EP 19 | INVESTING DURING COVID-19 WITH JASON HARTMAN

Play episode
Hosted by
ANDREW LANOIE

In today’s episode of “The Impatient Investor,” Andrew interviews Jason Hartman. They had a great conversation about what’s happening in the market today and some future predictions. 

“Yeah. If you’re sitting around watching the news all day, then you’re just going to, go down this rabbit hole of everything so bad.”

JASON HARTMAN

REFERENCES:

Jason Hartman | https://hartmanmedia.com/

FULL TRANSCRIPTION:

[INTRO]

Andrew: Hey, everyone. I’m super excited for today’s guests. I’ve got Jason Hartman on with me. And Jason is the founder of the Hartman media group. He has over 20 podcasts. He’s been a real estate investor for many, many years. We’ve known each other for a good 10 plus years. We had a great conversation about what’s happening in the market today and some future predictions. So you definitely don’t want to miss this one.

Andrew: Hey, Jason, how are you doing today? 

Jason: Good, good. It’s great to be here.

Andrew: Yeah. Great to have you. So I wanted to have the folks get kind of a background on you, maybe just a quick background. Just for, just to let everyone know you’ve got, you’ve built this big media company, it’s Hartman media. And the last time I checked, it was around 20 podcasts and 15 million downloads in 189 countries and a lot of educational episodes. And I know you’ve been a big believer in that space. So maybe just give just some quick bullet points on your background.

Jason: Sure, sure. So, I got into real estate when I was 19 years old. I started in my first year of college and then I got into, I had a traditional real estate company. I sold it to Coldwell Banker in 2005. And then about a year before that, actually, I was kind of doing two things concurrently. I got into the investment side of the business where I was helping investors buy properties nationwide, and that, Andrew came out of the need that I had because I wanted to be a nationwide investor instead of just investing locally. And so I started doing that and I thought it was really difficult. And basically I created a business to become my own first customer because there was just no support. And I thought, you know, if I feel this way, other people might feel this way too. And they sure did. And so that was good to notice that. And then I started podcasting in about 2006 and I’ve been doing that ever since. And now we have a whole bunch of shows. So basically we teach people on my real estate company side. We teach people how to invest. We provide a referral network where they can acquire properties and build nationwide portfolios, and then we help them with ongoing lifetime support and software to help them manage their portfolio.

Andrew: Yeah, that’s really great. When we met, I bet it was a good 10 or 12 years ago. I think you were in California at that time. And one of the topics of the show is kind of, it’s pandemic investing, and you’ve got some really good information on that, but you also there’s a lot of information on just this massive exodus from major markets that’s happening right now. And you had an exodus is from Southern California. How long ago was that roughly?

