Jason Hartman brings on investment counselor Adam to explore the phenomenon of aging homebuyers. Since the Great Recession, the average age of homebuyers has skyrocketed into the upper 40s, about a decade older than it was before. Adam and Jason discuss the reasons for this shift and its meaning for investors.
Investor 0:00
Those who have understood that the paradigm has changed. And that’s perhaps we need to do something that’s counterintuitive. Like being in debt, which obviously we have all been taught is a horrible thing. You know, maybe it’s those few early people who understand that and witness that. So perhaps some people who are more sensitive to risk or more risk averse, or I don’t know the perfectionist, but the canary in the coal mine, if you want, and this is perhaps what you are and what you have been. I am surprised, Jason right. Now that’s basically what we are saying is not yet more mainstream. I’m not saying that this should be or that this should already be what everybody’s thinking that but so few people are thinking that or at least that so few people are vocal about it. So perhaps it’s just a well kept secrets and those who know we don’t want to talk about it, but I’m very surprised because this is so much against the mainstream of what you’re reading in the paper.
Announcer 1:03
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:53
Welcome to Episode 1345 134 or five Adam is here with me because we need to do something we have not done in quite a while. And that is take a couple of your listener questions. We always appreciate your questions. Go to Jason Hartman comm slash ask, there are no dumb questions, and here’s why there’s no dumb questions, because we won’t put them on the air. There’s a safe space here. It’s a safe space. Yes. If you ask a dumb question, don’t worry about it, because it won’t be on the show. Okay, so, so fire away with complete confidence that you are in a safe space with rainbows and unicorns. Okay, and speaking of being dumb, I will be dumber than usual today, because I have not had my coffee yet. And it is very early in the morning. And Adam you don’t drink coffee, so you don’t need it. But for people like me, it’s a crutch. You need it. If you can’t think without it. It doesn’t your brain doesn’t work quite right, right.
Adam 2:56
And my brain just says you know what, I go off everything. Just need water. Drink three things. Water, sometimes milk and alcohol.
Jason Hartman 3:04
That’s it. Well, I used to say, I only drank three things water, coffee and vodka. And now I pretty much don’t drink at all. So I hardly ever drink vodka. So it’s just coffee and water for me. Occasionally a juice drink but folks, you got to be careful as juice drinks. Some of them are a scam. Okay, and we are consumer advocates on this show. And we want to point out the scams, and these juice drinks, a lot of them are full of sugar, they’re terrible for you. Juice, you know, you got to be really careful. Make sure it’s only vegetable juice and if it tastes really good, it’s probably got a bunch of sugar in it. And you shouldn’t drink milk milk is terrible for you.
Adam 3:46
I’ve heard too much only drink it in like cereal or oatmeal.
Jason Hartman 3:51
Well get some almond milk okay because that that is good. A lot of that is loaded with sugar too. So you got to get the low sugar, almond milk to it. Yeah, it’s just We’re under attack by scammers who scam us financially, and a food industry that scams us with giving us cancer, diabetes and a whole host of other ailments. But this is a real estate show. So the median age of homebuyers is now 47 years old. You gotta be kidding me. You know, back when I came of age, if you didn’t buy yourself a condo or something, by the time you were 26 or seven, it was kind of a sign that you were going to be behind in life. But this time, it’s different. Maybe it is a little different. I mean, the famous last words that every investor This time, it’s different, right? Be careful about those words. But you know, sometimes it actually is different and things are different nowadays. For reasons we have discussed many times on prior episodes. What do you make of this article, Adam? Well, I thought it was interesting down here towards the bottom of the article where we know The studies saying the median age is now 47. But we’ve talked about the student debt crisis and I was thinking might be overblown, or Amina, maybe not quite as big as we thought. But the National Association of Realtors that says they did a study on non homeowners and 83% of non homeowner said, they think having student debt has delayed the ability to buy a home. So I mean, it’s bigger than I realized it was. But I also just think it shows that the jobs that you’re able to get coming out of college or high school just aren’t the higher paying jobs here. We’re able to get that long ago. I mean, you’ve got not only baby boomers aging in place, but you also have baby boomers working in place more. You have that big level of CEOs, CIOs, all of those people, if they’re not retiring