Jason Hartman and investment counselor Adam go over some news headlines related to real estate. First is an article about former Fed Chairman Alan Greenspan’s thoughts on the economic state of our country and the growing entitlement culture in the US. Then they discuss an article from Zillow. They look at how the real estate investors are being impacted by the increased buying and selling of homes.
Investor 0:00
I first started reading the rich dad books. And that led me to looking at different motivational speakers. And I’ve stumbled on Jason’s podcasts about seven years ago. And then from then I was hooked. And after listening to him, and I really got sold on his philosophy on how he looks at the market and real estate in general, and I wanted to jump in seven years ago, but I decided to open up a few businesses that they went pretty well. But you know, I live in New York. So there’s a lot of expenses over there. So those were not as according to plan so now I I saved my money up again, and I’m here.
Announcer 0:36
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 1:26
Welcome to Episode 1173 1173. Thank you so much for joining us today. This is Jason and I’ve got Adam with me for this episode. Adam, welcome back.
Adam 1:37
Thank you. Good to talk to everyone.
Jason Hartman 1:38
The question is, where is the economy going? Yesterday was tax day, and I for one, saved a lot of money on taxes. And I want to thank the man that half the country hates, that is Donald Trump. And I said love him or hate him. He’ll be good for the economy. And I think I was right about that. I think I was right about that. One. You it’s debatable, of course, the economy is going to enter a recession here at sometime in the relatively near future, no surprise there, business cycles, Austrian economic theory, etc, etc. But Trump seems to really have postponed that, because we probably should have entered that cycle a couple of years ago. But, you know, this is all like the relationship status on Facebook. It’s complicated, and it really is. But our old Federal Reserve Chair and let me tell you, he’s getting old is Alan Greenspan, of course, he was the longest serving Fed chair, at least of my lifetime. That guy was in there forever and ever. He was on CNBC recently, and he had some interesting things to say. I thought, Adam, one of the really interesting things was a metric that I had not heard before. And Greenspan talks about it in this short two minute clip. And you know what he said? What did he say? Jason? He said that a 10% increase in stock values equals a 1% increase in GDP. I’ve never heard that metric before tying the stock market in with the gross domestic product. It does make sense. I didn’t know the the amount on that. But of course, the stock market, you know, being up is a sign generally, that productivity is up, not always because you have the speculators. And they’re not investing in real productivity gains. They’re investing for speculative reasons. But, you know, if you ultimately say that the wisdom of the marketplace is that investors pile more money into companies when they’re being more productive. that argument is on the whole valid, I believe, then, you know, it makes sense that the increase in stock values equal the increase in GDP, but here he actually ties it into 10% equals 1%, which I thought was quite fascinating. Now One of the metrics I’ve shared before, it’s a different metric, but it’s also got a 10% 1%. So it’s easy to remember that his mortgage rates when the mortgage rate increases by 1%. That means that to get the same payment, and this is, this is roughly okay, but it’s a good rule of thumb kind of like rent to value ratios. To get the same payment on that house, you need to see a decline in prices of 10%. So 10% equals 1%. there too, okay. So if you see rates drop by 1%, then that means you can pay 10% more for the house, and it’s about equal. Okay, so also interesting, the 10 in one ratio, number, the correlating indicator like that’s interesting. You want to jump in and listen to this video. Absolutely. Okay. So this was on CNBC. I have to tell you That it sounds like they’re on the trading floor. So forgive the noise in the background. It was good enough for broadcast. So hey, it’s good enough for us. There’s some background noise and Alan Greenspan, you know, he’s a little hard to hear. So just bear with us. It’s a very short clip, I want you to hear a couple of things. He says he talks about the weight of the entitlement burden, you know, how it will weigh on the economy. I think that’s true, the entitlements will cause a decline in growth, and then he’ll cite the metric and then we’ll be back on to talk a little more about it. Okay, here we go.
Adam 5:31
What we’re seeing now is, I think some improvements, a fairly significant improvement, in a short, very short run or a very short run range of the economy. But I don’t think it’s going to stay there. I think it’s, it’s going to begin to fade out because Europe is not doing well. And we still have a problem, which there is very substantial fiscal problems associated with entitlements.
