In this Flashback Friday episode of the Creating Wealth Podcast from January 2016, Jason Hartman discussed the changes in the scientific community regarding the developments they’ve made and the way that theories have been wrong in the past. He also covered his predictions that came true regarding Obamacare and the tax penalties people choose over the high cost of healthcare coverage.
Later, he met with the Real Estate Guys Russ Gray and Robert Helms at the IMN Conference where they discussed the impact of technology on real estate. The Real Estate Guys offered their predictions for the future and explanations on why numbers can be manipulated to drive a certain point.
Split Archives Due to iTunes Limits
Hartman begins the episode by letting listeners know that the podcast’s archives have been split up due to necessity. There are so many episodes that the limits of iTunes won’t allow all of the episodes to fit into a single archive. Episodes have been divided into segments of 100 episodes each.
He is going to play an interview today with the Real Estate Guys, having interviewed them at the IMN Residential Conference. IMN stands for Information Management Network, a conference company that has about half of their portfolio involved in some way with real estate. Hartman states that he got to speak to their audience and express his thoughts on holding versus flipping properties.
He recalls some of his real estate experience, when he worked at Remax in his early 20s. At 24 years of age, he sold 78 homes as a traditional real estate agent. He notes that some of the older people were jealous of his success. They thought that he was cheating the system in some way, perhaps cutting commissions in order to get deals. They were convinced that the only way a young person was able to be successful is through doing something wrong, even though Hartman was aware that it’s illegal to fix commissions.
He explains that in some form or another, big companies engage in price-fixing practices. There are software systems they use that scan the internet for competitors prices so that they can charge one penny less.
Some Errors in the Scientific Community
In leading to another prediction that Hartman has seen come true, he mentions that he and his friend Danny were debating the concept of climate change. Hartman states that he isn’t claiming that he has the answers, but he has questions. He asks if climate change is happening, and if it is, is it a problem? If the planet is warming, doesn’t that make all sorts of new places on Earth open to people and species? Is climate change real? Is it bad, and what is the cause of it?
He notes that climate alarmists will say that the change is cause by CO2 and admits that years ago he thought that claims were referring to carbon monoxide. If it is indeed caused by CO2, aren’t people making the Earth worse every time they exhale, he asks. People aren’t going to voluntarily stop breathing.
He mentions the “do as I say, not as I do” mentality that people in power tend to exhibit. For example, Hillary Clinton and her speech on how guns do not keep people safe. Hartman notes that Donald Trump recently called her out on this statement by encouraging her to disarm her bodyguards if that was true. Diane Feinstein is another, who has carried a gun in her purse for decades but wants gun control for everyone else.
Hartman states that the scientific community used to believe that Earth was flat, the sun revolved around the Earth, and that the entire universe was Earth-centric. The community used to believe in the use of leeches, bloodletting, lobotomies, and they still believe in absolutely horrible pharmaceutical drugs that kill people.
Pharmaceutical companies have a lot of blood on their hands, and the scientific community isn’t a monolith. Science develops all the time, and there is always the difference between what we know now and what we will know in the future. Years from now, scientific theories will be different than they are today.
Confirmed Predictions on Obamacare
A prediction of Hartman’s that is coming true was presented in a recent Newser article, stating that many people find life cheaper without Obamacare. For some, the tax fines are cheaper than having health insurance. We know this, because we are active thinkers.
With Obamacare, many Americans have decided to forgo the expensive health insurance premiums and pay the fines instead to save some money. The New York Times states that this may be because the insurance policies end up costing much more than the fines.
Hartman notes that he predicted that this was going to happen the second that the bill was passed, with politicians cheering over it at midnight Pacific time when it was confirmed.
Exercise Prevents, Treats, Cures Basically Everything
Hartman is reminded of an article that he discussed last year, noting that it’s important to cover again as we invest for the future. As investors, we are doing the right thing and we have got to get payoff out of it, he says. The article he talked about a year ago says that exercise prevents, treats, or cures basically everything.