until 75 8085. Now, the next generation can’t get promoted. Right. So they’re working in place. I like that saying, that’s it. Good point. In other words, they’re not leaving the job market. And that is making it hard for people to get into the job market. The same is true in housing, or their aging in place, and that’s keeping the housing market more constructed with lower inventory levels. So that’s an interesting concept. So the student loan debt disaster is a 1.5 trillion with a T $1.5 trillion problem and just for comparison sake, because these big numbers, you know, you just don’t really know what they mean unless you put them in some context. You got always ask yourself the Jason Hartman question what is it Adam? Compared to what compared to what compared to what? Compared to what? Exactly? So GD P of the countries around $20 trillion, the GDP of planet Earth the entire world’s productivity every year is around $65 trillion. Last I checked, you know, you know, trillion here 20 years It’s no big deal folks. I’m just giving you a rough numbers are not looking at anything when I say this. So when you talk about a $1.5 trillion student loan debt bubble, that’s a deal. And these people who have student debt, they basically have a mortgage. But they didn’t get a house included with it. As I’ve said many times, so it is a problem. It’s hugely significant. I don’t think this is as bad as it sounds, though. And the reason is, I’ve talked about the downsides of homeownership. I’ve talked about the portability of society nowadays. I mean, we are so much more portable than we used to be. Our stuff is smaller, lighter, better, more portable. There’s this whole market. You know, this conference. I’m out there talking a lot about short term rentals, and the Airbnb market, which, you know, I take that with a grain of salt. Certainly the early players, made money and now market and they did very well. But, you know, like many things, when you get into it late in the cycle when it’s mature, the opportunity is lessened. And the other thing I want to say about Airbnb, is it has yet to go through a recession. Airbnb has had only an upswing in the economy out of the gates. So we’ll see. I’m not saying it’s bad. I’m just saying it is something to be mindful of. But that does make society more portable. A lot of these digital nomads, as they call themselves are just moving around from place to place. And they can work on the go. They have virtual careers. They just simply need their laptop and an internet connection. And they’re in business. And so Airbnb caters to that short term rental market caters to that, in so many other things cater to it and homeownership causes stagnation. It causes people to lack the ability to go to where the jobs are. It’s not necessarily all good. I don’t know that this is terribly bad news, as most people probably think it is. thoughts on that. I mean, it’s quite a difference from what was it 26 before Adam?
Adam 9:22
Seven in 1981, it was 31 years old. And now it’s up to 47 for the median age. But according to realtor.com, just at the time of the financial crisis starting it’s gone up eight years since then, in terms of the age of
Adam 9:41
buyers. I don’t
Jason Hartman 9:42
this is not first time actually. Sorry. This is all homebuyers. median age of all home buyers, right.
Adam 9:47
I think it’s, I mean, it may be overblown, a little bit, but I do think based on studies I’ve seen before, there may be more renters but a lot of people still want to be homebuyers. So even if they are portable, they don’t want to be. So you know, you have the desire people there. So people are still desiring to purchase homes, but it says down here with the affordability crisis, the average now they’re going average. Now, the average annual income of homebuyers has increased to over 93,000. And the national median income is only 61,000. So I mean, you’re looking at you have to be 50% over the median income of the United States in order to really be able to afford homes and the obviously probably cyclical markets in that respect. So I mean, it’s
Jason Hartman 10:36
right. Yeah, it’s definitely important. It’s definitely something to be mindful of. The other thing that’s catering to this is the single family home rental market. So everybody listening, pat yourself on the back right now, because you are supplying single family rental homes whereas before Of course, renting pretty much meant you were going to be sitting In an apartment, and that was never considered as desirable, is living in a single family home. So it’s just an interesting change. But now we’ve got so many investors like everybody listening, supplying nice single family home rentals to people. And we’ve got the big institutional players like invitation homes and the others supplying thousands 10s of thousands, really, overall in the aggregate hundreds of thousands of single family homes, to renters. So, again, there’s not as much urgency for them to buy all of these reasons. I definitely agree with that. I mean, as long as you keep your