With real estate being on the verge of a self-management revolution, many investors are stepping in to participate in the challenge. Because there are things that every income property investor should know about self-management, Jason Hartman outlined some of the key information during this episode of the Creating Wealth podcast about the importance of self management.
He then spoke with the CEO of the NHP Foundation, Richard Burns. Together the two discussed the affordable housing crisis and how today’s methods are not providing enough housing for moderate and low-income families. Burns explained his solution to address the crisis and issued points that might be a benefit for all parties involved.
The Self-Managing Revolution and the Importance of Self Management
Jason Hartman begins the episode explaining that there was an issue with the iTunes feed last week and offers his thanks to listeners who reported it. He mentions that should his listeners want to reach out about anything at all, comments and questions can be posted at www.jasonhartman.com/ask. He states that he’s behind on the questions he’s been asked but plans to catch up as soon as possible. He appreciates each question and comment and explains that a lot of the time, investment counselors will answer them, or he addresses them during his everyday monologues.
He states that there have been good things in real estate this week, and that we’re on the verge of a revolution, the self-management revolution, that is—which is why he’s talking about the importance of self management. He mentions that a client who has been on the show a few times has recently been convinced to try self-management, as Hartman has said it was the way to go.
He recalls that twenty years ago when the internet was first all-the-rage, there was a term that was thrown around a lot: disintermediation. If there’s one place that this can happen in a positive way, Hartman says, it’s in the world of relationships between you the investor and your tenant. It’s important to remember that tenants are your customers, and it’s in your interest to make them happy.
Hartman explains that sometimes when we stick an intermediary, the property manager, into the equation, it can be like sticking the government in where they do not belong. Self-management isn’t for everyone, and investors need to know what they’re doing, but the importance of self management is something to consider.
Drew on the Importance of Self Management
He plays a clip that his client Drew recorded on Voxer, the same client that was recently convinced to try self-management. Drew explains in the clip that he’s much happier now, and he’s had a chance to speak with his tenants and sort out various issues that were present in the past. Removing the level of bureaucracy between himself and his customers and keeping humanity in the equation has made for better relationships with them.
In the past, Drew explains that he waited an entire month to have a minor accounting issue fixed by the property manager, and his tenant was being nagged daily about being late on a rent payment that was not actually late. Removing the property manager was a happy decision for Drew, and he states that he would be happy to have another in-depth conversation about the importance of self management like he did in the past with both Jason Hartman and his mother Joyce.
Steps to Consider Before Self-Managing
Hartman explains that getting the property manager out of the equation allows you to deal directly with the customer. If you’ve got a great property manager, they’re worth their weight in gold, he says. He recalls watching the way that his mother fully self-manages versus the way he and his clients do, and there is a whole layer of issues that can be resolved when you don’t have that intermediary in the middle of your business.
He notes that self-management is ideal for people who have a bit of experience rather than those just starting out. He advises listeners to visit www.jasonhartman.com and type “self-management” into the search bar so that they can listen to the podcasts detailing the topic. Listeners can also join the JHU group on the website and listen to the conferences that discuss self-management. He adds that he recommends a hybrid approach to management, where investors can use the services of an agent or property manager for lease-ups and tenant turns.
Hartman refers to the news regarding North Korea this week, stating that whether you love or hate President Trump, credit is due with what he’s accomplishing with North Korea. He states that it might be a ploy and Kim Jong Un will break his agreement to denuclearize, but it might work out.
He explains that leaders cannot be reasonable and wimpy with tyrants, as it doesn’t work. Some things can only be achieved through strength. He mentions a song by Kenny Rogers entitled “Coward of the County” that tells the story of a kid who was picked on and bullied until one day, when he fought for himself and his girlfriend. The moral of the song is that sometimes you have to fight.
Freddy Mac’s New Program
Hartman mentions that Freddy Mac, the second largest mortgage agency has launched a new program that asks for only 3% on a mortgage and has no income restrictions at all. This could lead to problem, he says. He explains that he was at an economic forum the other day that was put on by bankers, where economists spoke on different facets of the economy. He adds that he hopes to get a couple of the speakers on the show.
He states that during the forum, the outlook was extremely bullish and there were only a couple of concerns on the horizon regarding the health of the economy.
Hartman explains that he doesn’t like President Trump much but will give credit where it’s due. The US is basically at full-employment, he says. Everyone who wants to work can at this point. He adds that he’s aware of the way that the unemployment statistics are manipulated and specifies that he is looking at the official concept. The economy is on fire, this is hard to deny. All the economists in the real estate component have echoed what he’s been saying, that banks have been conservative this time around and it looks like there is no sign of a mortgage crisis. He mentions that perhaps the new Freddy Mac program will be an issue but adds that there are probably credit restrictions in lieu of income restrictions.
Hartman mentions that the Philadelphia Creating Wealth similar is not sold out yet. There are a couple of weeks left to get your tickets, and the event will take place on May 19th. The newest version of the portfolio-building game is going to be played for the first time at this Creating Wealth event.
He adds that he will be in Philadelphia for a few extra days on either side of the event, as the Venture Alliance trip will be held in New York City the following weekend during the Memorial Day weekend. There are going to be several speakers at this event, one of which is an attorney that does big real estate deals in New York, and a Blockchain media person. Another internal speaker, Nate, will be heading up a new product line which will launch fairly soon. To get your tickets, visit www.jasonhartman.com/events or www.venturealliancemastermind.com.
Solutions for Affordable Housing
Jason Hartman welcomes to the podcast Richard Burns, Chief Executive Officer of the NHP Foundation. He’s a real estate professional with over forty years of experience.