He explains that if there were a drug that could prevent chronic illnesses and we did not make it available to everyone, we would be holding back a medical miracle. If it was offered for free in the United States, a country that spends billions of dollars in medicine, where the average 80-year-old takes eight medications a day, we’d be foolish not to encourage the treatment.
The treatment is exercise. Hartman notes that it’s easy to exercise. He bought his mother a Fitbit for Christmas recently, and has one himself. He wears it all the time and advises listeners to get 10,000 steps in a day and there isn’t much else necessary. Cut down on carbs and sugars and you can do whatever else you want. If it helps to get your steps in, go down to the local animal rescue and get a dog. Hartman is on his fifth dog, Coco, who will be at the next Meet the Masters event. She’s knowledgeable about real estate, as she listens to all of Hartman’s podcasts.
More Tenants Than Ever Before
Interviewing the Real Estate Guys Robert Helm and Russ Gray at the IMN Residential Conference, Hartman discusses with them the impact of technology on real estate, and predictions for the new year. He asks if the pair believe that we are in a recovery the way the powers that be want us to believe we are.
The Real Estate Guys mention that everyone wants to know what’s going to happen, but the law of expectancy plays a role as well. If we expect things to go well, we set up our lives in a way that can make it so. In a real estate market, we can make money in an up, down, or sideways market if we have a good strategy.
Gray states that when we look at the bigger economic picture, things are difficult to follow, because a lot of the data we’ve been given has been manipulated in some way. He references a discussion at the conference the previous day regarding unemployment, stating that unemployment is down. He notes that we have to ask ourselves how they’re coming up with their figures. If they’re only using factual numbers, they’re leaving out a ton of people in the factoring. We have more jobs in the market than in the past and the work that people do is different from what it used to be, he explains.
He notes that it’s good news for real estate investors because it means that more tenants are in the renters’ pool. More people are renting than there are owning. Helms explains that if he were in the business of selling homes to owners, he wouldn’t be as happy about this, but if he is in the rental business, he’s in a good place. Where we are is an important thing to ask ourselves.
Failure to Adjust Hurts Real Estate Investors
Hartman states that income property is a multi-dimensional asset class, and that we have to adjust our strategies to fit the markets. When real estate investors fail to adjust, their business suffers. He notes that perhaps the overall sales market isn’t as robust as before because people don’t all have corporate jobs that allow them to qualify for home-ownership. Some people have non-traditional jobs.
Helms agrees that for those people, it’s hard to finance because they are not able to qualify for a mortgage. Today’s worker doesn’t always have a W2 form of income, but he notes that the circumstances regarding this might improve in the future. However, the population is increasing, and people still need more units.
Hartman states that with the population increase and the housing stock, investors have a lot of work to do in the field. It isn’t simple to create homes.
Helms mentions that the technology of today has developed to where people in their line of work can have podcasts that reach people in different states and countries, when traditional radio didn’t work that way. Technology influences they ways that real estate is reticulated, but no technology is ever going to replace the need for people to live under a roof. Housing is a need that’s going to continue to exist.
Hartman agrees that the real estate industry is a hard need. Everybody needs a place to live, as it is one of the basic human needs along with food and clothing. He advises listeners to let people take care of that need by renting their shelter from an investor, and reiterates the impact of technology on real estate.
He notes that Russ Gray was talking about one of the panels from yesterday and referred to the discussion that was presented by a Federal Reserve branch about an issue with employment.
Manipulation of Data to Push a View
Gray explains that people are in a state of confusion because a lot of the data that they’re receiving has been manipulated. People in control tend to have an agenda behind the data they put into the world and while he states that he doesn’t know if there is evil intent behind it, he does know that the higher ups have their hands on the levers of economic control. They try to move certain numbers and they often have their ideas backwards.
He states that housing is a reflection of a healthy economy, not the core of it. Adjusting the housing market does not fix problems in the economy. He compares it to saying that 96 degrees is a healthy temperature for a human body, and then throwing a dead body into the oven to warm it up to a healthy temperature. It’s what he calls “zombie economics.”
