Jason Hartman is joined by Adam, who experienced the Snowmageddon in Texas. He shares that this caused him to think about the importance of cash flow and Jason’s Commandment #6: Thou Shalt Diversify. They discuss the current housing shortage, the spike in prices, and interest rates.
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 1657 1657. Thank you for joining us today. And today, we have a hidden, almost hidden livestream recording for you. So every now and again, Adam and I get together for a live stream at early morning hours. And we do publish it, but probably nobody hears it. Well, a few people do, but not many, because of the time. So we will share that with you today. And on Wednesday, we have a treat for you. I did an impromptu visit to mom’s house, I flew over to see her this weekend just did a two day one night visit, and got mom to sit down and share some of her knowledge bombs on how she manages her rental properties. And what her thoughts are about the market and the change in the property tax law and why that is so significant, and the upcoming changes in the overall federal tax laws and what she’s doing with her portfolio. And what I’m doing with my portfolio to prepare for that. You must listen to that. And we will have that episode for you on Wednesday. But today, Adam and I will take over and here we go. Adam is here with me. And he had a great idea as always, and that was a natural disaster. cash flow in the light. Adam, let’s go ahead and go into it. How are you doing this morning?
Adam 2:40
I’m doing much better this morning than I was a few days ago.
Jason Hartman 2:43
Actually, that’s that’s what I meant to start with. And I thought it was probably the inspiration for your your topic choice today. And that is of course, Adam, if you do not already know he lives in the wonderful city of Austin, Texas. But it has been rather chilly. And that is a picture of his backyard on the screen. Adam, you were without power. You were without water. I mean, what the heck?
Adam 3:10
Well, the good news was for me, we were only without power for maybe an hour or so. And I think it’s because there’s a fire station about five blocks away. And we’re on the same grid. My parents didn’t have power for 36 hours. But our pipes froze because of this storm that you’re seeing here on Sunday night. And they weren’t able to restore water. And then so from Sunday night through Wednesday afternoon, I would walk over to my neighbor’s house and get a five gallon jug that we had filled, so that we could have drinking water and we could you know, easily flush toilets and all those fun things. And then on Wednesday afternoon, the entire zip code, lost water. And then my parents zip code loss water to because they only live about five miles from us. And then the city didn’t have water. If you look at the map on the right there, all of that pink is a complete water outage. And so that’s about you know, 70% of the people who live in Austin there because Austin is very concentrated south and north. And then Sunday evening, everything finally thawed because it got up to 70 degrees on Sunday. And thankfully none of our pipes burst and we were able to get running water but there was still a boil water notice until yesterday midday, because they were finally able to get enough water in the system that it could test clean.
Jason Hartman 4:36
That is that is just really incredible. And it just it just let this be a lesson for everybody here, you know and Austin is just one of the areas and people in Dallas were affected people in you know various areas of Texas First of all, the unexpected weather, right, that’s the first thing, but just the general look. I host another podcast. Many of you No. And we’ve got almost I think, 300 episodes or so it’s called the holistic survival show. And the tagline is protecting the people, places and profits you care about in uncertain times. And it really is important to be, you know, be basically prepared. One of the reasons I got a little bit bored with that show, frankly, was that I was interviewing all these survivalists and preppers. And they take it from the some of them, take it from the point of just being responsibly prepared, right, for major inconveniences or disaster, to making it a whole lifestyle. Right. And, and I sort of jokingly said, you know, some of these people are so busy preparing for the end of the world and making sure that they will never die, that they will forget to live in the first place, because their whole life is about prepping. And that’s like a sickness, frankly. But, you know, having spending a measly $300, to have some of the basic things that you need to be responsibly prepared, is just prudent. Okay? It’s just prudent, you everybody should do this, so that you’re not a burden on the system. And so that you’re, you know, minimally inconvenience. Adam, what did you notice? And by the way, we’re going to talk about real estate investing and how this ties in. But just since this is a very topical thing right now, what did you notice? I mean, did you feel prepared or very unprepared or, you know, you’ve it now just to give background to, you’re married, you’ve got four children. And, you know, just give us a sense of how you and your family felt and how you dealt with us.
Adam 6:52
We were pretty good. We had some, a couple gallons of water for drinking, we had my wife has so much food in the house all the time that, you know, with four kids who are constantly hungry, the food part wasn’t a problem. The hardest part, honestly, is flushing toilets. I mean, this, it’s miserable. It’s, you know, on Wednesday, when you
Jason Hartman 7:15
go home with a five gallon jug, right, and then you can eat
Adam 7:19
about a gallon and a half to two gallons of water to properly flush the toilet. And so on Wednesday, whenever the neighbor’s water went out to it became a time to boil time to melt snow situation. And so you know, we were melting snow and doing that. And so that part was really, really not fun. Yeah. And so we weren’t expecting to get water back until Actually, today, yesterday or maybe today. And so we went up to my sister in law’s house on Saturday night and spent the night there. And you know, we’re able to shower for the first time in a week. And you know, enjoy running water for a day very first world problems, obviously, you know, you’re not running water.