properties updated a little bit, you know, at least in great condition, and with the amenities that you know, are needed. People nowadays, especially as you’re sitting here, still looking back at the Great Recession, I’m thinking, you know, it’s been a long time since another one, then people are a little bit more willing to wait for, you know, The quote unquote perfect health that they want, very well stated. So, before we get to our listener questions, I just want to share a couple things on the actual graph that I’m looking at, and how the median age has changed over the years. So as Adam said, in 1981, the median age of all homebuyers was 31 years old 31 and steadily kept increasing in 1987. It was 35. And then it went down a little bit and in 1989, it declined to 34. So younger people were buying more homes, but here’s one for you. Okay, in 1993, it escalated substantially to 42. So that was even a more pronounced increase between 81 and 93 in that short 12 years of time. That median age went up by basically 12 years in 12 years, right? That’s a hugely significant move. But by 1997, as we were getting into the.com, boom, and then later bust, and the economy was really on fire because of the globalization trend, and the increases in productivity with information technologies, namely the internet itself. We’re now you know, a few years into the internet’s impact on life. And the median age had gone down to 35 years old in 1997. So younger, we’re buying again, and, you know, not quite back to 1981 levels of age 31. And then we saw it go up. course we had 911 and the.com. Bust. And then interestingly, the median age went down a little bit, okay. It was up to about 40 years old, in 19. 99 2000 but by 2002, it had declined again to 36 years old. Okay. So that’s kind of interesting, you know, does that show that it was probably because of the massive amount of easing by Alan Greenspan, who’s Fed chair at the time in the sharp decline in interest rates post 911 and post.com bust to try and stimulate the economy? Or was it those who survived those debacles had money left over and they decided housing was safer, and they shoved it into housing. Again, nobody really knows the exact things here, but it’s kind of interesting. And now, we’re up to 47 years old. So pretty amazing, huh? I’m going to
Adam 14:43
say that a big part of that was just coming out of the recession that spiked so much just because they were the only people who had money for the down payment. So that point, you know, everybody on the younger side, you know, your 30 year olds who had bought their 300 $400,000 one bedroom apartment, Somewhere who’d gotten absolutely annihilated? They were the ones who went under. And so they didn’t have any money anymore. That would be my guess.
Jason Hartman 15:08
Yeah. Yeah. You know, one other interesting thing before we go here is the average annual income of homebuyers has increased over $93,000. well above the national median income of about $62,000. So what’s interesting about that, is that is it causation or correlation? Right? That’s always the question when you look at stats of any type. And they say, well, you’ll make if you are a college graduate, over the course of your career, you’ll make like a million dollars more. But what nobody asked is, would you have made a million dollars more anyway, if you didn’t become a college graduate? The reason is, is that there’s some self selection bias or some pre selection bias. And I’d say that’s true here too. Because you know, if you say, well, the best thing you can do to create long term wealth for yourself is to become a homeowner. Right? That’s an old idea that’s been around with us a long time. Well, yeah, homeowners might be wealthier. But guess what, they also earn about a third more income to get into the home buying class in the first place. So of course, they’re wealthier, da, it isn’t because they bought a home necessarily. Maybe that had an impact. But causation or correlation. That’s the question, right?
Adam 16:31
Yeah. I would have to agree with that. So especially as the housing affordability becomes worse than worse, it’s just going to keep going up. I think,
Jason Hartman 16:39
in terms of the age, the age of homebuyers, of homebuyers,
Adam 16:42
and then obviously as the age increases, you know, usually older people have better paying jobs. And so that average will just keep rising.
Jason Hartman 16:52
Yeah, we shall see soon. You know, in a future episode, we might be saying the average age of homebuyers now is 55 years old, double nickels.
Adam 17:01
Until Google starts paying their entry level people, you know, 200 $300,000, and they can afford to buy everything. And then Facebook does the same. Who knows, maybe it’ll skew younger at that point. But they’re they don’t have to, and they’re not doing that. So
Jason Hartman 17:14
hopefully by that point, both of those companies will be busted up under antitrust laws. That’s what I’m hoping for. So we shall see. Okay, let’s get to a couple listener questions. You had one about cap x, right?
