Jason Hartman begins by sharing that there’s a shortage of everything in the housing market and that rents are seeing immense upward pressure. Then, he becomes the interviewee in The Terminal Value Podcast with Doug Utberg, where they talk about economics. They discuss the real way to grow wealth, low-interest rates, and the actual status of inflation in the US.
Announcer 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 1000s 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 0:52
Welcome to Episode 1681 1681. And thank you for joining me today I am in Sarasota, Florida. And I’ve been looking around at properties very, very busy the last three days, hunting, hunting hunting for the elusive properties that well. Can you tell I’m rather tired? I am. I’m exhausted. I have to say rather discouraged. It is absolutely shocking. I have met with Oh, maybe 18 home builders. And the sentiment is this. There is a shortage of virtually everything. From lumber, no surprise there. We’ve been reporting on that extensively to labor. We’ve reported on that a little bit, to appliances, to aluminum. Just every every material copper is expensive. roofing materials, the block for the walls, short supply shortages of everything, everything, everything. And here’s what must be especially frustrating to home builders. Now, why should you care? Well, because it trickles through the market, it trickles through the supply chain. And that’s why it matters to us as investors. So they are releasing a very small number of lots, they have more lots than they can release. And why is that? What is the challenge? If you have the lats, and they certainly have the demand, there are hundreds and hundreds of people on the waiting list of some of these home builders, yet they can’t release more than 234, maybe six homes a month in many cases, because they simply don’t have the building materials. They cannot source the building materials to release the product. If they do, the buyers will simply be disappointed that they are told to wait longer, and they are going to have price adjustments. Here’s another interesting thing. America’s largest home builder, Dr. Horton has a an interesting policy, where when they release a new property for sale, they just add a what they call a $30,000 build fee. But when they start construction on the property, they usually I don’t think in all cases, but at least in the ones I talked to people about to the builder. They reduce the price by $30,000. When it’s under construction, and I don’t know exactly what’s behind that. But my hypothesis is they have accounted for the construction materials costs for that specific house. And that’s why they can afford to say okay, it’s under construction now. We’ve sourced the materials, we need to finish that house. And they’re earmarked for that specific lot number. And that’s why they can afford to set a price. But when that’s uncertain, they just add $30,000 to the price, because they’re not sure. They’re not sure what type of issue they will face with their materials supply. And that is the problem.
So this is a very interesting market folks. I was interviewed by a Wall Street Journal reporter last week, where I talked about this, and then again today, a different reporter with The Wall Street Journal. And the one today was amazed at the things I told her about the marketplace. I’ve just never seen it like this. And through many cycles. This is just a crazy market. And then she asked me, she said well, Jason, is it a bubble? And I said no. It is absolutely not a bubble. dot dot dot yet. So, okay, maybe I’m hedging my bets saying the yet. Right. But I think this could become a bubble eventually. However, it seems quite far away. Why do we think that? Well, several things, and we’ll discuss this in more detail on other shows, we’ve got to get to our main segment today, which is a conversation Doug and I had that I think you’ll find very interesting. But there are several things that put the wind at our back and give us a long road ahead for just a very what most would consider a positive market, which is a seller’s market. And it’s also landlords market. And I know some landlords don’t feel that way yet. Because remember, prices always accelerate faster than rents. The rents are always the laggard. Well, why is that? It shouldn’t be too hard to figure out. Most people are on a one year lease. And so they can only get a rent increase once a year. And when they do, many landlords, and some are restricted by law, if they’re in very landlord friendly places, I won’t talk about the Socialist Republics of California, New York, or Oregon, or many others, right now, because we’ve discussed that ad nauseum. However, they usually want to keep the tenant, right, the property manager does the landlord does. And they don’t want to return the property. Typically, that’s the, the way of human nature is to kind of take the easy route, go with the flow, don’t do things that are disruptive. That’s why a book with the title like move fast and break things is so sensational. In the business community. It’s a business book. And it’s saying, break things, try new things, other business advice, don’t be afraid to