Real estate investing involves understanding market trends and financial strategies. Analyzing the market is an essential aspect of successful investing. Self-education is key, helping investors stay informed about trends in housing inventory and supply, and ensuring a more informed and strategic approach to real estate ventures.

In this episode, Jason Hartman joins Tim and Greg as he shares his insights and experience in real estate investing, discussing topics like market analysis, using real estate to hedge against inflation, debates around market timing, trends in housing inventory and supply, and the importance of self-education.

They also mention how you can get rid of your debt by investing in real estate.

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1:36 Analyzing the Market for Real Estate Investments
9:20 Hedging Against Inflation
16:35 Relevance of Market Timing
24:24 Housing Market Crash
30:32 Trends and Supply in the Housing Market
39:58 The Importance of Self-Education
45:37 Debt Destruction Through Real Estate Investing

The Rational Optimist: How Prosperity Evolves (P.s.) by Matt Ridley

Full Transcript

Tim Lyons  00:09
Welcome to another episode of the Passive Income Brothers podcast. My name is Tim Lyons. Today I’m joined by two absolute rockstars, one of whom is my brother, Greg, how you doing today, buddy?

Greg Lyons  00:17
I’m doing fantastic. We have a true Rockstar on the podcast today. I usually take credit for being the Rockstar. But today, we’re leveling up our game.

Tim Lyons  00:28
So, when Greg and I first got into this journey of real estate investing, kind of breaking away from the W two and finding out how money works? How does inflation affect us? How is money created? How can I benefit from debt leverage? Jason Hartman was one of the first podcasts that I came across, along with Bigger Pockets and other stuff like that. And I got to be honest: Jason’s podcast was a little too high-level for me at the time. But as I kept on listening to more podcasts, reading more books, getting into masterminds, going to meetups, and finding out how real estate works and what the finances behind it, I got back into Jason’s podcast. And now, I can say that I’m a loyal listener. So today, I want to introduce you guys to a de facto mentor of the passive income brothers, Jason Hartman. How’re you doing today, Jason?

Jason Hartman  01:13
Hey, good. Thank you so much happy to be here.

Tim Lyons  01:16
So, Jason has a bunch of podcasts, and you have a ton of great content. It’s a YouTube channel; he’s got a mastermind. He’s very highly regarded in single-family and real estate, finance, and macro. So, Jason, why don’t you give us a little bit of your background, and let’s jump into some of these slides that you prepared for this podcast?

Jason Hartman  01:36
Sure. Yeah. Happy to do it. So, I’ve been in the business of real estate ever since I was 19 years old. I got my real estate license in my first year of college, but I didn’t really want to become a real estate broker. I wanted to become a great real estate investor. And that kind of came from when I was 16 years old, I discovered real estate income property. And I read a book by Robert Allen back then and got interested in the topic. So, I started very early. And I dropped out of college because I was pretty successful at selling real estate part-time while I was going to school, and I thought, why am I doing why am I not doing this full-time? I’m making so much money. And so, I did that. And I ended up buying my first rental property at age 20. From one of my clients actually who sold it back to me, and, so, that was kind of the start of my interest in real estate investing. I had a traditional real estate company for many years, and I sold it to Coldwell Banker in 2005. And kind of as I negotiating that deal with Coldwell Banker was a long negotiation that took about a year, I got into the business of helping investors buy properties nationwide. I wanted to become a nationwide investor and be diversified because I was a little bit older than I used to be. And I wanted to be a more conservative investor, where I spread my risk. And I diversify. I take the most historically proven asset class income property but diversify geographically because the old saying in real estate is all real estate is local. So, you can take the greatest asset class but just diversify in terms of geography, and then you’re insulated from downturns in any particular market. And so, for the last 20 years, I’ve been helping investors buy properties nationwide. And it’s been a really good run. I started my podcast 19 years ago. So, I’ve been doing that for a long time. I’ve had the good fortune to interview 1000s and 1000s of experts on various topics and learn a lot from them. And I’ve, along the way, developed a lot of my own economic theories and my own investing theories that are truly original ideas. They didn’t come from somewhere else, and they’re not warmed-over ideas that they just came out of my own head, as I kind of developed my knowledge from interviewing all these people and doing the normal stuff like reading books, going to conferences of other people, as well. And so, I hope to provide some good insights into where the market is and where we’re going today.