Jason: That was in 2011. So I left the socialist Republic of California nine years and never looked back. I’m really glad I left. I think it was one of the best decisions of my entire life. And I lived in Arizona and Nevada and now Florida, and I think I’m going to stay put in Florida. I like it quite well. So living in a no income tax state is a really good idea. I highly recommend it. Well I was just going to say, and so, what I saw back in about 2003, I know we’re jumping around time wise here is, I saw that California was a very unfriendly place. You never want to live in a state where the state has broke and money hungry because the citizens become the pray for them to raise money. And certainly it’s only gotten worse since then in California and in New York and in all these other poorly managed States that have big intrusive governments. And they’re just finding ways to destroy themselves by driving away the productive people. It’s basically another version of Atlas Shrugged. That of course was a very famous book and somewhat famous movie series. And the money goes where it’s treated best and so do productive people and they’re just not treated well in those places. So they leave. And so there’s this capital flight similar to East Berlin before they built the Berlin wall. There was a brain drain as people were leaving for better opportunities. And so one weekend they erected the Berlin wall to stop the brain drain and they imprisoned all the people. And so States like California, sadly, are putting up an economic Berlin wall and they’re trying to make it hard to leave. But it won’t work. Money always goes where it’s treated best and so that’s what’s happening. And so this is not just about my story. This is about everybody’s story. And it’s about the trend of following the money. Wayne Gretzky, the famous hockey player, Of course, he said, when someone asks him how he’s so good at hockey, he said, it’s because I skate to where the puck is going, not to where it is. And most players skate to where it is. And so as an investor, you want to skate to where the puck is going. And the puck is going, and it has been for many years, out of a big government, intrusive, landlord-unfriendly, business-unfriendly places to business-friendly, low-tax or no-tax environments that are also landlord friendly. And interestingly I’ve taught people for years about the three major types of real estate markets in the entire world, linear markets, cyclical markets, and hybrid markets. And interestingly, Andrew, these things kind of coincide because the linear markets are the in which we like to invest, I know you understand this all too well, but maybe not all of your listeners and followers understand it. So I’ll just explain quickly. The linear markets are these markets that are somewhat boring. They’re not much to talk about. They’re not very newsworthy. They are markets where if you’re looking at real estate prices on a graph, and I’ll just kind of make the motion with my hand, on one axis, you’ve got value on the other, you’ve got time. And, those markets just kind of do this. They chug along, they’re sort of boring. Nothing much happens. The opposite though, would be the cyclical markets. They go up and down like a roller coaster. And they’re very newsworthy because a lot is happening. And so most of the world is a linear market. But most people wouldn’t know that because the linear markets don’t make the news. There’s just not much to talk about. So the cyclical markets by contrast are pretty much the West coast of the United States, the expensive Northeastern markets and South Florida near where I live. Around the world, the cyclical markets are places like Dubai, Paris, London, and Hong Kong. Those are the trophy cities of the world. And they look like a roller coaster if you’re looking at a chart. cyclical markets also have one thing in common. They have bad cash flow and terrible rent to value ratios. So we don’t like cyclical markets for investing. We like linear markets. Now I did mention one other type of market, and that’s a hybrid market as the name would imply it’s in between the two. Hybrid markets in the US would be places like Denver, Austin, and Phoenix. And now Atlanta frankly, would be a hybrid market. So these are just in between the two, they’ve got some ups and downs, peaks and valleys. They’re not that very pronounced more so than linear, less than cyclical kind of in between.

Andrew: Yeah. And obviously, markets like Phoenix and Atlanta were just absolutely pummeled in the downturn. In the subprime crash. So that’s interesting. You had shared a graph, I think on social media, that talked about the most affordable and fastest growing States, and you basically hit them already. It’s Idaho, Nevada, Arizona, Florida, and Texas which was just interesting. And then I saw something, a headline that talked about Robert Herjavec from Shark Tank, really believing that there’s going to be this mass Exodus from these large cities over the next 50 years. And then there was some new data from New York City apartment vacancy that hit in June that said, it’s a record high of 3.67% with over 10,000 apartments listed on the market that month, which is an 86% or 85% increase which is just staggering numbers. So you’ve been following this for a while, way before COVID and everything happened. And you’ve been talking about pandemic investing and you’ve got some mega trends that you like to talk about that you’ve talking about. So maybe you want to start with that and let’s go through what that looks like.

Jason: I’ll share my screen with you. Hopefully you can see that now. And for people who are listening on audio only, and not viewing a video of this, I’ll try and kind of explain what we’re looking at so that it will be meaningful to them too, but if not, this’ll be on my YouTube channel. I’m sure it’ll be on your YouTube channel. And some people can see it there if they want to refer to this. So the pandemic investing philosophy is really built on a few major ideas, number one in a recession or a depression. And we are certainly in bad times and times that might get worse. In fact, they should be worse, but the powers that be have bailed us out, they’ve come to, they’ve printed money, like it’s going out of style. And we’ll see, but in a recession or depression, the person who wins is really the person who loses the least. The Chinese have a symbol for crisis, which is the same as the symbol for opportunity and literally translated it means crisis is an opportunity riding the dangerous wind. And in times of crisis that’s when many, many. And if you look back to the great depression in the thirties, and you look back to the great recession just 12 years ago you see that there were many very successful companies and people that came out of those times. Times of economic hardship are the times when opportunities are bound. So we ought to all keep that in mind, the bad news can also be very good news. If you do the right things and if you act. So the things I say, if you want to gain control of your future during times like this, you’ve got to number one, stay calm. Number two, keep good counsel, like your counsel, listening to your show, listening to my show etc. Number three, keep your eye on the ball. Keep your eye on the ball. Don’t allow yourself to become distracted by being a news junkie, which is frankly an addiction people that just watch the news all the time. That’s not going to do you any good in most cases. I mean, you’ve got to know what’s going on in the world, but you can figure that out on about five minutes a day. That’s about all you need. And then number four, always ask what I call the Jason Hartman question. Actually, I don’t call it that my listeners call it that. And that question is, the Jason Hartman question is, compared to what? Question mark. Compared to what, that is always the question in every part of life, we need to ask ourselves. Because the way to evaluate anything is to compare
it. So if you want to compare your current relationship, you need to compare it with your past relationships and other people’s relationships. How good or bad is it? Well, you’ve got to compare it to something. You got to have a benchmark.