cannibalize your own marketplace. And sometimes companies that do this become very successful doing just these things that most people would not, you know, their human nature would dictate, you shouldn’t do these things. And so the same is true with landlords, because landlords, you know, property managers, landlords, they generally don’t want to rock the boat. But many times, you’ll find that the best thing that can happen is getting your tenant to move out, because then instead of going for a 25, or 50, or $75, or $100, rent increase, you get them out, you re tenant the property with a brand new tenant, and you’re renting it for 250 or $300. More. And that’s why we see rents always lag prices. I mean, there’s more to it than that. But I’d say that that’s one of the most fundamental factors is just the human nature to not want to rock the boat. And to want to keep the existing tenant, especially if the tenant is well liked or doesn’t bother you too much. That’s the way it goes. But I say, Don’t be afraid, as long as the market conditions support you and you’ve researched it, don’t be afraid to rock the boat, and just let the tenant go and get a new tenant that will pay a lot more in many cases. So rents always lag prices. But there’s a lot of upward pressure on rents. And there is a lot of evidence that there will be a lot more upward pressure on rents. It is a crazy time we’re in folks. But I believe there is quite a bit of real estate appreciation.
Okay, so let’s talk about that just for a moment before we get to our main site. So the first question is, compared to what, right, the Jason Hartman question compared to what, and if you compare the median house price to a whole bunch of things, as I’ve talked about on prior episodes, the houses are still cheap. They are historically cheap. If you compare the median mortgage payment to a whole bunch of things, as I’ve done on prior episodes, the mortgage payment is historically cheap. And then if you compare it to inflation, and you, of course are adjusting for the current home prices and the current interest rates, it’s cheap. In fact, as I’ve said before, $657 a month cheaper than it was approximately 15 years ago. absolutely astonishing. So like my friend George likes to talk about, always ask yourself when trying to value something, is it cheap, or is it expensive. And when it comes to housing, housing in the good linear and even hybrid ish markets, we recommend because many of those linear markets have become hybrid, housing is cheap. And that among other things, is why we have a Good road ahead. So investors are going to need to disregard, to some extent cash flow. I know we all got spoiled on cash flow, we all got drunk on cash flow. The past 11 years, we’ve been drunk on great cash flow. But this is not the market where you can expect great cash flow, because the rents are still behind. And the prices are still rapidly, rapidly appreciating, it will become a bubble at some point. But I just don’t see any signs of it right now. I’ll let you know. But if I had to put a number on it, I’d say we’ve got a good two years ahead of us. And for those people who just think the sellers are being too arrogant, and expecting too much, and don’t want to pay the price, a year from now, they are going to be disappointed that they missed the boat. And remember, over the past 10 years, 15 years or 20 years, no one told you, you had to denominate your savings, your assets, your wealth in dollars. And that’s why many people think housing is expensive, because they’re only using dollars as the measuring stick. And that is a very flawed way to judge anything by only one measuring stick. I mean, think about it, if you’re single, or if you’re single, maybe you’ve been newly single, right? Because remember, the government and the corporatocracy wants to break everybody up and have everybody get a divorce, because it’s good for the economy. And they want women working, because it’s good for the economy, pushes down salaries, pushes down wages, and increases tax revenue. So that’s a whole nother discussion.
But if you are or were single, can you imagine going out into the marketplace? And only meeting one potential mate? And thinking, Okay, well, I guess I’ll just, you know, couple up, I’ll get married. Without looking around, you have no basis of comparison, right? So yes, if you’re stranded on a desert island, and there’s only one other person that I guess that would become your mate, right. But if there is a marketplace, if there is choice, you’re going to compare. And people, oddly, who think real estate is expensive, are only comparing it to dollars, only one index, only one measuring stick. And that is a very flawed measuring stick. Because the dollar is a moving target, as we have seen. And with all of the inflationary pressure going on right now. We know that that dollar is going to be even more of a moving target as it is further and further debased through inflation. All right, if you need us reach out Jason hartman.com in the United States, one 800 Hartman. Let’s get to our main segment today, where I had a conversation with Doug that I think you’ll find very interesting. And here it is.