Greg Lyons  04:20
I think Jason, you understate how prolific you are at producing thoughts and content around real estate, and really has informed everything. A lot of the things that Tim and I have done, and you say a lot of the times, there’s no housing market, right? There are 400 distinct real estate markets in the United States. So, when you say housing market, that’s just like that’s just a headline. That’s an attention grabber, but really, as you become an investor, and that’s really what your ultimate goal was, when you became that investor. There are so many different things to navigate, and I think investors are right now trying to navigate inflation. And how do you invest around inflation? And that’s been a huge topic over the last couple of years. I just want to kind of get your thoughts on inflation and how investors should be looking at it.

Jason Hartman  05:16
Yeah, absolutely. But before we do that, let me address some of your earlier points in that portion of what you just said. First of all, in terms of the housing market right, all real estate is local. In a country as large and diverse as the United States, there is no such thing as a national housing market. As you mentioned, Greg, there are about 400 MSA or metropolitan statistical areas. But beyond that, there are over 3100 counties, there’s over 9000 cities, and there’s countless neighborhoods. So, you really have to break this stuff down. But I can give your listeners and viewers an easy way to do it. There are three basic types of markets in the country and in the entire world. And they are linear markets, cyclical markets, and hybrid markets. And what do I mean by these three types of markets? Well, the most common market people think about is the cyclical market. These are the markets that get all the attention. And if you looked at a price chart of those markets over time, you would see that it looks like a roller coaster. It has glorious highs. It has really ugly lows than highs again, peaks, and valleys all along the way. Okay, that’s a cyclical market. These are the markets that are good, mostly attention. So, what are the cyclical markets? Well, they’re places like the West Coast of the United States, the expensive Northeastern markets where you guys are, okay, those are cyclical markets, South Florida where I am now, but I grew up in California. So those are cyclical markets around the world. Cyclical markets are all the trophy cities right there. Paris, London, Dubai, and Hong Kong, right? These are all cyclical markets. And the funny thing about it is these markets get all the attention because they’re the most newsworthy, right? A lot of stuff is happening. UPS downs, right? It’s a lot to talk about. But most of the world is a linear market. Okay? So, the linear market is almost everything else on the planet or in the country. It’s everything you fly over when you go from California to New York, for example, right? So, these are mostly linear markets. Now, there are hybrid markets that are in between the two, those would be places like Denver, Colorado, Austin, Texas, and more. Okay, but there’s a couple of them for you. But linear cyclical. So, the linear markets, if you’re looking at that price chart, it’s pretty boring. It just has a slow upward trajectory. It has some little peaks and valleys along the way. But mostly, it’s pretty tame. These linear markets are characterized by good cash flow and sensible investments. Now, at the time I got into this business, I lived in Southern California, I lived in Newport Beach, California. And I had thought of myself for many years as an investor. And I was buying properties in Irvine and in Orange County, California, basically, right. And that’s an expensive, cyclical market. And I thought I was an investor, but I really was a speculator. And when you invest in the cyclical markets, you are betting that something extraordinary has to happen for you to make a good return on your money. And that thing is appreciation. Okay? Now, it doesn’t always happen because sometimes depreciation happens in these markets. But if you invest in a good linear market, you’re making money in lots of ways because income property is a multi-dimensional asset class. And so many people are myopically focused on, oh, is it going to go up or down? Right? That’s just one dimension. One of my listeners made a graphic for me of an iceberg because I always talk about this, and I wish I had it handy to show it to you. I don’t. But basically, most of the iceberg is below the water. Right? We only see a small portion of the iceberg. Just ask the captain of the Titanic. Okay. And that’s exactly how it is. And the part we see above the waters, we see appreciation and cash flow. But that’s my optic, and there’s a lot of stuff going on in a real estate deal. As you guys know, that is below the water, right? There are tax benefits, leverage mortgage pays down because your tenants are paying off your mortgage, and most importantly, a strategy I taught and I trademarked almost 20 years ago now in flight Should induce debt destruction, which is the answer to your question. And Greg, because this is a way that basically you make you create so much wealth in in your real estate investments. And you don’t even realize it. Okay? It’s like the hidden wealth greater. It’s a miracle. Basically, what happens? Think of it, when you borrow money to finance a real estate deal? You’re investing in mostly if you’re in a linear market, commodities. Okay? Because if you think of the ingredients of a house, okay, I’m in my house now. Okay. What is the house made out? Well, concrete, lumber, petroleum products in the walls, there’s a lot of copper wire, okay? There’s energy labor, right? These are all commodities, glass, steel, these are traded globally. And every human on Earth needs them because every human on Earth needs shelter. Okay. So, they have universal demand. And they are not attached to any one currency. Do you know in the country of Tunisia, their currency is so mismanaged that they save their wealth, the people in Tunisia save money, not in cash, but in bricks. I kid you not, I’ve never said this on the show before, okay, they save money in bricks, because bricks have intrinsic value, and everybody needs bricks. Now, if you just bought a bunch of bricks, you trade your currency for bricks, right? And you stacked these bricks up in front of your house, someone would steal them. So, what did they do in Tunisia to keep people from stealing their bricks? Well, they take their house, and they constantly are adding more bricks and putting mortar on the bricks to make it sticky. So, if you drive through Tunisia, you will notice all these unfinished structures. And you might ask why? Why are all these houses unfinished? Well, they’re not really unfinished. They’re just saving money by constantly adding more bricks to the house. And that’s how they save their wealth, the bricks have intrinsic value. So as a real estate investor, you’re I want you to think of yourself really as a commodities investor. But instead of buying commodities, on the commodities exchange, right, you’re buying them in the form of what I call packaged commodities, or assembled commodities in the form of a house, or an apartment building or whatever, right. And so, as a commodities investor, the beautiful thing about buying them when they stick the real estate label on them, is that you suddenly have all these new benefits, because it’s called Real Estate now, okay, of course, you do have a land. But if you’re buying in linear markets, most of the value is actually in the commodities in the structure, not the land, okay? So, you can finance these commodities, over 30 years, at a fixed rate mortgage, that you get to pay back in cheaper dollars. So, say, today, any of your listeners goes to their favorite website, Jason Okay, and you go to Jason, you click on the Properties page, and you fill out the inquiry form. And you talk to one of our investment counselors and you buy one of those properties. Or say you buy four of those properties, and say the four properties are worth $1.2 million. And you put 20% down. So, you close on all four of these deals, and you get your first mortgage statements, and it says you owe $1 million in mortgage debt. And just for the sake of simplicity, let’s assume it’s an interest-only mortgage, it probably wouldn’t be but it keeps it simple. So today, you borrowed $1 million. And in five years, because it’s interest only, you’re still going to owe $1 million. Same amount. You get your mortgage statements; it still says you owe $1 million. But because of inflation, that $1 million dollars is worth less money than it was five years earlier when you borrowed it. So essentially, you’re paying the debt back in cheaper dollars. You’re essentially getting paid to borrow the money. But wait, there’s more, as they say on those late-night TV infomercials.

