The rate of homeownership in American has changed little over the past half-century, and the government has wasted its time trying to fix it in recent decades, says real estate investing expert Jason Hartman.
Hartman opined on the US homeownership rates during a recent airing of his popular podcast on real estate investing, “Creating Wealth.” Along the way, he’s critical of attempts by presidents Bill Clinton and George W. Bush to increase homeownership numbers and, of course, gets in his digs at the likes of big government in general and Wall Street.
And there’s more for you as a real estate investor: Also in the podcast, Hartman talks about how it’s important for investors who are steadily building healthy portfolios to take part in a “masterminding group,” such as Hartman’s Platinum Properties Investors Network Venture Alliance. He says masterminding is a way for you to make important connections and share experiences with others who are following your financial path.
Why It’s OK That Homeownership Remains Steady … or Even Drops
Spurring the subject of US homeownership rates was a Washington Post commentary that Hartman read a couple of years ago, headlined “The diminishing returns of today’s homeownership policies” and written by Charles Lane.
The piece starts out: “It’s official: Over the past couple of decades, the United States spent vast amounts of time, energy and, above all, money—both private and public—to raise the national rate of homeownership, with exactly nothing to show for it. The Wall Street Journal reports that 63.9 percent of U.S. households owned their residences in the fourth quarter of 2014, precisely the same percentage as in the third quarter of 1994.”
Hartman’s recent podcast was actually a “Flashback Friday” episode in which he replays popular podcasts. Since this episode originally aired in 2015, the homeownership rate still has changed little. It was 63.7 percent in the fourth quarter of 2016, which was down just a tad from a 63.8 percent rate a year earlier, according to a report from Housing Wire earlier this year.
In fact, as the 2015 Washington Post opinion piece notes, the current US homeownership rates even mirror what the rate was a half-century ago.
The homeownership rate did reach an all-time high of 69.1 percent in early 2005, after presidents Clinton and Bush pushed policies to raise the number of homeowners, according to The Post.
Clinton announced a “national homeownership strategy” in June 1995, with an explicit goal of 67.5 percent homeownership by 2000.
A few years later, his successor, Bush, declared his vision of an “ownership society” with a target of 5.5 million new minority homeowners by 2010. But then came the real estate fallout of 2008, which pushed the rate downward to its steady levels of 63.7 to 63.9 percent from the past 50 years.
“Whether you blame Wall Street, Washington or some combination of the two, the simple fact is that government and business sold millions of people an American Dream that could not survive a sour economy, with nightmarish results for them and for the country,” The Post op-ed continues.
“Now, see folks, we got two sides of the political aisle here,” Hartman says of Clinton and Bush and their respective housing strategies. “We got ‘Slick Willy’ and George Bush, who’s a Democrat who happened to believe in God. There you go. My analysis of those two presidents.”
As for the current US homeownership rates being a mere 1 percentage point higher than it was 50 years ago, Hartman says: “Five decades ago! The homeownership rate now, after all of this massive government intervention and government stupidity and probably lobbying by the National Association of Realtors … after all of that, five decades pass and we’re only 1 percent above in the homeownership rate.”
This conclusion from Charles Lane in The Post would really get Hartman’s juices flowing in the podcast: “Far from being a no-downside investment, a typical 30-year, fixed-rate mortgage places a highly leveraged, illiquid bet on a single asset class, real estate—in violation of the first principle of investing, which is to diversify risk.”
“Hmm, let’s turn the table here and suppose, this is my commentary now, that we’re not talking about homeowners,” Hartman says. “Now we’re talking about ourselves, we’re talking about investors, right? One of my 10 Commandments of Successful Investing (the sixth) is to take the path of the most historically proven asset class (real estate), but diversify geographically, because … why is that important? Because all real estate is local. All real estate is local.”
“Remember, there are about 400—not quite, depending on how you slice it, I’m doing it the MSA way, the Metropolitan Statistical Area way—distinct real estate markets in the United States of America. Here, what you’re doing is you’re getting these people who are essentially renters (to buy a home in their market). This is how bad the government policy is when they make these loans too easy to get.”
“You’re getting people who are essentially renters, OK, in economic terms like (Lane) talks about, placing all this leverage on a home, not being diversified, because they can’t even afford one home, OK? They shouldn’t even be buyers at all, right? And then they’re highly leveraged and, remember, your home is an expense, it’s not an investment, it’s not an investment. It is an expense.”
“Anything that costs you money and does not produce income is an expense. It is not an investment. Investments: Guess what they do? They produce income. You know, one of my cardinal rules, by the way, is that if it does not produce income, it is not an investment, but rather a speculation or a gamble. All right? That’s it. It does not produce income. Then it is a speculation or a gamble, not an investment.”
Why does all of this matter to you as an investor who specializes in income rental properties?
As Hartman notes, for your benefit: “Every 1 percent in a drop in the homeownership rate equates to approximately 1 million new renters. Wow—are you getting greedy? Are you foaming at the mouth there, listeners? I hope so, because that’s really good news for investors, and this is another reason the homeownership rate should decline.”