When you want to analyze a deal or analyze the economy, you have to look at percentages and ratios, not absolute numbers. Those are almost meaningless. When someone says, well, the derivatives market is a quadrillion dollars. Well, I don’t know what that means, compared to what? Well, the economy has lost a trillion dollars this year. Well, compared to what? Well, obviously the thing you’d compare it to is the GDP. Well, then you’d ask yourself compared to what you’d have to compare the GDP to the way they calculate it now, versus the way they calculated it years ago, or the inflation rate or the unemployment rate, you always have to ask yourself compared to what in everything in life. That’s the most important question in life if you asked me. Number five, take action. So to review, stay calm, keep good counsel, keep your eye on the ball. Always ask the Jason Hartman question compared to what and take action. You must act on things. The people who always win in life are the people who act. Even doing things somewhat rationally reckless, there’s a certain amount of wisdom and reward in action, even if it’s wrong. And I don’t mean to be totally reckless, but I mean be rationally reckless sometimes. So on my show. I have the benefit of interviewing all of these brilliant people and many I disagree with, many I agree with, it’s the spectrum. And that’s how I learn a lot of this stuff that I’m about to share with you today. So everybody keeps talking about what’s the recovery going to be like, is it going to be a V-shape recovery? Is it going to be a U shape recovery? When you’re looking at our graph, right? That’s what this relates to. Is it going to be an L shape recovery? I think it is going to be, and by the way, now people are copying me on this, but I was saying this in early February. And in COVID-1984 time, hope you caught the COVID-1984, the reference. In COVID-1984 time, February was like dog years. It was years ago. Because the world has changed so much since early February. I think the recovery will be a modified square root sign. And so we all can visualize a square root sign in our mind hopefully. Well, I think this’ll be a modification of that where we’re coming along, the economy goes down, things get bad. We’re seeing that obviously. And then it comes back up, but the modification is it doesn’t come up as high as it was. The square root sign means the economy gets better than it used to be. Well, this is the modified square root, where it’s actually worse than it used to be. And I think that’s the world we’re moving into. I think we’re moving into a smaller economy and are really a simpler time, like the TV show, the Walton’s, many people won’t even know what I’m talking about when I say that, but I used to watch the reruns as a kid. And that was a show about the great depression and the famous line was goodnight, John boy. But if you want a more contemporary version of the show, okay, there you go. Paris Hilton, the simple life where these city slickers go out and be farmers. But, we’ve got to realize that in the U S 70% of the economy is based on consumer consumption. And 70% is a giant number. And I think this is moving us into a time when people are really reevaluating their priorities. And I think there will be a generational PTSD, a post traumatic stress disorder that we are all going to face in one way or another. So I’m going to skip a lot of stuff now in the interest of time and my pandemic investing discussion, and just jump to these six mega trends that I see that affect real estate investors, especially. Now when we were talking about those different kinds of markets, Andrew we were talking about how people are moving away from business on friendly places and high tax jurisdictions to lower tax environments and more friendly environments. Well certainly that’s true. In years ago, I had the pleasure of interviewing Meredith Whitney. I’d highly recommend her if you can get her on your show. She wrote a great book called the state of the States, and it really outlined my thesis back from 2003. And she talked about this phenomenon. Now, the three primary value drivers for real estate, since we’re going to kind of talk about real estate and make that our focus here. Since the beginning of time have been what? Location location, and, location. And we’ve all heard that kind of snarky saying, but it’s very true. And I say that it has radically changed. It has shifted. Back in 2012 I was predicting a shift away from this because of autonomous vehicles coming to light. And when we have self-driving cars, location becomes less meaningful. In fact, I have said many times that location is less meaningful than it’s ever been in human history. And I don’t mean to say it’s not meaningful. I’m just saying it’s less meaningful. And if the value of real estate has been driven by location, location, location, mostly meaning that it’s more expensive in a place like New York City and coastal California and more expensive in Boston or Miami than it is out in the country or in the suburbs. Well, that’s always been true. Back when we were living