Adam 17:27
Yes. So we have one from James cut me. And James says that he has repaired homes for years. And he’s not certain about the proform is covering the large Catholics expenses, and was curious about whether the maintenance percentage in the proform is covered those things, you know, your your new age back, your new roof, those kind of things? Yeah,
Jason Hartman 17:55
that is a great question. And so cap x relates to capital expenditures. Okay, the big items, but you only have to do every many, many years, hopefully every 10 2025 years even right? The answer to that question is sort of. Here’s why it’s very hard to answer that question. It depends on the property you buy in the first place, just like the typical home buyer makes 93,000 a year and the typical non home buyer only makes 63,000 same idea, right? It depends what you enter the game with. And that is very hard to determine. So if you’re buying a brand new home, and we do have new construction homes available for you, if you buy a brand new property and make that a rental, then your cap x is likely to be virtually non existent for and you know, who knows, every thing is different Right, but I’ll say good eight, maybe 10 years and that first tap x will probably be a water heater or in hva. See issue, your cap X on your roof probably won’t be due for 25 or even more last a very long time. Maybe only 20 years, you know, we don’t know. Okay, what if you enter with a very low level of rehab property or renovated property that just had very minor renovations? Like cosmetic stuff, then you should definitely plan for some capex expenses. Okay. And your maintenance percentage will probably be higher on that performer, but will it cover cap x? I don’t know. It really represents a slush fund. So that slush fund, if you have a good tenant, who’s handy, who doesn’t cause problems, and everything goes well, and you don’t have minor little repair issues, then you’re building up that slush fund, even if it’s a virtual fund, if you don’t technically keep it in a separate account, you’re building up that slush fund. Those funds are earmarked for future cap x expenses. So it would include them, if you look at it that way, right? Again, this one is very hard to perform. It depends what you enter the game with. That is the most important thing in each of you buying different properties through our network, because you’ve got this wide selection of properties that you can buy through our network, and you can see them at Jason Hartman calm and the property section, you will need to really evaluate how you’re entering the game. So that’s very important, okay. It’s kind of like a handicap in golf, right? Or in bowling. We’ve done some golf stuff at some of our events and some bowling stuff at some of our events as well. And they’ve been a lot of fun. But look, the people who aren’t as good. Sometimes they get a handicap, right and then How you should look at it with your properties. Right? If you’re entering with an old property that doesn’t have much in the way of renovations, then that’s a handicap. Okay. And you should plan on more capex expenses.
Adam 21:13
Yeah, I definitely think it’s important you ask your, your local market specialist for that scope of work. I mean, some of them on the performance will say New Roof new h back and those kind of things. But it’s definitely important to ask them for the scope of work so you can see exactly what they’re doing and then you know, if it doesn’t say anything about the roof, just just ask him say, hey, how old is this roof? You know, did you put one on two years ago? Did you put one on five years ago? Did you have you never touched the roof and we don’t know exactly how old it is. And you know, same with the H back and all of those units just check on the ages before you purchase because there have been some that Aaron and I my wife have looked into and we thought you know, this looks like a good deal. You know, we might be interested and then we found out you know, oh, the roof is seven years old. That’s going to up that a little bit doesn’t make it quite as enticing. And so we passed, but you know, maybe it would work for somebody else. So ask for that scope of work and then ask questions off of that.
Jason Hartman 22:10
Yeah, and some of this stuff is negotiable. And remember, you can do a specialty inspection on the roof. And you can get a roof certification, and be sure you have your home inspections, and be sure when needed, you have a re inspection where they come back and make sure work was done if it wasn’t done the first time around. Okay, I Adam, was there a comment there? Or just that question though, this
Adam 22:33
this contest? You did not ask for comments. So, okay, that’s Shame, shame, Jason. Shame, shame.
Jason Hartman 22:38
Oh, we always love your comments, too. Okay, next one.
Adam 22:42
Next up. We have Michael Jones. Michael has a phenomenal email address that I won’t give out the full thing too. But it says it has I invest for later in it. It’s a great, great, great.
Jason Hartman 22:55
So Michael really wants to know Michael Michael understands that. delaying gratification. See, that’s one of the big keys to success in life is delaying gratification. If you invest for later, your later will be better. Okay, good, Mike. Awesome. That’s an awesome email address. Love it.
Adam 23:13
So he wants to know, when is the time to not do a 1031 exchange?