Jason Hartman 8:06
You know what I was thinking about you? I was thinking, I wonder if it would have been warm enough to literally just pack the the the toilet closet, the water closet above the toilet with snow, let it melt. And then you know, you couldn’t use the toilet until the snow melted.
Adam 8:24
I actually loaded a couple of them down with it. But they didn’t melt very quick. up inside the house. And then it it was really fluffy snow. It was it was the worst part. It was it was it snowed, and we had like six inches and you couldn’t even make a decent snowball with it. And then it was it was it was horrible. It was
Jason Hartman 8:44
very, you had very, very dry. You have very dry snow, which is great for skiing. Did you do any skiing?
Adam 8:52
They did sledding that was a the slight Hill Country. Yeah.
Jason Hartman 8:59
Well, folks, let me just talk about prepping for just a moment, like just simple stuff. I’m not gonna Yeah, I mean, this is a big subject you could like I said, you could spend your whole life on this, which is a mistake, but look, one gallon of water per day per person in the household. The easiest way to do this is simply subscribe to the water service where they bring you those five gallon jugs. And what I do is, you know, they give you a water cooler, you pay and you’ll pay you’ll overpay, you’ll pay about $6 a jug whereas you can fill it up at the store for a buck 75 but you just have them deliver nine or 10 of those five gallon jugs, okay, at a time. And you know, then after you get the initial delivery of like 10 of those, okay, you’ve got 15 gallons of water, do not place them on concrete. They cannot be placed in concrete because the concrete leeches through the bottle into the water. So you must either put them on a pallet if you’re going to store them in the ground. Or on tile or regular floor, don’t put them on the concrete directly, okay. And these weigh about 43 pounds each. And, and then, you know, you’ll maybe use three a month. And so after you get that initial big delivery from the water service company, you know, sparkletts, or Nestle or whatever, you know, Crystal water, I don’t know what they’re called, there’s, there’s a bunch of them out there, then you just get three delivered every month, and you rotate the stock, and you use the oldest water first, okay? So, you know, do that. And then, you know, just basic food. I mean, you know, you buy the salmon in the cam from Costco, and, and, you know, don’t depend on frozen food, because if your power goes out, obviously, your freezers not gonna work. I recently got a generator, since I now live in Florida, in hurricane country, I’ve never used it, but I do have it ready. And I have a couple of big gas tanks, I keep them empty because of safety. gasoline is obviously very dangerous to keep around. But the minute there’s a hurricane coming, I’m gonna go fill those jugs up, right, and then I’ll be ready. And just some basic stuff. Okay. And, you know, there’s way more to it, listen to the holistic survival show on any podcast platform, and you can learn more. But, Adam, any thoughts on that? And then let’s get into it.
Adam 11:19
Yeah, I mean, that’s good advice, we and it’s important to remember that it doesn’t just have to be water can be any liquid like we had, we had juices and milk and all that kind of stuff for the kids too. And so we basically my wife, and I drink the water, the kids drink, the juices, and all of that stuff. So that was kind of how we did it. But the reason that I wanted to even talk about this today was on Sunday night, whenever it when our pipes froze, you know, there’s obviously the threat of a burst pipe. And we know at that point how much it would cost because you know, plumbers are going to be an extremely high demand, right? Because pipes burst all over the city. You know, we didn’t know how long it would be, we didn’t know how much it was going to cost. My wife was able to take the whole week off work because the roads weren’t safe to drive on. And so it really kind of got me thinking about the cash flow part. Because, you know, we have rental properties now. And you know, it was if the pipes have burst, it probably would have cost about two months of cash flow.
Jason Hartman 12:24
You know, insurance, you have insurance for that. I mean, you’ll have a deductible, of course, and then you may argue with the insurance company to get them to cover it. But a pipe breaking is pretty obviously your insurance claim.
Adam 12:36
Yeah, but the problem is your insurance is one your deductible is 1% of the home value. And so
Jason Hartman 12:44
well, no, no, no, but it depends on your policy that varies.