in caves, a cave with better access to food and water and protection from predators was more valuable than a cave that was far from food water, and didn’t have protection from predators, right. So location, location, location even mattered back in the caveman days. So it’s less meaningful now, meaning that our value of location is radically changing. And I think there are a six primary factors here at play. And I was recently in an interview on RT television where I talked about this. And I talked about how we are living through the 2020 version of John Steinbeck’s famous novel, The Grapes of Wrath. Now I read that book in high school as part of my English class. But if you look at the map here on the screen, it shows this mass migration, this Exodus from places like my hometown of Los Angeles away from places like New York, Chicago. Now be careful when you look at these numbers, by the way, because they’re pretty extreme, but, and there isn’t a lot of good data on this, but I think just by knowing what we know you and I, Andrew, and you do some great writings about this kind of stuff too. Because you’re very knowledgeable and I get your emails and they’re really interesting to read on these kinds of things. But, place like Los Angeles is a big sprawling city and some parts of LA are suburban. And some parts are high density, Metro areas. Suffice it to say that most of the United States has a population density of about 84 people per square mile. It’s pretty low, yet New York City has a population density of about 27,000 people per square mile. So radical extremes in this huge country. But all you need to know is that I believe there were two primary danger zones. And even after there was a COVID vaccine, if there ever is one, remember, there may never be one. We have to come to terms with that. We’re all kind of expecting that, Oh, well, it’s modern medicine. We’ll just have the vaccine. Maybe there won’t be one. Maybe there will be a new mutation and we’ll have to keep fighting it. Maybe it will like influenza where there is not a vaccine. Yeah, there’s a flu shot, but it doesn’t really work. And everybody gets the flu every year. Maybe a couple of times a year. So, you know, maybe it’s just something we live with. And maybe then there’s a new thing. Maybe there’s another bird flu or swine flu or H1N1, we don’t know. The point is I think the psychology of humanity has fundamentally shifted for a generation. And even if this one becomes a nonissue, people will be in fear of the next thing. So the two big dangerous zones, I believe, are pretty simple. They are elevators and mass transit. And now when you combine it with the civil unrest that’s going on in pretty much every downtown area, people are fleeing high density environments, and there is this mass migration to suburban living. Now, America is really unique in the world because it has totally embraced suburbia. In the post-world war II, baby boom generation and America’s love affair with the cars in the 1950s, love affair with the automobile, it made suburbia possible. Starting with the famous Levitt town and many other Levitt towns across the country. America is a largely suburban country, which is totally unique by the way. Around the world you have house suburbs, but mostly around the world, you either live in the city or the country. And in America, we have this unique in between thing. Which makes our real estate market pretty darn desirable. So the six trends. I think there is a pent up demand. And remember, I started talking about this stuff in early February. Before I think anybody was talking about it, at least I didn’t see anybody else talking about it back then. And there’s the shatter demand and we’re already seeing the signs of it now, but back then, it was kind of a rare idea. Back in early February. So I’ve identified six major trends and I’ll just go through them real quick and we’ll wrap it up. And those trends are roommates, couples and either the baby boom or the divorce boom. We don’t know which, urban dwellers and remote workers and remote workouts. Working out remotely, which is maybe a small trend, but a big one, multi-generational living? So let’s kind of dive into those real quickly. First off as of 2012, and I don’t have a lot of new data on this, I’m working on it. I have my researchers looking this up. But about 32% of the country was non-romantic roommate’s cohabiting. And those are mostly major cities where it’s expensive to live, where real estate is really expensive. So I want you to think about this for a moment. Now that these two roommates say they’re young professional people, they went to the office, spent a lot of time there, came home quickly, change their clothes and went out to the gym or run out to socialize. Now, guess what? They’re not doing any of that. They’re home all the time. And they’re working at home and they can’t work at home if they’re roommates in their two bedroom house. So one says to the other, Hey, I really need that spare bedroom to use as a home office. And the other roommates is, I was thinking the same thing. One of us needs