 is not much margin at all. So yeah, it’s certainly not profitable. In and of itself, can they add on enough extra services, just kind of the Pitney’s, right, like, oh, we’ll make them the mortgage, and we get the fees on that. We’ll do the title insurance, we’ll get the fees on that. We’ll do all these other ancillary things, and maybe we get a percentage of the inspections or, you know, whatever, that the whole thing in total starts to make sense. It’s possible, right? Like our big, our big foreclosure investors back in the Oh, 913 days, right, some of the biggest ones started to do that vertical integration, where they had their own real estate offices, even their own HVDC companies and repair companies. And that, that allowed them to work on slimmer margins on the actual deal itself. But you know, it’s a, it’s a tough business. It’s a crazy valuation. So, you know, here’s an example of a house right? Like, they’re repainting the existing cabinets. They’re putting in really cheap flooring. This one actually got granite, we see some others where they don’t even do that. So we like to look at like kind of the after pictures when they get listed. Yeah, very little repairs. It feels like, I don’t know if you remember the reo rehab companies. It’s more like those companies coming in, versus the local investors to a much better job rehabbing properties and bringing those values up and increasing the values of neighborhoods. So yeah, I agree. This one they purchased for 533. And it’s listed for 532 in July, and I think it’s sold for that.
Jason Hartman 27:18
Wow. That’s Yeah, you can’t make money on that. That’s, that’s something Yeah, yeah. Very interesting. All right. Well, good stuff. Shawn. Wrap it up for us. And thank you for being on again. It was great to have you after all these years. Having Thanks for having me. So the website is property. radar.com
Sean O’Toole 27:35
definitely please come check us out at property radar.com. And you can reach me on you know, LinkedIn, Facebook, Sean at property radio.com. It’s It’s that simple. And we’d love to hear from you in companies on all of those as well.
Jason Hartman 27:47
Sean O’Toole, thanks for joining us.
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