Adam 12:47
Yeah, well, I’m pretty sure 1% But anyway, it would have been pricey to pay and do all of that. And so it was very nice to know, like, even if it had to take unpaid time off for her job, it just been shut down. Like during the pandemic, you know, a lot of people’s jobs were shut down, the cashflow part would have would have brought us through it pretty nice, you know, it would have been wouldn’t have been perfect. You know, right now we had, we’re still building up our portfolio. But it would have been a big, big help that we wouldn’t have gotten. And so that was kind of the one thing, one of the things I was thinking about primarily when it came to doing this. And so we also but that also led me into thinking about the importance of commandment number six, I believe, which is thou shalt diversify, right? Because this is we’re in three markets right now about to be in for this is a picture not of one of our rental properties, but one of our investment counselors rental properties. in Jackson, Mississippi, where we have properties has had snow, you know, that have had damage to these properties. And as far as I know, ours came out unscathed, but there could have been damaged, it was snowing. And it’s Jackson, Mississippi isn’t fully used to that. And let me just give the listener some context on that. You know, if you if you haven’t followed my work for the last 18 years or so,
Jason Hartman 14:09
just know that we have something that one of our core pieces of content is called the 10 commandments of successful investing. And Adam referred to commandment number six, thou shalt diversify. And you want to take the most historically proven asset class income property also happens to be the most the most tax favored asset class in America. Taxes are typically the single largest expense in anybody’s life. And and you want to diversify geographically, and we say be in at least three markets, not more than five. Okay, so, so go ahead with that theme, Adam,
Adam 14:47
yet not 17 either, right, Jason,
Jason Hartman 14:48
you know, that was one of my big mistakes. And I freely admit, that mistake I made which was over diversifying when I started investing nationwide back in 2000. For So, you know, it’s like going to the all eat buffet when you’re hungry, right, your eyes are bigger than your stomach. And I started buying every property everywhere. And that was a bad, it wasn’t bad to buy so many properties. I mean, I made money on them, they’ve been great. But I should have focused them into three to five markets. And at the peak of my insanity, okay, I was in 11 states and 17 cities, and it made it very difficult to manage all of that. So, for many years, I’ve been unwinding that portfolio and trying to concentrate it more. But most people are making the mistake of being in just one market. And it’s mostly the wrong market, because it’s typically the market in which they live, which may or may not be a good place to invest. And they never asked themselves that question. Or if they do, they look at it from the point of, oh, there’s all these construction cranes all over, it’s a growing city. That’s not enough information, folks. It’s not even close. And then they they rarely think of the rent to value ratios being desirable, they rarely think of is the city or that jurisdiction? Is it landlord friendly versus being tenant friendly. You know, as as landlords as providers of rental housing, we want a legal and regulatory climate that is friendly to our cause. So that we are incentivized to provide rental housing. So if someone doesn’t keep their word, if they break the contract, if they don’t pay the rent, or they do something else that violates the lease, you can kick them out, and get someone who will pay the rent, you know, you can’t run a business, if people don’t uphold their contracts, society falls apart when people don’t uphold their contracts and keep their word. So, you know, there’s there’s many things to it, but check out the creating wealth podcast for more on that, Adam, go ahead.
Adam 17:03
And I think it was you who posted it was either you or I thought it was somebody posted a thing saying, I’m in California, what do I do if my tenants not paying right? This response was cry?
Jason Hartman 17:15
Yeah, cry. You can’t do much in in, in the Socialist Republics of California, New York, etc. Those landlord or those tenant friendly places, you know, you go into court and try and collect your money, and you’re instantly thought of is the big evil land barren? And the reality is, you know, many landlords are struggling, right? Men, no, many are doing great. I mean, income property is the most historically proven asset class in the world. But, you know, there are times where we’ve all struggled. Right? And, and you just got to have the courts uphold contracts for you. Yeah, it’s just, it has to be that way. And it’s not even that you actually need to ever go to court, maybe you’ll never need it. But the tenants usually understand the vibe of a place, if you will, the vibe, right? Is this a place that, you know, keeps people to their word? Or is it a place that, you know, you can get away with murder? Right, so you know, and you have this, like lawlessness, like Socialist Republics of California, New York, Oregon, etc.
Adam 18:26
So one of the things that I started thinking about was, what if all of my properties had been in Jackson, Mississippi, and they all had issues and my tenants couldn’t go to work and they couldn’t pay their rent that month. And you know, how important it is to be spread out, across temperatures across, you know, different industries. That way, you know, if somebody is working at a port, and near Jackson, and they, you know, they’ll have a completely different thing than if someone’s working at you know, manufacturing plant in Alabama, you know, those kind of things, so diversifying geographically diversifying economically. And so I started thinking about power ways. If I needed money to pay for the burst pipes, either in my own property or rental property, how could I get money for life events? The first is if I had stocks and bonds have to sell, and you know, with dividend stocks, sometimes you can get your dividend, but you don’t know. You know, you can’t count on it happening right when you need it. You have to sell it. What if you have kryptos you have to sell, you can’t take out a loan on your crypto stock. With real estate. I can hold and I can collect rent.
Jason Hartman 19:36
I know at the beginning I can refinance,
Adam 19:39
or refinance, that’s not going to be the most expedient way of getting the money but I can, but I know at the beginning of the month, I’m going to get cashflow. It’s going to help me through I could sell it if I really wanted to, but I don’t have to. I’m able to hold on to it and work through and get the cash flow from there. So this is a slide that I should have put up at the beginning. commandment number six, thou shalt diversify. Geographically it is incredibly important. This, this event kind of reminded me how how important this commandment is we don’t talk about it a ton. You know, most people like number three and number five, not gambling and being a direct investor, right. But this one really kind of threw out the diversify.