Doug Utberg 13:17
Welcome to the terminal value Podcast. I am Doug Berg and I have Jason Hartman on the line. And this will also actually be on the creating Gulf podcast, which is Jason’s podcast that has far more listeners than mine does at this current budget. Current juncture. Of course, Jason also has about a 13 year head start actually.
Jason Hartman 13:33
15 years. Yes. So don’t feel bad, Doug. nobody listened to my show in the beginning either. Yeah, exactly.
Doug Utberg 13:39
Yes, he’s a 15 year overnight success in the podcasting, exactly. But I’ve actually known Jason for a really long time, he runs an extremely successful investment real estate company. But he does it a little differently, because a lot of people like to invest in real estate, say, in their own state. But when he started a company, he was in California, and everything in California was ridiculously expensive. So he came up with the idea of investing out of state for cash flow in areas that have much more reasonable prices, and much more, I guess you’d say rational relationships between rent and values, so that you can get decent cash flow. Jason, let me stop talking for a second and let you introduce yourself to the audience.
Jason Hartman 14:20
Thanks, Doug. And it’s great to talk to you and so we’ll do this as kind of a co interview. You’ve been you’ve you’ve been on my show many many times over the years and we’ve talked about a lot of interesting macro economic concepts. You always have really interesting views and angles on things so anxious to dive in and talk about the market, the potential bubble that some are talking about, and just some macro issues and real estate and how they all tie together.
Doug Utberg 14:49
Yeah, absolutely. Because I think the thing is right you know, in my heart I’m a value guy. Remember kind of born contrarian, right? You know, I made ardent believer that over the long term, the herd is always wrong. The problem is that long term can take a while to show up. And so, so Chris, you know, I think as you’ve said, right, with the current low interest rates, there’s basically a bull market that’s happening in everything. Right, you know, the equities are going to the moon, Real Estate’s going to the moon, you know, my intuition is that this can’t last forever, but it probably will last a few more years. And incidentally, that’s actually one of the reasons why bears tend to do really bad is because you know, what bears will almost always say or whack but contrarians will say they’ll say the markets overvalued and the right and then it goes up another 30%, say the markets over even more overvalued, and they keep missing it, and it goes up another 30%. And by that point, they’re wiped out, right. And then when the inevitable correction comes, and the market goes down by 60%, or whatever, they’re out of the market, because they were because they were betting on the decline. And it’s just so hard to call the top. Of course, I know everything’s high, but I have no clue where the top is gonna be.
Jason Hartman 15:55
Yeah, now mark, market timing is a fool’s errand. you spell it out perfectly, you know, the people that who win are the people who embody the value investing philosophy, and they buy good assets, regardless of what the type of asset is, we can talk about that, of course now, and they hold on to them, and they just manage them, and they keep them and they watch them grow over time. And those are the people that succeed.
Doug Utberg 16:20
And then one of the things I think that you and I have talked about a few times to either competence or whatever, is that, you know, in the mainstream media, everybody likes to talk about, you know, stocks, bonds, you know, kind of stuff that you mutual funds, you get through your financial advisor, that’s a way that you can amass some assets, but the way that people become really wealthy, there’s really only two ways. And that’s either through real estate, or through a business, that they start and grow. And then it grows at just a meteoric rate, because, you know, businesses either fail or they grow rapidly. And so I think that’s one of the other things to think about. Also, just, you know, one of the things I think about macro wise, is that right now, you’re actually seeing a lot of concentration in kind of the tech monopolies. I know, this is one of your hot buttons is big tech, and just how big tech is getting just so much bigger. And a lot of small businesses are just really suffering.
