In this episode of the Creating Wealth podcast, Jason Hartman took the helm alone and covered several topics relevant to the world of real estate and more.
He discussed interest rates and how if they continue to rise, there is going to be a bigger inventory shortage, and he mentioned that with rising interest rates real estate deals might look worse for the moment but will improve over time.
He also looked into a market profile of the Memphis, TN market, news in the world of Bitcoin and cryptocurrency, and mentioned several exciting events to come.
Rising Interest Rates and Real Estate and the Inventory Shortage
Jason Hartman begins the episode by mentioning that he is reading over the results of a survey that his listeners and clients filled out last weekend. There have been over 200 responses thus far, and though he plans to read all of them, he has only gotten 100 read. The results were very enlightening and as usual, he states that he has learned a lot from his clients about investing.
He notes that a big part of his job is to feed information back to his listeners so that they can learn from each other. In client case studies and other pieces of information he receives, he likes to share the information back to you, the listeners.
Hartman also mentions that he is very honored to have his listeners and clients because he appreciates the business and the feedback. It’s often humbling to read surveys ,and at times it is gratifying. When he hosts events and gets the evaluations back, he reads each one of them. He notes that he is going to finish reading the surveys, but there are a lot of them to get through.
He states that the Fed is meeting and talking about raising interest rates again. This is making the inventory shortage even worse because with rates going up, it creates a sense of urgency. People, as part of human nature, are often motivated more by fear of loss than desire for gain. When rates are low and there’s no urgency, people aren’t extremely motivated. Taking something away causes people to fly into the market and buy all that they can.
Business is booming, and with the market being so much busier, the shortage can be expected to get worse with a rate increase.
Hartman then tunes into a Wall Street Journal news brief where the journalist speaking warned listeners to keep an eye on the deposit interest rates at their banks as they might be getting ready to move higher. He also notes that the Wall Street Journal’s real estate team says that the housing crisis is centering on too few homes being built. With not enough new construction, fewer homes are being built in America than any time before. The demand for housing us up, supply is down, and construction prices have nearly doubled since the last housing boom over a decade ago.
The Challenge and Benefit of Property Struggle
Hartman explains that every cloud has a silver lining and that the harder it is to get a good property for investors, the better the reward will be once you’ve acquired it. This is very good news in some ways and can mean difficulties in many others. The shortage of inventory is definitely a challenge. Many of those who filled out the surveys said that properties were out of their price ranges and that they were expecting better numbers.
Hartman states that he feels the same way, but that we could have had the better numbers within the past few years. It keeps getting more challenging but the return on investment might get better in the future. It’s important to remember that for every 1% in interest is about 10% in purchase price. If you’re planning to wait for a crash, even if you predict it correctly, you’re probably going to be mistaken based on the multidimensional aspects of your investments.
He also mentions that in the survey, he asked if clients were facing challenges while trying to build their real estate portfolios. 49.71%, almost half of those who answered, said that searching for the right properties is the biggest challenge. Some clients have purchased many properties but are tapped out cash-wise. Some want more properties but need more money to put down.
10% stated that they cannot qualify for traditional financing anymore, due to having more properties than what is covered under agency loans.
13% of those surveyed say that they’re too busy and do not have the time to focus on buying more properties. Hartman notes that these are the clients he is concerned about, as they may find themselves easily wooed by the commercial for TD Ameritrade because of how easy it looks. He warns that Wall Street makes it easy to part you from your money and advises listeners to be careful.
He explains that investments take time, and his team does what they can to make the process easier, but it does take time. There is no such thing as a passive investment. Even the bank is not a passive investment as we must be engaged in our activities. He notes that the times he lost out on deals was because he was not paying enough attention. The amount of time and commitment is so positively out of proportion with the great results you’ll get.
Hartman mentioned that in the survey, clients were asked to rate their investment counselors and there was a problem with the way this was recorded. The ratings were very positive, but he notes that there is a science to designing surveys. Some clients do not have investment counselors and still recorded a rating. This is a survey flaw, and Hartman explains that it will be fixed on the next survey.
Overall, the average rating was 4.33 out of a 5-star rating. 61% of surveyors gave their investment counselors five stars. 19% gave four stars. 14% gave three stars. 4% gave two and 2% gave one star. Some of these lower ratings were given by people who do not have a counselor, and overall, for actual counselors the ratings were positive.
Memphis Market Profile
Hartman takes a break and plays a market survey for listeners, which is focused on the Memphis area. The man issuing the profile states that year after year, Memphis has a steady market that investors can continually come back to, and the reason behind it is the workforce. Memphis is a logistics town, and their shipping lanes send out a lot of products. They’re centered near three different interstate systems and have plenty of warehouses, workers, and quality properties available. This makes Memphis very attractive for investors.