Jason Hartman 20:24
geographically. So yeah, commandment number three is thou shalt maintain control. That seems to resonate a lot with people. But just a couple things on this, if you want to just go back to that last slide, if you would add them. I want to just say something here, because this is this is an important thing. The the biggest destroyer of wealth is divorce. Okay, that’s the biggest destroyer of wealth. Now, most people think, Well, you know, they’re upset with their ex, they’re like, you know, he got half or she got half. And, you know, everyone’s mad at their ex, right. But really, when you look at the the main reason divorce is such a big destroyer of wealth, is you realize that it forces people to sell assets at inopportune times. And that’s really what could happen when you don’t follow my 10 commandments of successful investing. And this one, specifically, you know, thou shalt be not thou shalt diversify. The next one is thou shalt be area agnostic, which is kind of a corollary to it, if you will. But you never want to be forced to sell assets at inopportune times. You know, income property is a game of staying power. And the the person who can stay in the game wins the game, by the way, also, we see some comments coming in. There’s just a couple because we didn’t ask for them. Please make comments, ask questions. But no matter what, before you can make a comment, ask a question or even keep watching, you must go smash the like button. So what is it like right now? Like just click that like button for us, we appreciate it. And also comment down below and tell us where you’re watching from. We love to see where people are located. And a couple comments here. Adam, do you want to read those off?
Adam 22:21
Yes, sir. Julie says, with the mainstreaming of digital smart contracts, all of these issues will be a thing of the past. And Julie, I have to disagree with that. I
Jason Hartman 22:29
mean, right now we have the contracts, you can show the contracts the courts, in some states, and it just doesn’t matter. She’s not talking about that. She’s talking about cryptocurrency and contracts. So I will sort of half agree with Adam and half agree with you. I do agree that the smart contracts do solve some problems. But if you’ve read the Bitcoin standard, and if you listen to my interview with Saint for being almost who’s the author of the Bitcoin standard recently on my podcast? A lot of people I think are, you know, and I’m taking the middle ground here. Julie, I just want you to know that I’m not. I’m not totally one way or the other on this, okay. But a lot of people are overestimating the value of smart contracts and the blockchain, I think they’re valuable, okay. And I think they will definitely play a big part in society. But don’t give them too much credit. They don’t solve every problem, because you still have what’s called the Oracle problem. And that’s the person who enters the data in to create the smart contract, you still have lots of issues, okay. And I’ve done you know, I host another podcast called the crypto cast. And I’ve done a few different episodes on how the blockchain and cryptocurrency will impact real estate blockchain real estate title, I recently did a show that will be airing soon on smart domain names and blockchain based domain names and URLs. And, you know, there there’s a million applications, but some of these are just way over estimated. I’m just gonna tell you, you know, it’s sort of like, if you look back to 1998 1999, the year 2000, you know, we look back 21 years ago now, right? And everybody thought you could just have a company and put.com at the end of the name and suddenly you’d be super successful. Right? And, you know, they had all these like, really stupid ideas, frankly, web van right was really just a dumb idea. And not that grocery deliveries a dumb idea. But the idea of, you know, building these warehouses, and buying a fleet of vans was totally unnecessary. All you need is instacart. Okay, which is what you have now you have an infrastructure of grocery stores already. And then of course, you have to mention that the sock puppet for the pets.com right, just ridic listeners. Okay, so I just want to give you a word of caution. I’m not saying it’s not valuable. I’m just saying don’t overestimate it. Okay. All right, Adam. Next one.
Adam 25:09
So centric says George gamma has recently said if t bills go negative short term interest rates will have to rise. What are your thoughts on this possibility?
Jason Hartman 25:19
You know, I love George, he’s a great friend of mine. And, and I agree conceptually with that. However, if you just look at the past, really 20 years, or especially the last 13 years since the Great Recession, okay, um, we are in a world where the powers that be the two most powerful entities the human race has ever known. Governments and central banks have found ways to defy gravity to defy the laws of physics, to defy mathematics. Okay. And that makes total sense. I agree. Right? But rates should be much higher. Now. We have artificially low interest rates already. We don’t need the Treasury to change. Okay. We already have a nonsensical economy and a nonsensical marketplace. So they have just found ways to beat the system to defy gravity. One way, of course, is the US has the reserve currency of the world and the largest military, the human race has ever known. To keep it that way. The US reserve currency status is not going away anytime soon, folks. Sorry, to you know, if someone out there listening believes that you’re just it’s a fantasy. Okay, it’s us is gonna keep that status for quite a while, I think. But that’s a whole nother discussion less we go down a tangent. Tangent alert here. Wait, Adam, let’s do the tangent. Tangent alert. Okay, go ahead.