Jason Hartman 17:07
It’s really an unfair system we have we have this winner take all system. Listen, you know, I don’t expect it to be fair, I said fair, and that’s probably the wrong word. We have a system that is essentially a scam. It’s a winner take all system, where big giant evil tech companies are the new dictators. They’re the new sensors, they have armies of lobbyists, lawyers, accountants, to, you know, manipulate the law in their favor, pull the wool over your eyes, fight you in court, you’re just not going to win the annual. And there is some hope, because finally, the government, and I’m no big government fan. Finally, the government appears to be doing their job, the job they should have done 15 years ago, filing antitrust complaints against these companies, because they are just totally abusive. It is ridiculous. No matter what side of the political aisle you’re on, you should be very scared that we are living in this Orwellian disaster of a world dog it’s like, and we’ve talked about these concepts over the years, but we’re living in a world of not only Orwellian 1984, but also Brave New World, Aldous Huxley’s book and iron Rand’s atlas shrugged. And, you know, I don’t know a bunch of others. It’s just a dystopian disaster we’re living under with these big tech companies. By the way,
Doug Utberg 18:30
I’m just gonna say for any younger listeners, what we’re talking about thing, it’s called a book. It’s made of paper, glue, they have them in these buildings, you might drive by them every now and then it’s called a library.
Jason Hartman 18:39
Do you actually and you can visit all the homeless people that live in the library? Because, you know, that’s a whole problem. That’s absurd. They It was created by the government, but that’s a whole nother discussion. But yeah, these big tech companies. It’s, it’s awful. And, you know, we agreed on something a long time ago, Doug, that real businesses make money, money, you know, and and we’ve seen with, you know, a whole new slew of IPOs these basically zombie companies, that the way they make money is by raising money. That’s all they do. They don’t have real businesses. It’s absurd. Well,
Doug Utberg 19:15
I mean, and that’s what I should do disclaimer, right? I’m not giving investment advice. But I mean, that’s basically what Tesla did, at least in my view. I don’t think they’re really making money now. I think they’re just cooking the books to make it look like they’re generating profits.
Jason Hartman 19:27
You don’t have financial manipulation yet.
Doug Utberg 19:30
Yeah. All the equity on their balance sheet is because they sold convertible bonds and stock went out they can get converted to stock but you know, they don’t have any retained earnings. They have no retained earnings. But anyway, that’s another topic for another day. One of my many, many rants. Yeah, but this I think is actually particularly dangerous about the big tech especially like Facebook is just the utter and complete destruction of people’s ability to have civil conversations and to focus fantastic book I read recently deep work by Cal Newport, I had
Jason Hartman 20:00
Cal on the show to talk about that. Bucky?
Doug Utberg 20:03
outstanding. Yeah, it’s a wonderful book. I’ve read it a couple of times. And every time I read it, it just really makes me think about how important it is to be able to focus and avoid getting distracted. Because it’s just so easy. It’s I mean, I don’t think it’s any less addicting than like tobacco or anything, I would say that the kind of the inflammation, diction is probably even worse than a lot of substances, but it just kind of gets ignored. I’m actually really concerned that you the social media, and the kind of the online tech, Napoli is just really deteriorating people’s mental health. I mean, you’re already seeing it, suicide rates are just going through the roof. Now anybody’s talking about it terrible thing they’re talking about is the same mortality counter for COVID. You know, there’s a way bigger problems that are that are brewing under the surface and
Jason Hartman 20:47
totally ignored. Now I know I hear it, you’re absolutely right. It’s really a dystopian world we live in. But, you know, at the same time, there’s a lot of opportunity. So if we want to circle over to like the direct economic issues, you’d probably agree, although we haven’t talked about this, Doug. But you probably agree with the concept of the K shaped recovery, right? I’m guessing you would. And so it’s very uneven, right? Some people are really suffering, and some people are just killing it. And there’s somewhere in between the ultra wealthy are killing it right now. They become insanely rich, that’s just part of the winner take all world in which we live. And it’s unfortunate, because it’s not democratic. It’s very anti democratic, it’s not capitalistic, it’s crony, it’s too bad. But look, we can complain, all we want, we’re not going to change it. thing we have to do is align our interests with the most powerful forces the world has ever known. And I’ve always said those are governments and central banks. Let’s talk about that. Because we’ve had endless conversations over the years.