to move out. Right there you’ve taken 32% of the country and doubled the housing demand. If we talk about nothing else, that’s huge right there. Huge, huge, doubled the demand for housing. So very, very significant in terms of the roommates. So I’m not going to go through all this in the interest of time. So a lot of people have talked about a coronavirus baby boom, people cooped up on a quarantine and doing work comes naturally. We will have yet to see if that happens, but in nine months, I guess [25:05 inaudible]. But the one thing we do know is there’s definitely been a divorce Boom. No question that that happened in Wuhan China after the extreme lock downs. There was a huge increase in divorce and there’s lots of headlines about this, as you can see on the screen. What would happen in the US? We’ll see.
It’s a little too early to tell. 84% of the country is urban dwellers. And by the way, I said 84%, 84 people per square mile, it’s actually 87 per square mile. I confuse that with the 84%. But as they say, definitely close enough for government work in terms of my memory. So this is huge. Let’s do some back of the napkin math. If people move from these high density urban environments to low density, suburban environments, where they can socially distance, think about how compelling this
is. These are the kind of markets we’ve been recommending for years. Places like Indiana or Indianapolis, specifically Memphis, Jacksonville, little rock, Atlanta markets, and all these suburban markets that our company helps people invest in. Back of the napkin math here. Okay. There are 268 million urban people, approximately this is why it’s on a napkin because it’s rough math. How many cannot socially distance? Well, let’s say that 15% of those people want to move to a suburban environment. And we’re already seeing this trend back when I created this presentation in February. We really didn’t know if this would happen, but now it’s happening in mass. And if you want to checklist you don’t even need to listen to the news media, just go to www.uhaul.com and look up the cost of renting a U haul truck, leaving New York City to go to some suburban place and then do the reverse, do renting it from that suburban place, back to New York City. And you’ll see that the price is like one third to one fifth. Because they need people to drive their trucks back. Because the trucks are being left on their one way destinations. So that’s 40 million people a year. If it’s two people per household, the math is absolutely staggering. You need 20 million new suburban units potentially. Okay. So, it’s just a giant number. These numbers are absolutely staggering. Let’s look at a high rise and mid-rise living for a moment. Now this is only rentals. It does not include condos. This is apartments only, apartments only. So there are about 2.3 million apartment units in the United States that are five stories and above. Mid- rise is five to 12 stories. Low rise is one to four and high rises over 12 stories. About 2.3 million apartment units where you must take an elevator because you’re a five stories and above. And if 15% of those people want to move, or units, I should say units, not people. That’s 340,000 units needed, divided into 50 suburban markets. As an example, that is 7,000 housing units needed in each suburban market, where there has been a housing shortage for at least 8 to 10 years already. Think of how significant this is. It’s huge. They have put a lot of upward pressure on prices and rents. Remote workers, this is the Google search volume as of early it’s like, this is March. This is March, the work from home search volume. Okay. It’s just skyrocketed. Carl Icahn, the corporate Raider and investor shorting commercial real estate. So people remote working is being adopted much more quickly. Office demand is plummeting. You would definitely not want to be an office investor right now, or retail property investor. Its housing is where it’s at. So we talked about the roommates, families, family of four can no longer be comfortable in a three bedroom home. The kids are distance learning. They’re home from school, the boomerang generation of now Gen Z’ ers and still some millennial are coming back to live at home because of their economic hardship. And both parents are now working at home. So they need more space. It’s no longer about having a fancy kitchen or an awesome master bathroom. It’s about having multiple home offices now, which require larger suburban style homes. And this is a smaller factor, but remote working out, the gyms are closing. And even if they’re open, people are uncomfortable going to the gym and they need that garage or that spare room as a workout room nowadays. And we saw this, this is not a trivial factor because as soon as those quarantines and lockdown started home gym equipment sales skyrocketed, I don’t have a chart for you on that, but we all saw the headlines. We heard it in the news. We heard the stories of Peloton stock going up and all the people being interviewed that own companies that sold home gym equipment and they were sold out.