Adam 27:07
First off, they have to get there. And then they would have to go negative. And then if they do rise, the I mean, that just shows you that it’s, now’s a great time to lock in your interest rate, honestly. Absolutely. I mean, but even if they do rise, I mean, it will, if interest rates rise, it will start slowing down the, you know, rise in prices. And then it’ll all work itself out and end up. I mean, I have properties with over 6% interest rates that, you know, cashflow really well. And I just don’t have enough equity in them right now to make it worth refinancing. So you don’t need 3% interest rates to you know, do really well, in real estate.
Jason Hartman 27:50
And Adam. couple points on that are super, super important. Okay, really important points here, folks. Are you listening to these really important points? Okay, here’s what you need to know what Adam said, Absolutely. But what he didn’t say is another knock on effect of higher interest rates is that it cools down the buying market, and it increases the renting market. So there’s upward pressure on rents with higher interest rates. And that will cause a bigger housing shortage. Why you ask, this is a prediction I’ve been making for several months now. And I believe I’m the first one to predict this, you know, put it get this down on a clay tablet, okay, or stone tablet, okay. And, and that prediction is that all these millions of people who have refinanced their home or are about to refinance their home and have purchased new homes, they have these incredibly artificially low interest rates for three decades. Okay, they don’t have the last payment on that loan until 2051. Just think of the significance of how much it’s going to change in the world by 2051. You know, what the incentive is going to be, the incentive is going to be for them to keep those properties and it is going to cause a larger inventory shortage. Okay. And what that means is there’s going to be people instead of selling their property, they’re going to stay in their property and they’re going to improve their property. They’re going to add a room. They’re going to spend more money at Lowe’s and Home Depot, maybe that’s a stock tip for you. Okay. contractors are going to do very well who do additions and add on the properties and improve properties. You know, they’re going to replace the kitchen and do a new kitchen and the new master bath, but you can’t say Master cuz that words impressive. So we live in a ridiculous world folks. Ridiculous. Okay, go ahead, Adam.
Adam 30:09
I can’t remember, I don’t remember what they do call it. Now the
Jason Hartman 30:12
main thing back there, some stupid stupidity, right? The big room either because that’s oppressive to people who don’t have traditional families like me, I feel offended. Don’t call it a family. So
Adam 30:23
let me finish up the diversity diversifying thing real quick, and then we’ll get to some of the other questions. So comes to diversifying. And this is the areas these are the areas in the country where we currently have properties or have recently had properties. And so you’re able to spread out north to south, east to west a little bit. And so, you know, you you’re staying away from this area over here, where you know, life isn’t too good for landlords, you’re staying away from this area up here in the northeast, where life isn’t too good for landlords, and you’re staying in the markets that are landlord friendly, do have good rent to value. You know, even if your rent value isn’t below one right now, it’s good enough rent to value to get you a good solid return, we have seen the increase in prices that have led to slightly tighter returns for the first year maybe. But you know, it is there. And so I looked, I was curious. So I looked up the monthly weather. Right now for February, for each. For each mark for three or four different markets. I have, you know, Jackson, Mississippi that I showed the picture of the snow, got Birmingham. And if you look Jackson, this, the week of the 15th was, you know, anywhere from 28 degrees to 48. Birmingham is 41 to 53. Charlotte, North Carolina where we have properties was 40 to know or 39 to 48. And then in Port Charlotte, it was 82 to 70, you know in the 80s or high 70s. So you can really see as you stretch itself out, you’ve got markets where it gets cold markets where it doesn’t just as you diversify, you give yourself different scenarios and different
Jason Hartman 32:16
environments. And but but you know, don’t be terribly afraid of cold weather like, Oh, yeah. Because, you know, I mean, for example, Indianapolis has been our longest running market ever. And, you know, we’ve had investors, including myself, who have done very well in Indianapolis, but by and large, most of the action is in the southeast. That’s really where the action is. Adam, I do want to explain one thing that you just said, and that is the rent to value ratio. Okay, you just sort of mentioned RV ratio, but some people don’t know what that is. So what we target is when you look at the value of the property, and by the way, this is called the RV ratio or the rent to value ratio, I want to make sure you notice, it’s not called the rent to what I paid for the house in 1992. ratio. Okay, it’s called the rent to value ratio, current value. And ideally, you want to get somewhere near 1% every month. So if the property is $150,000, and you can get 1500 a month or close to that, you’re gonna do pretty well. Okay, go ahead.