Adam 6:00
Yeah, I know you’ve been flagging that for a while. So when you say it’s going to fade out, are you talking about the stock market rally or the US economic growth picture or both?
Adam 6:12
Well, I’m not focusing on the stock market. Rather, I’m just really saying that the stock market rally today has already built in a significant rise in GDP and current period. And as you know, it’s a 10 to 110 percent rise in stock prices is equal to a 1% rise and the real GDP change. So that is a bit of a stock stock market aura about the current economy.
Adam 6:44
So you see, it’s short lived. I mean, this is a decade long expansion. Now that we got an IPO today, Mr. Chairman, so how much longer do you think the recovery can last now that we’re going into past decade. I think
Adam 7:03
the real major problem is over the long run. We’ve got this very significant continued rain coming from entitlements which are basically draining capital investment dollar for dollar with any major change in entitlements and entitlements are going to rise. Why? Because the population is aging. There’s no way to reverse that. And the politics of it are awful as you will, as you well know.
Jason Hartman 7:43
Oh, okay. So that is pretty interesting. Now, Adam, you’ve heard me talk on the longevity show the longevity and biohacking show that I also host about the wide ranging impact. I mean, the giant impact of longevity, the aging population that is living longer overall living longer. Sadly, in the last two years, lifespans has actually declined because of bad diet and so forth. But that’s sort of another subject overall, people are living longer over, you know, if you look at the more macro picture, now, that has a huge burden and Greenspan just alluded to that on the welfare state on the entitlement burden, giant impact on the economy, on governments on government entitlements, etc. So pretty fascinating, but disconcerting stuff that bodes well, if you want to call it well, for the inflationary outlook, which benefits us investors, we play the game right and take advantage of my inflation induced debt destruction.
Adam 8:52
Well, it also means if you think about the fact that people are living longer, if they’re living longer and healthier, then you have more competition for homes. For people needing a place to live, so that’s good for landlords as well.
Jason Hartman 9:04
And for jobs, interestingly, because people are working longer, not always by choice, but they’re definitely doing it. And so yeah, big, big impact, big impact. Yeah, you have an increasing population, not necessarily because of any kind of baby boom. But as you alluded, because of just an aging boom, the graying of America, as we’ve called the trend, and if people keep living longer and longer, heck, we need more housing, because people are being born, but they are living longer. So it just creates more demand for housing stock. Absolutely.
Adam 9:42
As long as our diet doesn’t make it so bad. We have to move into assisted living centers, and that’s a whole different part of real estate. Right. And by the way,
Jason Hartman 9:51
since you brought that up, I want to mention assisted living here for just a moment, folks. I know that there are some of you think, well, I should go out and get into the assisted living business. And I have looked at that business in depth. I profiled my trip to Phoenix a couple of years ago when I attended an assisted living conference, and we toured assisted living facilities and so forth. And first off, I want to say that a lot of the promoters of these things make that look dramatically easier than it really is. I mean, dramatically easier than it really is. That is complicated stuff. Basically providing, you know, a version of health care to people, the insurance requirements, the ability to get insurance, the insurance policies that cancel on you, getting good help getting good coverage, that is a whole business, not an investment. That is a business business business. Okay. And you know, I’ve made offers on a couple of these facilities, few years back even before I attended that conference. And, you know, I think largely, this is priced into the market. And it’s been priced into the market for a really for decades. I mean, I remember reading in the Orange County, California, because there are several orange counties, Orange County, California Business Journal in the late 80s. About companies that were gearing up for the graying of America. Look at this is not a surprise. This is one of the great things about what Harry dent studies and talks about, you know, you can predict demographics very easily, you know, unless everybody just dies and there’s a plague. You know, that if you got X number of million people today who are 50 years old, that in 20 years, you’re going to have x number of million of people that are 70 years old, right? That’s pretty easy to understand. And so this has been priced in a lot of this demand has been accounted for large institutional companies and mom and pop investors. They’ve created the supply Okay, this is not like there’s some big shortage of supply and this assisted living thing has shocked the world and like oh my god the market better rush to create supply and you know, there’s this golden opportunity blah blah blah. It’s just not true. Okay, yeah, there’s some opportunities you can make money doing lots of things in the real estate world. But thinking this is some sort of Holy Grail is a myth. It’s not okay. There is lots of supply. And you know, my late grandmother who battled with Alzheimer’s and dementia for 12 years, you know, we moved her around to several different assisted living facilities and there’s lots of supply these places are competing for your business. It’s not like you know, there’s some huge shortage here. Okay. my
Adam 12:45
in laws live out in the middle of absolute nowhere in Texas, and they have choices for the Living Center for my wife’s grandmother. So they’re everywhere.