The panelist yesterday stated that labor participation was low, meaning that there are less people participating in employment. Many people are blaming the baby boomer generation, but it isn’t an accurate blame. Jobs are being created in the 55 and over group, Gray says. Elderly people are having to come out of retirement because they don’t have enough money to live on. Millennials aren’t getting some of the jobs on the market and they’re burdened with student loan debt while living with their parents.
Can’t Keep the US Down for Long
Hartman mentions that he heard a Generation Y representative say that their generation likes their parents and they don’t mind staying close to them, but there comes a time where they do have to want to leave sometime, Hartman states.
Gray notes that he has six children and nine grandchildren. Some of his kids have gotten married and moved away but he has boomerang children as well, that leave home and then come back. He states that they all get along and families are conditioned to help each other but eventually they want to settle down. When that time comes, housing will be high on their list of priorities. He notes that the US can’t be kept down for long, even with economic distress.
The pair reflects on a job they each had when they were younger, before they knew one another. They referred to the position as being “petroleum transfer agents” meaning that they pumped gas for customers. During that time, they watched gas go from forty cents a gallon to over a dollar. The dollar lost 50% in the 1970s. Things were and are changing and sometimes real estate investors don’t keep up with the changes. It’s a mistake because by nature investors are maverick people, but at times they miss the megatrends appearing in the economy, demographics, and geographics.
For example, the Dallas and Fort Worth markets at one time could have units added to them all day long. LA was once this way too, but at some point, one city started to run into the next. The Dallas market is heading that way. The market is changing, becoming less of what it used to be, though it is still a good market.
Hartman adds that rents have increased somewhat, noting that a lot of places experience this. Prices are always ahead of rents, to where the rents need to catch up to price increases. Some markets don’t have the flow they used to, but he states that it’s still possible to get C and D class properties for a decent price, but the high-quality properties are going up.
Helms notes that housing rents aren’t as good as the once were as well. It’s harder to make the numbers work, so changing as an investor is necessary. There were times where flipping houses was easy, now you need a good strategy to make it work.
Technology in Real Estate Building
Hartman asks about market predictions, where we are going from here. He points out that when it comes to the impact of technology on real estate there are some interesting developments coming about. He recently saw an article about 3D printed houses becoming available but reminds listeners that though 3D printing can create homes, materials are still needed. Even if construction is easier, commodities are still required to make housing work.
Helms recalls that when he and Gray were petroleum transfer agents, cars had carburetors, and now they’ve got fuel injectors or electric motors. That being said, cars still perform the same tasks. Houses as well will still be built, and the higher quality might be good for value and price. With the technological overlay, systems are developing in houses and smart homes are making progress. This is great news for investors, as it allows us to be aware of what resources we’re using so that we can make our usage stable. There are a lot of exciting technological aspects developing in construction and it’s all good for real estate investors.
A Mature Industry
The group state that they’re noticing the maturation of the industry, having heard several speakers announce that they own hundreds and even thousands of units.
Helms notes that this used to be a mom and pop industry but there has been a shift since 2008 when big companies came in and scooped up the inventory. These people have developed their skills, are more nimble and smarter than they were before.
Gray notes that technology has helped in terms of marketing, finding deals, and determining good and bad markets. In this industry, people are smarter because they have better tools. There is access to data and we can think through issues quicker with information so accessible. We can listen to podcasts rather than conferences as well. It’s harder if you aren’t keeping up, but someone is. Someone is paying attention.
You Don’t Have to Invest in Your Backyard
Hartman also adds that there is the option to geo-arbitrage. A panelist yesterday stated that 80% of single-family homes are owned by people who live within ten miles of the properties. Mom and pop investors tend to work close to home, but smart investors know that they don’t have to invest close. They have the option to go across the country thanks to technology.
He reminds listeners that it’s important to diversify and being in 3-5 markets is ideal. He made the mistake of trying to over diversify in the past but recalls that this much diversity is very difficult to maintain.
In closing the podcast, the Real Estate Guys note that their information and podcasts can be located at www.realestateguysradio.com.