Doug Utberg 21:51
Exactly. One of the things that I think is actually really, really unique about the investing model that you put forward is, you know, is the idea that your asset, when you have a rental property is really that you have a item of universal need, right a house place for someone to live, where the rent offsets your debt service. So then in that case, what you’re ultimately doing is over the long term, you’re just leveraging inflation, you know, so then even if inflation is the reported three to 4%, which, of course with the amount of money that’s been printed, now, that’s nonsense, there’s going to be inflation at some point, you can’t not have we’ve been saying that for 10 years, but it’s going to happen eventually. Just so
Jason Hartman 22:26
it has happened, you know, I mean,
Doug Utberg 22:29
I mean, there’s a lot more inflation in the system, than the government would say, yeah, it’s just ridiculous, you know, there’s more inflation in there. But I was gonna say the, but like you even if there’s only that three to 4%, inflation, you’re if you’re at a four to one leverage race ratio ratio, so you have 80% loan to value borrowing for dollars for every one of your dollars that’s in there. And then your cash flow is offsetting your debt service, then over time, as the value inflates, you’re just gonna get you’ll end up getting a net multiplier on whatever that increase in value is. And the thing is, right, you don’t know in advance what’s going to go up. So what you do is you just say, okay, you know, I’m going to spread my bets across the board. And you know, over time, I know that that rising inflation tide is going to lift the nominal price of all the boats, you know, but the thing that’s really valuable is actually that fixed rate loan, because that’s what gives you that cheap money that your where your debt service stays flat, but the nominal value of your asset goes up. And it really gives you a chance to lever inflation in what I call a real way. Right? You know, you’re not depending on the inflation, it’s just inflation is inevitable. And you’re just aligning your interest with it. I think that’s one of the things is because yeah, the US equity markets can won’t grow at 20% forever. Like, I think the 8090 year average is something like 8% a year. And a lot of people don’t know this, but the biggest peak to Valley drop of the s&p 500 in history was of course you after the 1929 crash, but that was 86%. It has happened before it can happen again, right? People always say, okay, buy the dips, because it always comes back not necessarily is somebody should look at the Nikkei, the Nikkei is never come back again peaked in 1990. And it’s I think it’s only like 60% of that peak value. You know, just because something always has happened doesn’t mean it always will. Right. That’s something that a lot of people really have a hard time wrapping their head around,
Jason Hartman 24:15
no, no question about it. The stock market is a two dimensional asset class at best, and many times just a one dimensional asset class. But income property is a multi dimensional asset class. So you make money in several ways you earn your return in several ways. And the sad thing about it, Doug, is that so many people just don’t know how to do the math. They could have had income properties over the years in the past, and they just didn’t think it was that great for whatever reason, or they’re looking at it now and they think and they listen to Cramer or some liar, who’s saying, Well, you know, the s&p will typically do 8% and property only goes up at about 6% But that’s not the reality of the situation, the reality of the situation is because you earn so many forms of return on your income property. It’s a multi dimensional asset class,
Doug Utberg 25:11
you know, a 6% appreciation, all in on a good income property turns into a 25 or 30% annualized return on investment, you know, you can see these performances at Jason hartman.com in the Properties page for details, because some of you may not believe those numbers. But they’re, they’re all spelled out. And I’ve got a video on the front page of my website that spells it out. It’s a good video. I mean, and and i think that’s just it is that, you know, especially because, yeah, when you’re talking about like the s&p 500, where people don’t understand that nobody buys property for cash. I mean, you know, you know, actually, even the hedge funds don’t buy it for cash, but they just, you know, they just underwrite it with bonds on the back end. But I think the, you know, at least the thing that is appealing to me is that I think it’s a it’s very much a main street way of doing business. Right, you know, is, which is, you know, buying real property with bank financed loans, that’s, you know, people been, you know, that’s a never going away. That’s one of the oldest lines of business