Jason Hartman 12:55
Yeah, no question. You know, the one thing you’re going to get listening to our show and doing business With my real estate company, is you’re going to get a legitimate, honest, transparent view of the good, the bad and the ugly of the market. And listen, if you’ve been listening to the show for any length of time, you already, I’m sure believe that because we’re into the long game. Okay, we’re going to tell you like it is, at least as we see it. Of course, it’s our opinion. And you know, people are welcome to different with us, but they’ll just be wrong. Not that I’m humble or anything,
Adam 13:31
as long as they’re not arguing about interest rates, and they might be right.
Jason Hartman 13:34
Yeah, right. Right. Yes. Yeah. Fair enough. Adam, I i’ve been pretty wrong about interest rates. I’ll tell you that. But any thoughts on what Greenspan said I liked the metric of the 10% versus 1%.
Adam 13:46
I do wonder about his metric if it’s which way it goes. Because I would think that you would have to have the 1% increase in order for people to invest in the stock market and make it go up. 10% I kind of feel like it’s backwards from the way that they kind of presented in the article? Because if you don’t have the GDP increase, then you don’t have the money to put into the stock market.
Jason Hartman 14:09
Well, there’s a difference between GDP and capital formation. I mean, one equates to the other overall. But you can still have a lot of capital out there that has been saved or is available. That isn’t going I mean, it does indirectly. But it’s not directly going into the GDP. Right, though. So what do you think? I mean, what do you mean,
Adam 14:33
when the stock market goes up? It doesn’t actually increase the output capacity of the United States. So it seemed like you would have to have the output increase before you could invest in the stock market and make the prices go up?
Jason Hartman 14:43
Yeah, so this is a chicken and egg discussion, probably right. Because, you know, the idea being that if capital flows into these companies, then the companies have more wealth with which to invest In create new supply, right? They can ramp up their factories, they can expand their operations, they can hire more people, they can invest in more r&d or technology. And so all of this, it does come into the market. They I mean, you know, like anything, it’s complicated, right? Because is the capital there to invest? Well, if it is, then it flows into wherever it flows wherever capital is, you know, money goes, I love the saying money goes where it’s treated best. Okay? Money always ultimately goes where it’s treated the best. So business friendly environments. Meredith Whitney years ago, when she was on the show, we got to replay that interview, Adam because she was so right. You know, when she wrote that book, the state of the states and so money goes where it’s treated best in terms of the states you live in Texas. I live in Florida. Money’s treated pretty well here, not treated very well in New York and California. So it flows out of those places. To an extent, I know you can say venture capital Silicon Valley. I’ve heard it all before.
Adam 16:05
Okay. But you know, overall, the middle class money is flowing to where it’s treated best. I also will say, when he talks about what’s going on in Europe and with the entitlements, it does make a pretty good case for the Fed not raising rates for the rest of the year like they’ve suggested they want. So I mean, that is definitely something with the concern that we’re seeing in Europe and also a little bit in the United States. It doesn’t make it pretty likely that the Fed is going to have to stick with their we’re actually not going to raise any more this year.
Jason Hartman 16:32
Yeah. Well, I think you’re definitely right about that. I mean, the Fed as we’ve talked about before the Fed over get it they just really took the Punchbowl away too abruptly. And you know, Trump got on their case and he was right, they were just too aggressive that was too sudden what they were doing so you know, they they got the feedback and they toned it down and and so now you know, things are okay there.
Adam 16:53
Now of course, we’re assuming that Alan Greenspan’s speaking and acting out of one side of his mouth as opposed to when he was Fed chair and Lord on He knows what he meant by what he said. Yeah.