Jason Hartman 23:17
Yeah, yeah, good question. Good question. Well, that is probably worth the entire episode in and of itself. So I’m going to try and answer it very quickly, because there’s a lot to that question. First off, do you have game, right? If you don’t have any game, then there’s no need to do a 1031 exchange. The whole point of a 1031 exchange is to defer the gain and the gain is not necessarily considered a profit. Okay. That’s the first thing to know. Now, you may have a game, even if you don’t think you have a game. If you were taking depreciation, which hopefully you were on the property that you relinquish the property you sold, then that property has a gain in it, okay? Because you have to recapture that depreciation upon sale. So even if you bought the property for $100,000 and you sold the property for $100,000 of course there’s some closing costs that complicates it but forget about that. Say that you broke even looks like you broke even, but you may have gained because of your depreciation recapture. So be careful of that. Make sure you talk to your CPA or your tax advisor, get some advice on this and get some real analysis on it. Okay. Now, I mentioned and I also talked at our recent profits in paradise event about some other options to the 1031 exchange. And I’ve mentioned that I am personally in a 1031 tax deferred exchange for a property that I owned with one of our clients, it was an apartment complex that we sold for $5 million. And I definitely have a ton of gain in that deal. But I have been looking at some of these other vehicles that may make it possible to do something else other than a 1031 exchange. And these strategies are pretty enticing. I am just not completely convinced that they will work. And I would hate to see, of course myself, first of all, or any of you have a tax liability that you didn’t expect by doing this. So I’m still checking this stuff out. I’m still working on it. The Jason jury is out. Okay, I do not want to come and start promoting these ideas yet until I feel more comfortable with myself and hopefully do one of them myself. But just keep in mind that I’m working on more to come on later episodes.
Adam 25:58
That answer has to be coming soon because I feel You’ve been talking about this 1031 exchange for a while now your deadlines have to be coming up pretty close. It’s coming
Jason Hartman 26:06
up at the end of January. So I do have to make a decision and this is weighing on me. But I still got a little time left, I did comply with the 45 day rule, or identified properties. Now, I don’t know if those properties are still available. So I may be forced into this. Okay. Now, the other thing you can do is completely outside of a 1031 exchange, right? You could simply get some tax deductions to offset gain another way. One of the great things about the new tax plan is you can go ahead and you can buy equipment for your business if you have a business and that equipment can be deductible through bonus depreciation all in the year you buy it. So this is huge. This is a big deal. Okay. And this is driving a lot of increases Stop investment in the economy and in people’s businesses. So there are other ways outside of the real estate. But ideally, the 1031 exchange ultimately, it’s an awesome vehicle. Income property. This is the most tax favored asset class in America. And the 1031 exchange is just a beautiful thing. I’ve done many of them. I love it. I might complete this one. I might not. I’ll let you know. I’ve got a little time left. So stay tuned for future episodes where I’ll talk about it. And Adam, I think we got to wrap it up.
Adam 27:32
We don’t want to wrap it up just yet. We’ve got one more important thing left. Jason. Okay, go for it. We’ve got a property.
Jason Hartman 27:39
Oh, thank you. Yes.
Adam 27:40
Why would we talk about properties?
Jason Hartman 27:42
We got to talk about more properties on this show. I keep telling our people to bring a property with them. Yes, absolutely. And you can find more of these at Jason Hartman calm. Click on the Properties page. You’ll find more there. But Adam, tell us about this one.
Adam 27:56
This one is located in Hammond, Indiana, which is one of the ones that’s up in northern Indiana and it’s close to Chicago, I believe. And about 30 minutes outside. This one is a three bed one bath built in 1954. You can buy it for the price of $135,000. It rents at $1,395. So it’s over that 1%. And you walk away with $234 in your pocket every month after the vacancy management and maintenance and you can make a paltry return of 30%, which, you know, you can clearly make that in the stock market any day, right?
Jason Hartman 28:36
Course sarcasm is noted. Yes. Good luck making bad in the stock market. Now, keep in mind that is the performance. So those are all projections. Reality is often different. Sometimes it’s worse. It’s sometimes it’s actually better. Those are projections, of course, and you need to say that, but yeah, that sounds like a great property and you have the lower tax base of Indiana because you’re right Outside of Illinois,
Adam 29:01
right? Yep. That’s a that’s a good reason why a lot of people from Chicago tend to just move a little bit south. Yeah.
Jason Hartman 29:09
Right. They can commute in and still make it work and get the benefit of two jurisdictions. So good stuff. All right, Adam, let’s wrap it up. And everybody, thanks for joining us. If you have questions, comments, concerns, needs, you need anything, just reach out to us through Jason Hartman comm slash ask and we will look forward to talking with you tomorrow. 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 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.