for every bank, because, you know, banks will underwrite real estate all day long, because they like riding debt on real assets. Sure. And at some point in the future, people are going to get more picky about what kind of debt they underwrite, and obviously isn’t happening now. But it’s going to happen at some point. But I think you’re just the idea that, you know, not being dependent on a speculative fever pitch. I mean, of course, you know, if you happen to hit the jackpot in a speculative fever pitch, great. But yeah, you don’t want to be dependent on it. That’s one of the things that I just I really like about your model, I think it’s also, you know, I really like about the philosophy, which is the main street versus Wall Street. I mean, everybody who’s listened to you talk for more than five seconds knows you’re no fan of Wall Street.
Jason Hartman 26:42
As I always say, Doug, Wall Street is the modern version of organized crime.
Doug Utberg 26:46
That was I think there was one conversation we had from a long time ago, you just reminded me of that I wanted to bring up to the audience. So I’ve been at Jason’s conference for a really long time. And it was I think it was in 2010. You’ve been
Jason Hartman 26:57
a speaker at some of our conferences.
Doug Utberg 26:58
I’ve been a speaker at the conferences a few times in 2012, when we were talking about Bitcoin, and I think just reminded me in my mind at the time, and I said, No, when Bitcoin is traded on in ETFs, and futures, then we’ll know it’s real well, it’s traded in ETFs futures. So I think that probably means bitcoins actually real well. And also, if you’re a company, like I just saw that I think it was the Department of Energy, just had a huge cyber attack. So it’s like, yeah, you know, if you have to pay off cyber hackers, they only accept Bitcoin. Because I know this, you know, when I was in IT department, one of the things we had to do is we had to open up a Coinbase account so that we could have a so that you could pay your ransom, so that we had to pay ransom. Bitcoin startup. Yeah.
Jason Hartman 27:42
That is sad. You’re almost making the court case, though, for the government to make it illegal. That’s what worries me. But yeah, I get it.
Doug Utberg 27:50
Yeah, it’d be really interesting to see. Yeah, if Bitcoin gets shut down, then do the cyber hackers go to some other crypto or what would happen? That would be? I’m not sure that I really want to know. I don’t know.
Jason Hartman 28:00
Yeah, I don’t know. It’s a hugely speculative question, but it’s a good question. You know, hopefully, no one ever has to experience that. But you know, one of the things that I think is is really interesting to note is that when you see all of these pundits on TV and so forth, and they’re talking about, oh, there’s a bubble, and let’s just use real estate as an example, we could use the stock market or anything else. But real estate has some particular interesting things. Okay. So real estate has actually gotten cheaper over the last 14 years. The difference when you adjust for the median house price, and the 30 year mortgage interest rate on a 30 year fixed rate mortgage, and inflation, you adjust for those three things. Now, I’m not adjusting for wages. Okay, I just want to make that clear. But I don’t know that you need to that much, it wouldn’t make that much of a difference. The concept soul is definitely the same. So when you adjust for inflation, interest rates and the price of the house, which is much higher, for example, median price now is about 313,000, median price 14 years ago, before the Great Recession was I think about 235,000. Okay, but the interest rate is much lower now. So the real dollar difference in mortgage payments is $657. Less, yeah, today than it was 14 years ago. So houses have gotten cheaper. Contrary to popular belief. You’ll see all the idiots on CNBC saying, you know, if you look at the price of a house, now, it’s higher than it was before the Great Recession. So there must be a bubble, things are gonna crash and they’ll miss the whole thing. Because nobody buys the house based on the price. They all buy it based on the payment. And that’s the reality of the situation. So real estate is a bargain, okay? It’s gotten cheaper, especially good quality suburban real estate in linear markets. You know, we’re not recommending high Flying cyclical markets. We’re not recommending trophy markets. We’re certainly not recommending urban areas in high density areas, because they suffer from a concern about COVID, of course, but they also suffer from a concern about Joe Biden campaign rallies, I mean, riots where people are breaking windows and burning buildings. I mean, Joe Biden campaign rallies riots. Oh, same thing. Anyway. Yeah. And and we should know that when I say Joe Biden campaign rally, I’m talking post election, they’re still going on.