Jason Hartman 17:05
What Adam is referring to listeners is how Alan Greenspan always talked in hieroglyphics. You never could understand what that guy was saying. It was like talking in code. You know, compare that to Jerome Powell, who I think is just a really transparent kind of, you know, Fed Chair. I mean, he’s just really kind of a much more plain spoken guy, and I appreciate that. I like it. I like it. So, yeah, that’s interesting. Okay, what else should we talk about? You want to go into Zillow? Yeah,
Adam 17:34
Zillow boy, this is changing the game of real estate is changing. Now, this applies mostly to traditional home buyers and sellers, not investors very much, but I just thought it was, you know, I thought it was I thought it was interesting. So go ahead. We’ve got the article I post. That’s what you’re referring to. Right, Adam? Absolutely. So Zillow is starting to expand into the traditional buy and sell process in The Dallas Fort Worth area. They announced it late last year, but it officially launched Monday. And so they’re going to offer homeowners a no obligation cash offer. And if you accept then they buy your house prepared for showings and listed for sale. So it’s kind of a quick way to get out of it. And they have it in Phoenix Vegas, Atlanta, Denver, Charlotte, and I think one or two other markets. But I question whether this is something that will actually work in higher appreciating areas, personally,
Jason Hartman 18:30
well, why do you say high appreciating areas? What do you mean because
Adam 18:32
people have a sense of like myself being here in Austin, it’s skyrocketed over the years. And there’s just very little, there’s not really much transparency, you’re going to have to trust Zillow in this situation to be giving you the best price. Whenever they offer you the price they’re willing to pay for it. And if you’re in a high appreciating market, you’re going to say well, I don’t know my I think my home is worth more than that. Because, I mean, you’ve seen home prices going up so much. So I just question whether people are going to trust the offer they get from Zillow because it’s essentially whenever you sell your home usually you get your idea from your real estate agent, hey, I think it’ll sell for this much and then you actually put it on the market and get your fair market price with this is Zillow is going to make a profit. They’re gonna have to give you less than it’s worth.
Jason Hartman 19:20
Oh, absolutely. And that’s the big myth about these I buyers is they’re called and you know, we’ve talked about them quite a bit. The I buyer marketplace, whether it be Zillow, or open door or any of the many others out there. They’re trying to really, really commoditize single family home real estate. And I would caution sellers, that it will end buyers because it works on both sides of the market. You know, unless something is exposed to a marketplace, you really are in danger of not getting a fair deal on either side. You know, when there’s a marketplace, participants come in and they bid either way they did they bid up, they bid down, you know, they bid to buy, they bid to sell. I mean, look at we all probably listening all of us value the free market. And this is just an attempt to do an end run around that people been trying to do this for, you know, 30 years. Okay? But but the technology really is better and the data is better. Now.
Adam 20:24
I also wonder how it will work out when another recession hits, especially if we have another great recession. Because if Zillow buys up all of this property, and if they get big, and they’re continuing to do that be stuck with it. As soon as there’s a big downturn. What do they do? Yeah, well,
Jason Hartman 20:41
what we’re seeing here is a symptom of these tech companies, these platform companies, they just have more money than brains. I mean, they got to do something with their money. So look at you know, if I was in the position where a bunch of venture capital or or Wall Street money came in, Me, I would try to figure out a way to spend it to, you know, that’s what you’ve got to do. They’re not all making great decisions. You know, this is why, when you are a small business that is not funded by these external sources, your business model tends to be much more stable because it’s real. A lot of these overfunded companies, they do silly things. I mean, look, we all saw it. We’re seeing it now. But we all saw it, because now it’s played out. And we saw the result during the.com bubble of 1999 2000. And even in the 2001, you know, remember that the sock puppet for pets.com, you know, web van, delivering groceries, all these silly companies and silly ideas that just didn’t tap into the existing infrastructure of the world out there. They thought they could do a better they had to do it their way, you know, and it was dumb. Okay, and they just had more money than brains. And that’s what happened. Even really sophisticated people and really sophisticated companies, with an army of financial engineers and then MBAs, ultimately at the end of the day, if investors are throwing money at them, whether it be VC investors, angel investors or Wall Street money, they gotta go spend it, and