Adam 33:22
So I wanted to you want to take some of this old question over here. Okay. How about this one? Yeah. For mortgages in forbearance, how long before forbearance ends? Do people start to sell to get out of the property before having to pay the mortgage again, weeks months? And this is something that Sarah, one of our investment counselors told us about in our voxer group, where one of her clients had a fantastic forbearance deal with the with the bank, whenever they wanted them to come out of forbearance, I believe the bank modified their loan to drop their interest rate tacked on the Miss payments, so the end and just kind of let them let them ride it out. Because right now, the banks are still being very kind to borrowers as long as the eviction moratoriums in place. I mean, it’s they’re trying to keep people in their homes as best they can. So there’s a very good chance that people aren’t going to have to sell to get out because they’ll be able to just, you know, pick up where they left off once they get their their next job. Yeah,
Jason Hartman 34:28
yeah, I think I mean, look at I don’t think this is a thing to worry about in a big way. You know, the mortgage delinquencies have declined forbearances people in forbearance has declined and the market is booming. Oh, there is a there is a structural housing shortage going on and it is a massive shortage. The builders cannot keep up the building supplies are scarce. You know, from, from a look at, we run a referral network, basically acting as something of a broker in essence. And this is a very difficult market in which to operate for us, okay, we like a more calm market, right? This is not my favorite market by any means. Don’t think that I love this, okay, if I don’t, I would much rather have a more even keel market where there’s a reasonable amount of supply right now, we’re in a situation where we can’t satisfy the demand, where we hear from people who are disappointed constantly, okay, that they can’t get a property they want to buy, you know, multiple offers. It’s it’s, it’s it’s very hard work because everything’s a rush, rush rush to get a deal done. So, um, you know, it’s it’s not our favorite market. And the reason I say that is because people will accuse me of being too bullish, but I am bullish on on prices for the next year, at least, I think we’ve got we’ve got a very rosy outlook for the appreciation side of the market. Okay.
Adam 36:07
What do I get into? Real quick, what just based on what you said, I found this chart from believe it was the FM realtor.com. And keeping current matters. This is the change in housing inventory compared to this time last year. And wow, yeah.
Jason Hartman 36:29
And in the United States as a whole is down 42.6%. Yeah, folks, if everybody comes out of forbearance, and sells their property The day after, you know, God forbid, they should have to actually make a mortgage payment, right? So if they come out of forbearance, and the next day they put their property up for sale, it will not satisfy the demand. Not even close. Okay, not even close. So, this this doomsday scenario is just not bad. I mean, look, there will correction, there’s no question there has to be a correction eventually. But it’s not on the horizon yet.
Adam 37:07
Yeah. Even if you talk about I think right now, forbearance is somewhere in the 6% range, at most, six, six and a half percent. I mean, that doesn’t even take you out of the 30%. Down inventory. So I wanted to, since you talked about the inventory shortage, I figured I would show people this to Adam, thank you for that. That’s
Jason Hartman 37:27
a great chart. It’s really, it’s really amazing. Now, is this a chart of the election? Well, actually, that might be a chart of the reality of the election, but not what we turned out with
Adam 37:45
the time for the next 30 day ban. Jason, is that what I’m hearing?
Jason Hartman 37:49
Right? I can’t even I can’t even mention the word. Better spell it el e ctio. I better spell it or, you know, I could jokingly say, like, well, that has a sexual reference. So I probably can’t say that either. But yeah, it’s um, it’s it’s incredible. But we won’t go there. Because, you know, hashtag censorship.
Adam 38:11
Go ahead. And so now we can go to Abby’s comment there. If you want about what are your thoughts on multifamily housing market over 2021? And 2022? I believe you’ve talked about this a bit. Yeah.
Jason Hartman 38:25
Yeah, absolutely. So I think that low density, multifamily housing, in the suburban linear markets is in pretty good shape. But remember, this rent collection problem is much more pronounced in multifamily than it is in single family. Okay. And, you know, I’ve owned two big multifamily projects. I have a small one now, and also a mobile home park that I guess you can consider that multifamily too. And then I have had a bunch of single family homes for many, many years. I think single family is just the most historically proven easy to manage asset class. The multifamily certainly there are opportunities. But if you’re going to do it, number one, have experience and know what you’re doing. And when you say multifamily. I don’t know how many units you’re talking about. I’ve had complexes I own two with a client of mine, we bought them together 125 units, and then 139 unit complex. And let me tell you something, when you have an apartment, it is like running a business. It’s not like running an investment. Okay, you you will have Yelp reviews, Google reviews, just like as if you had a business like a restaurant with reviews on there, and tenants don’t like paying rent, so they say bad things about you. Okay? And they talk to each other and they gang up on you, and they have rent strikes and they do all kinds of nasty stuff. Whereas in single family, it’s one one off one tenant at a time saying, is this German,
Adam 40:06
this next common belief, though? And I do not know.
Jason Hartman 40:10
What does that say? We don’t know what this says, folks, it might say something dirty, maybe actually can read it speaks a few languages.
Adam 40:18
So let’s just go through, you know, we talked about the changing the change in housing inventory. And if you get, if you look at this, the change in housing inventory, and I’m going to show two, there’s one, North Carolina and one in Florida, North Carolina has seen a 54.4% drop in housing inventory across the state. And then we have some properties that are we don’t have a time right now, because they keep selling. And so there’s a North Carolina, this is just outside of Charlotte. And right now, what you really need to remember, Jason was talking about the rent to value ratio, and how you want to get close to the 1%. But with rents lagging behind home prices, like they have historically, like they pretty much always will, the rents in Charlotte, if you recall from that four or five livestreams. ago, Charlotte was in the top 10 markets in the country in appreciation for 2020. So the rents have really not been able to keep up so far. So I’ve been telling people for your first year, you know, you look at this pro forma and your first year, you might get that 4%. But there’s a very strong likelihood that in one year, when you go to re up this lease, you’re looking at, you know, potentially a 5070 $500 rent, that you can raise it just to get yourself up market, which will take your return me which will make it much much better. And then it is time. Yeah. So this is one with $282,000 house, it rents for 18 $150.