Burns explains that with the affordable housing quandary, so many people are being priced out of both the owner and renter game. There is an ever-increasing demand and there has been for a lot of years. The supply isn’t growing fast enough to stay with the demand, Burns says. A difficult piece of the issue is building new housing, with the cost of new construction being so high.
Burns states that the only company that really seems to be facing the issue is low-income housing programs. He adds that another issue is that existing older properties are aging out of existence or being taken over by institutions who upgrade them to where the tenants can no longer afford to stay. Existing properties are either decreasing in number or being too high-end to afford. The new construction of any multi-family housing requires very high rents to justify the cost of building.
Hartman mentions that he has seen some interesting things on social media regarding 3D printed homes. He states that these new models are supposed to reduce construction costs and notes that while they look nice, he doesn’t see them in the market at all.
Burns explains that this might be due to failing to get past the obstacle of restrictive building codes in the US. It’s extremely difficult to build outside of the current codes and by the time an investor has the price of land and adds the construction required to comply with the codes, it’s hard to afford.
Hartman notes that the idea has floated around a good deal and mentions the 3D printed apartment in China. When asked if the buildings are not up to code, Burns explains that they likely aren’t when it comes to US codes. He notes that in Vancouver, there are some apartments that have been built out of old shipping containers.
Hartman adds that there are some of the shipping container homes in the US as well, but they’re still very expensive, and Burns states that with the huge demand for affordable housing, these sort of apartments only nibble around the edges of the need, not being at all close enough.
Two Components of Real Estate Value
Hartman explains that there are two components of real estate value, the land and the construction. He notes that land is driven up quite a bit by environmental restrictions and that the demand for labor and constriction have jumped. With foreign buyers and renters in the market as well as low-income needs, housing is not close to affordable.
Affordable Housing Solutions
When asked about solutions for affordable housing, Burns states that tax incentives have been one of the main motivators to create affordable housing for low-income people. There are voucher programs as well and Burns notes that there are two kinds of vouchers. He prefers the project-based vouchers that make properties become financeable, but there are also portable vouchers that the resident takes with them when they move. They’re both limited, and project-based vouchers have not been around much in years. They still exist in older buildings but there have not been new ones issued.
Hartman explains that with these programs, someone has to pay for it, usually taxpayers or ordinary citizens through inflation. He asks if programs like this help or hurt, stating that he has many clients who have experience with Section 8 and seem to think that tenants stay on the program and never achieve independence.
Burns states that by and large, the people who have vouchers don’t work in jobs where they can escalate their income. They’re working low-level jobs that do not have a lot of room to move up. They’re at the point where they cannot afford housing without the vouchers, and Burns adds that it’s hard to throw these people under the bus with welfare-recipients.
He explains that housing is more than a roof over one’s head. His company has an array of programs intended to improve the quality of life for tenants. Studies have sown that when people are housed, they’re healthier, more employable, and their children learn better at school. If vouchers allow this, then they’re providing a service, Burns says.
Where Did High-Paying Careers Go?
Hartman agrees that people need homes and doesn’t want people to be homeless. He states that what’s sad about the labor situation is that menial jobs like McDonalds were never meant to be careers, which they have become now for the working poor. They used to be a way to work through college or get a job as a teenager. Real careers seem to be exported elsewhere.
Burns mentions that there are a lot of jobs available, but finding qualified candidates is the issue. There are a lot of people who lack the education needed for the positions or fail to pass a drug test. A lot of the menial jobs that pay decently are gone due to automation and outsourcing. The education system has not kept up, Burns says.
Hartman adds that students are leaving overpriced colleges with a great amount of debt and a degree that no one is hiring for.
What Does NHP Do?
Burns explains that his company, the NHP Foundation, develops and re-develops affordable housing as well as improving the lives of the tenants. This work is aimed toward low to moderate families and seniors and it provides services to help them improve their situations.
He states that his company upgrades buildings to where they’re still affordable rather than going for luxury apartments. With the tax credits used, there are rent restrictions for the next thirty years on the established property. The company also works with new constructions and Burns explains that he’s also working more with housing finance agencies and public housing.
He explains that Red is a program under HUD that is designed for housing agencies to exchange the payments they receive for vouchers. Once the vouchers are available, they can bring in developers to fix existing issues with the buildings.
Hartman adds that this is like getting the government out of the business of directly impacting housing, which has been the direction of the past several decades. He recalls that public housing was awful when he was a kid in LA and that in revisiting the area, he saw that those buildings had been redeveloped.
Burns on Rent-Control
When asked about his thoughts on rent-control, Burns wonders where it has ever really worked. He states that it clamps down on what the private sector is allowed to do and states that rent-stabilization in New York has worked better than rent-control. With stabilization, the properties are checked each year to see if an increase is possible while properties deteriorate with rent-control.
Hartman agrees, stating that rent-control is a disaster that creates black or grey markets. He recalls a Seinfeld episode where the characters are waiting for a tenant to die so that Elaine could have the rent-controlled apartment afterward.
The Baby Boomer Survey
In his closing thoughts, Burns states that a recent survey offered different opinions and views on housing regarding the Baby Boomer generation. Of the 1,000 people in the age 55+ category who were surveyed, 30% had anxiety about affording their home once a month. Of the retired people surveyed, 42% worried about their living situation daily.
He explains that another survey reported that older homeowners are facing almost double on their current mortgage than the same age group was ten years ago. Their worries are related to their debt. Burns states that there is a low level of savings in people who are approaching retirement and with there being so much concern about health as this group ages, only 35% have budgeted for unforeseen health expenses.
He also notes that among 1,000 non-retired Baby Boomers, there is a serious disconnect in savings and planning for retirement, and 73% of those surveyed expect to work past retirement age. 76% have no retirement budget or will have to depend on social security.
For more information about Richard Burns or the NHP Foundation, visit www.NHPfoundation.org.