Andrew: Everything was back ordered for weeks, if not months.

Jason: Yeah, absolutely. And so there are 28 million people in the U S that are over 70 years old. Okay. Now this is the multigenerational living trend. The last factor I’ll tell you about. And this is the graying of America factor. And so these 28 million people guess what, they’re not comfortable going to a nursing home or an assisted living home. Now that death rate is spiking again, in these homes, it already was just tragic what happened. And so around the world and I’ve traveled extensively, I’ve been to 87 countries now. Multigenerational living is commonplace. The only place it’s not common is in the United States. Okay. So guess what? The parents are moving in with you, and there are going to be additional dwelling units on the property, mother-in-law’s quarters, whatever, spare bedrooms, what this means is bigger houses. And less demand for these commercial properties, where the nursing homes are located and more demand for bigger residential properties that can provide multigenerational living. So those are the six trends. I hope that’s helpful to your viewers and listeners, any questions and we’ll wrap it up.

Andrew: Yeah. I mean, the numbers are staggering, I guess one thing just that you touched on before about keeping your eye on the ball. We’re in clearly pretty unprecedented times. We’ve got interest rates at an all-time, low residential real estate is at an all-time high in markets like here in Phoenix, if you’ve got a home for 350 grand, you’ve got 10 or 15 offers on it. That’s a lot of markets around the United States. So when you say, keep your eye on the ball, what would you recommend to people? Cause you touched on it. You can go down the rabbit hole on the internet on news and lots of horrible information out there. So what would you recommend?

Jason: Yeah. If you’re sitting around watching the news all day, then you’re just going to, go down this rabbit hole of everything so bad. The world’s falling apart yet people are making fortunes right now. Don’t miss it. Just be smart, follow these trends, skate to where the puck is going and take action. Because I mean, we don’t, our investors, I mean, it is like really hard to find inventory to sell them now. I mean, we operate as a referral network and we help people buy properties nationwide for investment. And I’ve been in that business now for almost 17 years. And it’s unbelievable. I mean, people are buying properties like hotcakes. It’s incredible.

Andrew: Yeah. Well, really appreciate the time today. We’ll have your contact info websites on the show notes and just Jason, appreciate the time and great to see you and love the deck and maybe we’ll do a deeper dive into some of this down the line.

Jason: Yeah, my pleasure. And I’m today on my podcast, I’m continuing a story I was working on yesterday that is about Uncle Jerome Powell. And this is what I’m going to record as soon as we finish. And I’ve been doing some studies on interest rates, the cost of housing and comparing them to inflation. And this is pretty interesting stuff because, the people that don’t understand that aren’t keeping their eye on the ball, and aren’t really thinking this through like people watching the mainstream media they’re hearing, Oh, housing is so expensive. It’s overvalued, blah, blah, blah. Actually, that’s just completely untrue. Housing is still actually pretty cheap. Okay. When you look at the last peak you should not be looking at the price of the property. You should be looking at the cost of the property. And so this analysis I’ve done has basically shown you that Uncle Jerome Powell, this rich uncle, okay. The chairman of the Federal Reserve has basically given us all a 70% gift free money. And what I mean by that is, if you got a $100,000 mortgage in 2006, what most people consider to be the peak of the last market. Now you could get a $170,000 mortgage for the exact same price. And that price is $627 a month. So now, but wait, there’s more, if you adjust that for inflation, the house has actually gotten a lot cheaper. And that’s what I’m going to talk about on my podcast today. So I invite any of your listeners to check it out. I know you’re a listener and I appreciate that. And this is exciting stuff what’s going on right now. So money is being made.

Andrew: Excellent. Jason, appreciate you and great to have you on, and we’ll have all your information in the show notes.

Jason: My pleasure, Andrew, keep up the good work. 

Andrew: Okay. Thanks.


Jason: Happy investing to you and your listeners.

Join the discussion

More from this show

Let’s get social

Follow Andrew to learn more about his investments and to share the podcasts with friends!

Episode 19