Jason Hartman 42:00
projected rent
Adam 42:02
is estimated rent, estimated cash flow of $273, and an estimated cash on cash return of 4% with a total return on investment
Jason Hartman 42:12
of 30%. And I bet you know, that is a nice looking high quality, substantial rental property. You know, these are the types of properties folks where Yes, you pay a little bit of a premium, you sacrifice some cash flow, but you get such good quality tenants. You know, by and large, you’re just gonna have good experiences with these higher quality Class A properties.
Adam 42:38
And you know, you factor in, if you look at if Charlotte does what it did last year, the assumption would change the real estate appreciation rate to I believe it was around 11% last year, it would, it would essentially double your appreciation and your total return on investment would skyrocket. You’d be up at 40 is probably at that point. So this is one here in there in the Charlotte area and then there’s one in that Port Charlotte row we’ve got a bit of inventory right now I believe. Although a lot of our Florida inventory has disappeared A day or two ago. So you know, enforce our selling you mean right. Wasn’t wiped out or anything. It just disappeared from our system because they also you know, this one starts out at 245,000. Southwest Florida, the whole Port Charlotte Cape Coral, Northport area seems to be all around about 240 250,000. Now, it’s estimated to rent at 1675 with an estimated cash flow of up there to $280 5% cash on cash and a 31% total return on investment. So, you know, and I looked at Florida’s rent history, you know, the rents that our providers have been getting over the past two years, I believe, almost closing in on three years. And the two years ago, the monthly rent per square foot, which you see here at $1.08. Four was 93 cents. rents have gone up 16% 816 to 18% in the last two years. So they’re they’re trying to keep up with the price.
Jason Hartman 44:26
It is the market Oh, by the way, you know, we really need to start announcing this every time because this is what we need. Folks. You know, ask not what our team can do for you, but what you can do for our team. And, well, this is what we can do for you. But if you happen to be watching this and you are a property provider, if you are a wholesaler, if you do fix and flips if you’re a developer and you’re building new properties, we can sell them For you, we have 1000s of buyer leads. And we can refer investors to you, that will, will buy properties. So this is what we do we work with different property providers and markets that we vet and like in different parts of the country. And we refer investors to them. And and, you know, we can make your sales process much, much easier.
Adam 45:24
So let’s talk about the builders and whispers. And the chief economist at the National Association of homebuilders came out and said, builders report concerns over increasing lumber and other construction costs and delays in obtaining building materials. rising interest rates will also erode housing affordability and 2021, as inventories of existing homes remain low. So we’ve talked about lumber prices before, how bad are they? This is longer futures. softwood lumber prices jumped a record 73% on a year on year basis in January, according to the Labor Department. I mean, look at this chart. This chart, I mean, this right here is June 2020.
Jason Hartman 46:11
That is shocking. So these are lumber prices for softwood lumber, which is what’s used for home construction.
Adam 46:18
And this was April, whatever everything was, you know, we were all gonna die. This was a pandemic. And it’s I mean, even before that, you know, all throughout the first half of 2020, the highest we’ve got was what 454 75. And now, this one, I got this about four or five days ago, and it was at 983 or $993 per 1000. feet. I mean, it’s it’s getting up there. And it’s it’s really hard to not have a rising home prices. If you can’t buy, you know, your material for less.
Jason Hartman 47:01
This is the problem, the builders have a material shortage, they can’t meet the demand, we can’t meet the demand. There’s just so much demand in the system. And that’s why, you know, if you can get properties now get them because just a structural shortage. So here is what has happened to the supply. And Adam is mentioning lumber, but it’s not just lumber folks, it’s so many of the materials used in home construction, here is an illustration of what has happened.
Adam 47:37
And we also still haven’t filled up the, you know, the worker pool from the Great Recession. I mean, we’re still down construction workers. So you know, it’s really hard to build to really ramp up your home building if you know, you’re having to walk on to other job sites and hire people away. And there’s just not enough people there. Because when the housing crash hit, they went and found other jobs and they didn’t come back.
Jason Hartman 48:00
So that’s what I’ve got good stuff. Okay, well, let’s get some of these questions and taken care of and what do we have here?
Adam 48:12
What are your thoughts on the rising 10 year yields and rising interest rates? We talked, we touched on this a little bit earlier. I’m not too concerned. I mean, rates might pick up, but I don’t think we’re gonna get above four to four and a half percent this year with everything we’re seeing.