Hartman says it does not make sense for the government to try to increase the homeownership rate “from any free-market, Austrian-school-of-economics-type of perspective.”
Also says Lane in The Post op-ed piece: “For all its professed free-market principles, the United States is unique in the industrialized world in the degree to which its national ethos stigmatizes renting and its national government subsidizes mortgages, through the tax deduction for mortgage interest and Fannie Mae and Freddie Mac guarantees for securities backed by 30-year mortgages.”
“So,” responds Hartman, “there again is one of the beauties of being an income property investor in the United States: It is unique in all the world.”
“You can can’t do this kind of stuff as an investor in Australia, New Zealand—both gorgeous countries I’ve been to and I tell you, I would totally live in either of those places, they’re beautiful places, really friendly people, too. You can’t do it in Europe, great place. I was born in Europe, OK, you can’t do it there. It doesn’t work. You can’t do it in Asia, it doesn’t work there. You can’t do it in the Middle East.”
“It just doesn’t work anywhere in the world like it does in the United States. This real estate market is unique in all the world, because ever since the Great Depression, income property and homeownership have been subsidized by the government.”
“So, if you want your share of the government bailout, be a real estate investor and own as many properties as you can, because you are basically getting your government bailout.”
Hartman doesn’t think that you as an investor should pay much heed to the idea of hiking US homeownership rates in general.
“I know coming from a real estate person probably many of my peers would say they hate me for saying this, but I don’t necessarily think good homeownership rates are good for society,” he says.
“It’s sort of this kind of primitive idea, OK, and George Bush talked about it, Bill Clinton talked about it … and it led to a lot of bad decisions that led to the financial crisis, the sub-prime mortgage meltdown, etcetera.”
Master Your Universe As Part of a Mastermind Group
Having already discussed his sixth commandment in the 10 Commandments of Successful Investing, “thou shalt diversify” your portfolio geographically, Hartman turns to his third commandment to explain the concept behind his Platinum Properties Venture Alliance mastermind group.
The third commandment states: “Thou shalt maintain control: Never leave your financial future in the hands of incompetent, unethical, or greedy brokerage houses, fund managers or corporations. Always be a direct investor.”
Why should you maintain control and be a direct investor? As Hartman notes in the recent “Flashback Friday” podcast, when you have a partner in a deal, “you might be investing with a crook, you might be investing with an idiot—if they are honest and competent, they take a huge management fee off the top for managing the deal.”
That is the problem with Wall Street, he says, as well as investing your money in some kind of fund or pool. “But,” he adds, “there’s a problem of being a direct investor, too … you can’t do big things by yourself, so you need other people, you need other investors.”
Thus, you need to consider joining a mastermind group.
Such a group, Hartman says, comprises “people that you know, like and trust that’s a fairly small group of people that have resources, that have connections, they have money, and they have knowledge. And these people come together and they do deals together.”
Relationships, gaining knowledge and getting connections are the three main reasons to join a mastermind group like Hartman’s, he says.
As far as relationships are concerned, “everyone knows that extending your network is a key to success, and mastermind groups are an easy way to go about it.”
“The main reason that people have joined country clubs over the years … though they’re not as popular as they used to be … but people want to be around a concentration of high-level people,” Hartman continues.
“When you join a mastermind group, your circle is instantly expanded—you’ve suddenly got a lot more connections and relationships with fantastic, successful people. This can help boost your business dealings, and your life overall.”
Gaining knowledge, meanwhile, is easy with a mastermind group, because what you don’t already know can be augmented with the collective intelligence of others—namely successful and experienced people.
Hartman describes his own mastermind group with Platinum Properties as a “network of elite high net worth investors, business owners, and entrepreneurs who have joined together for enhanced investments which are not available to the general public.”
Conferring with these new colleagues on business matters is a sure-fire way to learn new things.
“One of the things that I face is that, almost daily, people are pitching me on ‘deals,’” Hartman says.
“It’s mind-boggling, the creativity of the deals that people are pitching me on—I get phone calls, emails, I get approached at events, it’s just constant. You know, a lot of these things seem hokey, but some of them seem pretty interesting. They’re not things that I’m sure enough about that I’d put them on one of my podcasts, like the ‘Creating Wealth’ show … but they’re probably at least worth consideration.”
“One of the things that I think mastermind groups can do is to look at these deals—stuff that’s out-of-the-box ideas that we know work so well—and see if they’re worthwhile investments.”
Finally, there’s the mastermind group getting you connections. Hartman over the course of his career has made connections with a variety of successful people, and he credits those connections in part to the success that has made him a multi-millionaire.
“If you’re just looking into buying your first property, a mastermind group isn’t for you,” he says.
However, “If you’ve been investing for a while, and you’ve seen the good, the bad, and the ugly, this may be exactly the platform you need to make connections to get further.”