Doug Utberg 30:31
Everything’s going crazy.
Jason Hartman 30:32
The world is not it. Really? Yeah, the
Doug Utberg 30:35
world is absolutely nuts. But I think that the point that you made there, I think is for everybody listening is really important, which is that the thing to really think about is, you know, what’s going to be your mortgage payment and debt service, and that the real value of that or the real cost of that is actually on your for median value house has actually gone down, it’s lower rent has gone up. Yep. You know, so it’s, even though real estate prices have gone up. There’s a lot of cases where it’s that they’re actually real estate’s still actually a better deal than it was than it was 14 years ago,
Jason Hartman 31:07
no question about it, it is a better deal than it was 14 years ago. And that’s why prices keep going up. And there are bidding wars and the market is going crazy. Now, you asked earlier, though, Doug, about, you know, the low interest rates, can they last? No, of course, they can’t last, they’re artificial. They can only defy gravity for so long. Eventually, interest rates have to become normal. Okay. But here’s an interesting thing. You might remember Patrick, one of our team members, who lives in a rent controlled house with his wife in San Francisco. They rented this house back in 1996. And I think they’re paying 20 $400 a month rent now. And the price of the property value keeps going up and up and up. And it has for many years. Of course, we all know what happened there until recently. Now it’s reversing and going the other way with with the COVID and Joe Biden campaign rallies. But before that, the price had gone up a lot. So that house now is worth about $2.4 million. And they’re only paying 2400 a month. So they’ve got a bargain. Patrick and his wife Robin would really like to move. But guess what, they can’t make a move make any logical sense? Because they’ve got too good a deal. So rent control, causes a market to stagnate, it distorts the market. But the same thing, my prediction, I’m making a prediction now will be true makes
Doug Utberg 32:34
a lot of predictions. And a fair amount of actually happened the interest rate one not so much.
Jason Hartman 32:38
No, I’m terrible at predicting interest rates. But I do know the effect of interest rates. So listen to this idea. Okay. So in the future, when rates do finally go up, as they must go, hey, yeah, the market will become more stagnant, where people will stay in their houses, because they’ve got that incredible mortgage, that doesn’t have to be paid off until 2050. They won’t want to give that mortgage up. It’s like a rent controlled apartment. That is yes, it is too good a deal to give up. So guess what will happen that will restrict supply in the future, there’ll be lower supply of real estate because people aren’t trading it. And you’ll see a constraint on the supply, which will put upward pressure on rents and prices. But not only that, if you’re thinking of what’s the business opportunity, or you know, what’s the hot investment? Well, Home Improvement will increase as it already has in the COVID world, there will be a lot more interest in adding on room adding on a second story, improving the house, fixing it up buying new furniture, whatever, because people won’t move, they’ll stay put, because if they leave, if they move, they get rid of the mortgage, the most they might do because these rates are so incredible, they’ll never want to give them up, they might turn the property into a rental, okay, and then buy another property or rent another property. So that’s an interesting effect that I think is going to be hugely significant, you know, three years, five years, 10 years, 15 years, 20 years in the future, because people just aren’t going to give up these great mortgages. They’re just too good to give them up.