Jason Hartman 48:26
Yeah. And again, Peter, we did address that question essentially, earlier in this broadcast. So just go back if you just joined us, and listen to it, because we went into the whole thing about how those rates affect housing supply, and how they affect rent, and so forth. So just please make sure you’re listening to that. Curtis, one of our clients says, Hey, hey, Curtis, how you doing? There, Sarah, one of our team members, and she’s been buying properties like crazy lately.
Adam 48:57
And then you skipped over the gold color there. So Woods forest and buy a mill, small mills are making a comeback and making money? Well, a couple things. Number one, you have to bank on lumber prices staying this high, which I don’t know enough about the lumber industry to say whether you should or not. And number two, you have to be able to buy acreage that has wood that’s, you know, actually harvestable you know, they have to be grown enough to get there. And then you have to be willing to get into that industry and I’m not I’d rather buy the property.
Jason Hartman 49:30
And you know that that’s a business, okay. I mean, that’s a whole different game. And if you go into a business that you don’t know anything about, you know, assuming you haven’t been in that business before, you’re asking for a steep learning curve and a very expensive learning curve. That’s just the way it works usually. And also, you know, you don’t get the advantage of three decade long, artificially cheap fixed rate financing. You know, income property has such special character. touristiques and that’s why it’s the most historically proven asset class in the world, and the most tax favored asset class in America. And here, you mentioned lumber and copper. Yep, absolutely right. Dr. Copper is a proxy for a lot of commodities and an indicator on the economy. So you know, houses use copper wire, they use petroleum products, they use lumber, they use concrete, they use glass that you steel, these are all the ingredients of a house. Adam
Adam 50:31
centric asked, Do you think the California Housing prices are sustainable? Or do you predict a huge crash?
Jason Hartman 50:37
So with California, of course, it’s it’s the most populous state in the country. It’s managed as a left wing disaster. California, New York have so many problems. It’s just, it’s just sort of incomprehensible, in a way. And when you say California prices, I assume you’re focusing on the major cities, right, San Francisco, LA, San Diego, etc. Right. And those are very cyclical markets. No, I do not think they’re sustainable, especially if they are high density areas. And these really expensive areas. One thing that the COVID 1984 has taught everybody is that you don’t need to live in these expensive cities with high taxes. People are fleeing them. And they can work anywhere, the remote working revolution is definitely upon us. And yeah, it’s, it’s just not important to be in those expensive areas anymore. We’ve all come to realize that
Adam 51:47
article 2020 says you can get a loan on your crypto in minutes or collect yield.
Jason Hartman 51:51
Yeah, yeah, you can, there are some creative things you can do with dough. But remember, that loan to value ratio is low, it’s only about 50%. And you can get in essence, what is in essence, a margin call, where if those crypto prices go down, that loan evaporates, it just does not have the characteristics of income property, it you know, you get a yield on income property by renting it out. And, you know, the other beautiful thing about income property is you can renegotiate the deal all along the way. You know, in most things when you make the buy, so you go buy some Bitcoin or aetherium. That’s the price. you’ve locked it in, you bought it at that price, it’s done the deals done. But with income property, you can constantly renegotiate the deal. And, you know, I’ve been teaching this for years. But here’s essentially what I mean, there’s much more on the creating wealth podcast about this, where you can refinance the property and make the whole complexion of the deal different later, you can improve the property, you can creatively market the property and change the rental income characteristics. Sometimes you can add income to the property by adding other components that become rentable, you can go get a cost segregation analysis, and you can reduce your taxes dramatically. There are just so many beautiful things you can do with income property, it’s a multi dimensional asset class, it has very, very special characteristics that other investments simply do not have. And I’m not saying you can’t make money in crypto, I dabble in it myself. Okay. But it just, you know, it’s a very new asset class, it doesn’t have a history that goes back, you know, couple 1000 years like income property does. So, you know, much, much different. Adam, wrap it up for us anything else?
Adam 53:45
That’s all I got for today.
Jason Hartman 53:47
All right, well, folks, go to pandemic investing.com. And you can get a free book there. And, you know, whoops, let me get the right thing on the screen here for you. And you can get a free book there a FREE Mini book that you know, no strings attached, just you know, you’ll get an email download right away. And that can help you invest during these very crazy and uncertain times, we examine a lot of the different aspects of how how the pandemic has changed the landscape for investing and for income property. So pandemic investing calm, get that free mini book right now, of course, our main website, Jason Hartman, calm. Lots of info there. Lots of info on the creating wealth podcast and our YouTube channel.
Thank you all so much for joining us today. And I want to wish everybody happy investing. We’re here to answer questions and you can reach out to one of our team members, our investment counselors at any time. In the US. You can also call us at one 800 Hartman or just visit the website internationally, and we’ll look forward to helping you create a great income property portfolio. Thanks again for joining us, everybody, and we’ll see you next time. Bye bye. 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.