The FedEx headquarters is also in Memphis, and it is the world’s largest air cargo hub. St Jude’s Children’s Research Hospital is also an amazing place in Memphis. They’re dedicated to saving babies and children from cancer, and the hospital is a large employer in the city. They’re building onto their campus with a $9 billion expansion. Hilton Worldwide also employs 2500 people in the area.
The speaker mentions that as for other developments in Memphis, the Sears Crosstown building that has been a logistics area since 1927 is undergoing a $280 million renovation after Sears went out of business. There are new hotels being built. Nike now has a warehouse where all of its items are shipped from Memphis, which has created 30,000 jobs. Workforce housing is needed for these employees.
The speaker states that his typical rental profile includes both duplexes and new homes, which cater to both the working class and corporate employees. He mentions that he aims toward nicer properties, as they draw in the best tenants. He also avoids the Northwest and South sides of the city. He has new constructions in the east in Cordova, Tennessee. He mentions Whitehaven as well, which is by Graceland, Elvis’s house.
He mentions that Cordova is a county-only tax area, which makes the returns on investment quite high for investors. He has sold 280 properties with an average price of $101,000 to investors. The average renovations cover the roof, hardwood floors, and mechanicals. This makes up 65% of the renovation budgets and the rest is cosmetic.
His inventory is now 84 properties under contract and 47 available at the moment. He manages 1850 doors, and more are to come. He states that 98% of his properties are occupied, with an average tenant stay of 2.75 years. He has less than 1% in evictions and rent increases at a steady 5% yearly. Maintenance deposits for investors are $500.
No Such Thing as a Passive Investment
Hartman returns to the issue with life becoming too busy and that several people have mentioned that they aren’t impressed with one of the management companies in Memphis. He states that he is not going to mention the name of the company receiving negative feedback but that there is one Memphis company he’s happy with. He notes that he does get some complaints on managers, and it has been his biggest challenge.
Last episode, he discussed moving toward self-managing and really encourages it for owners who have some experience but not for people who are new to the business.
Overall, Hartman states that the survey has been very enlightening and thanks his clients for their feedback. He notes that his team did not receive any negative feedback, but some people in the network did. It’s a frustrating thing, he says, because we are not the manufacturer, and it is challenging to keep them on the ball. He mentions that in the past he has had faith in some manufacturers that have been disappointing and didn’t believe in others who ended up doing great work.
Hartman explains that there are some challenges you don’t solve, rather, you manage them. Again, he thanks his clients for filling out the surveys and notes that the average time spent on them was four minutes. Check your inboxes for a survey if you have not received it yet.
IRS is Coming After Bitcoin Owners
Hartman mentions that if you own bitcoin, the IRS might be knocking on your door soon. The government has recently gotten ahold of Coinbase records, about 13,000 of them noting more than a $20,000 collection of coin that was not reported to the IRS. The tax man cometh now, and though there may be some amnesties, they’re probably going to make an example out of some people, and some may be facing prison sentences.
Unfortunate News Out of Arizona
There was also some rather sad news out of Arizona putting the three basic value drivers in real estate under siege. In Scottsdale and Tempe, AZ, Uber has been employing a few self-driving cars and recently an accident occurred when a self-driving car hit and killed a 45-year-old woman. Though this is terribly sad, very few people are asking the right question, compared to what? If the number of hours these self-driving cars have been driving, with one fatality, and compared them to the number of human hours driving, what would the average fatality have been?
The technology of self-driving cars will ultimately be perfected and will both be safer and massively impact the three value drivers: location, location, location.
Hartman begins wrapping up the episode by mentioning that any questions listeners have, as well as any comments can be posted at www.jasonhartman.com/ask. He thanks the people who have signed up for the upcoming Northeast event even before the location has been announced. He is still negotiating the last details of hotel deals. The event will either take place in Washington DC or Philadelphia. Early bird pricing is available at www.jasonhartman.com/events. He states that he looks forward to seeing all of you there, as there is only one Creating Wealth event planned this year.
He states that he has also decided to do a resort location event and advises listeners to plan to go on vacation with his team in Hawaii in October or November of this year. He is planning to do a new type of event there, so if you’d like a vacation in a tropical area, join him in Hawaii.
The Venture Alliance trip is also scheduled for New York City in May. Plan to be at that event as well.
Hartman states that he is very excited about the Ice Hotel event coming up in a couple of weeks. He is leaving for Sweden in just over two weeks and plans to do some incredible things once there. The group is going to visit Stockholm as well and has plans to have lunch on an island, being ferried there by helicopter.
Hartman is also trying to create unique experiences by planning a summer event in Europe with details of that to be announced in the future.