Doug Utberg 34:21
Exactly. Now, I think you’re exactly right. And I know that’s one of the one of the things that kicked myself up constantly is some of the times when I’ve moved in the past. I’m like, why don’t I just keep that thing and make it a rental?
Jason Hartman 34:32
Why wait, why
Doug Utberg 34:33
did I sell it? Especially because a lot of times when I sold it after the fees, I didn’t even make that much money.
Jason Hartman 34:37
I mean, I remember one of your houses that I actually helped you sell Yeah, that wouldn’t have made a very good rental, you know, it was too expensive to be a good rental, you know, rental houses should be inexpensive necessity type housing, bread and butter housing. Don’t feel so bad about that.
Doug Utberg 34:54
Well, because the thing I think, is that right, you know, even if I’d had to eat a little bit of a monthly for a few years, just being able to to have That have that low interest rate debt with an inflating asset. Even if you’re not pulling in a big monthly, I think you know, that’s, you know, over the long term, that’s powerful.
Jason Hartman 35:09
Sure. Yeah. It is no question about it. The mortgage is the asset. That’s what people don’t realize the mortgage is a huge part of the asset. It’s not just about the house, it’s about the mortgage. I mean, if I could go get 100 of these super cheap mortgages without even having a house attached to it, where I just get income from it equivalent to the rent, I would do that all day long. Forget about the house. I just want the mortgage. The mortgage is such a good deal.
Doug Utberg 35:34
Yeah, well, exactly. It’s Yeah, it’s just because the financing is just so unbelievably favorable.
Jason Hartman 35:42
We’ve been given a gift by our rich uncle Jerome Powell. That’s a joke, obviously. But Jerome Powell is the Federal Reserve Chairman, he’s a Keynesian, and he has just made no bones about it. We don’t care about inflation. We’re gonna keep rates low. And everybody should just stock up on these incredibly cheap mortgages as fast as they can.
Doug Utberg 36:02
Yeah, absolutely. Absolutely. Because it’s one of the two ways that people become actually become wealthy. Your other one is to start and grow a business. Yeah, those are,
Jason Hartman 36:11
those are two ways that it actually happens. You’re absolutely right. It’s either income property or a business. That’s about it. Everything else is is more of a hedging strategy.
Doug Utberg 36:21
Yeah, exactly. Yeah, exactly. Yeah. You know, everything else, you can either pay the bills you might be able to do all right. If you really want to make a jump, it’s either going to be real estate or business. That’s, that’s where it comes from. Couldn’t agree more. All right, well cap us off with with one of your famous thoughts.
Jason Hartman 36:37
I don’t know. How about this one, invest in places that make sense. So you can afford to live in places that don’t make sense.
Doug Utberg 36:46
here that first?
Jason Hartman 36:48
I think I heard it from you. And that’s why it’s perfect. That’s why it was the perfect cap off. Wouldn’t be the thing I would typically say
Doug Utberg 37:00
to a co worker one time, because he asked me why I was buying houses out in the middle of nowhere. And I was like, I go Well, that’s because you know, I invest in markets that are reasonable and makes sense. So I can afford to live in one that isn’t
Jason Hartman 37:11
but but Doug, you know, those houses are not in the middle of nowhere anymore. If you think about it right now, the whole country is moving to these second and third tier suburban markets. So Atlanta is booming. So many of our markets in Florida are booming. You know, Memphis has just been a perennial, excellent cash flow market, as has Indianapolis. You know, again, these aren’t trophy cities, but financially they make great sense. They really do. So
Doug Utberg 37:43
yeah, absolutely. Absolutely. All right. Well, hey, thank you very much. Yes. And that was awesome conversation.
Jason Hartman 37:48
And thank you, Doug, and happy investing.
Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out this shows specific website and our general website heart and 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.