they’re going to spend it. And a lot of times they’re they’re spending of that money or quote, unquote, investing, that money will just not be prudent. They’re just looking for a way to deploy capital. And, as we’ve talked about many times, when it comes to just a single real estate deal, in institutional investor will accept a much lower return than any of you listening. Okay, if you go to Jason Hartman calm, click on the properties section, and look at the properties we have now. Admittedly, you know, inventory is scarce, but it’s getting better. It’s not as bad as it was last year. We definitely have more inventory now, but it’s still overall scarce right. You’ll see property These are much better deals than a big $30 million apartment complex that an institutional investor will buy. When you have to deploy a lot of capital, you’re just willing to take kind of lousy mediocre deals, really. And it’s counterintuitive because I always thought, I always thought, Adam, that if you had a lot of money to invest, you are going to get the choice deal, you are going to get the best deal. Not true. It’s the opposite. it’s counterintuitive. You know, whenever I buy something, and I’m sure you’ve experienced this too, and I do a bulk purchase, I buy a large quantity of something. I expect a better deal. You know, I’m a big buyer right? I got money to throw around, give me a better deal. You know, if I order printing or supplies or you know, do more advertising with a company or whatever, right? I if I’m a big client, a big fish and I’m spending a decent amount of money, I expect a better deal but the moment opposite is true in the institutional real estate game. And that’s why investors, here’s something to be aware of let the buyer beware, caveat emptor, right? Is the Latin, beware of these companies out there that say, Well, you know, through our crowdfunding platform, or through our fund, you’re going to have access to institutional grade investments, or institutional quality investments that usually the little guy doesn’t have access to. That is such a load of crap. I mean, okay, well, it’s true that you’ll have access to these institutional quality investments, but the quality sucks. You can get much better quality at Jason hartman.com slash properties. It’s just so counterintuitive. It’s funny.
Adam 24:49
Yeah, I mean, you’re fighting against the people who have the same amount of money as you and who don’t necessarily have to sell so they know that you have to deploy a lot of capital. They have A lot of capital themselves so they don’t have to give you a great deal.
Jason Hartman 25:03
Yeah, this is the problem. And you know, we did not get time I was going to do a little presentation on this at meet the masters. I saved it for the podcast because well hey, it meet the masters. We have the same problem this year that we’ve had been prior years. We have too many speakers. So we never get enough Jason time. But I’m going to do it on the podcast. And I’m it’s kind of centered around Warren Buffett and his giant problem. And his giant problem is he has the burden of deploying massive amounts of capital. And you investors listening have an advantage over Warren Buffett, because you don’t have that burden. You only have to deploy a small amount of capital, your own. And the other problem you get into is like with government, when it’s somebody else’s money, nobody cares. They just don’t care like you do when it’s your own money. Which Adam leads us perfectly to Another question of Grant Cardone, we got this great question from a listener the other day, but guess what? We’re at a time. So let’s say another day. Yeah, let’s answer that on another episode because I saw Grant cardones presentation. Now he is a real estate investor. Well, he’s really a fund manager. He has a real estate fund. He I saw the whole pitch and interestingly or sadly, it was the night of the Las Vegas shooting. I was with him that night, I saw his presentation walked out onto the balcony of the foundation room and and witness that horrific event. But we’re talking about the real estate investment has itself I was not impressed with that pitch for a variety of reasons. And we will talk about that on a future episode. Maybe we’ll get that in this weekend. So let’s adjourn for today. Thank you all for listening. Go to Jason Hartman comm check out our Savannah mastermind event coming up, that’s going to be awesome focus on tax lien and tax deed investing. I think we’re going to have two great speakers for that. I thought we were just going to have one but we’re working on the second speaker, who is a retired attorney. We’re working on getting that one booked as well for that event, and it’s just going to be an awesome event. Savannah is a super cool. Good to look like the consummate Southern belle city. It’s it’s really great. Right next to Charleston, one of our venture Alliance mastermind members is taking a trip to both on that trip. So it’s going to be a really neat event. May 17. Jason Hartman calm for more info on that. And Adam, thanks for joining me today.
Adam 27:38
Have a good one, everyone. Happy investing.
Jason Hartman 27:43
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