Jason Hartman  14:49
You’re not paying your debt. Your tenants are paying your debt, and you get to outsource the responsibility of the debt repayment to the tenant. So, that creates this infinite return scenario where the debt is being debased by inflation. So, the payment feels cheaper every month, and the principal balance feels cheaper every month or every year or whenever you look at it, okay? It’s cheaper to repay the debt, and someone else is paying it for you. The interest payment is the responsibility really, of the tenant, not you. And hopefully, they even give you a little something extra every month called positive cash flow. And, of course, the government gives you tax benefits. So, it’s truly an incredible asset class like no other. It’s an incredible asset class. So that’s the way to be enriched by inflation. So, let’s just review it. You invest in commodities that have intrinsic value, right bricks, right copper, copper, wire, lumber, petroleum products, concrete, glass, steel, etc. The ingredients would the all the ingredients of a house, right? So those commodities have intrinsic value doesn’t matter what happens to the dollar, the yen, the euro, the Brazilian rial, the peso doesn’t matter. A brick will still be worth brick, okay? It’s got intrinsic value. And then you finance it with three-decade fixed rate debt, that it is constantly debased by inflation. And you tell someone else to pay the debt for you, the tenant beat that deal with any other investment.

Tim Lyons  16:35
But Jason, I want to stack on top of that because this topic can be a little heady for the brand-new investor, you’re like, wait a minute, I’m getting paid to take

Jason Hartman  16:44
 Hopefully, it gets them excited.

Tim Lyons  16:47
Hopefully, they get excited. I mean, it’s something you know, this is what made the light bulb turned on for Greg and I like, wow, we got to get in the game here. What are we doing? Right? Because we’re punching the clock at the WTO, we’re spending the first five months of our European our tax bill. So, if you can learn just like Greg and I did we learned finance but you learned banking, we learned about debt leverage, how does it work? Why? People want to listen, if you subscribe to Dave Ramsey, that’s what you need in your life right now. And that’s fine. But on the other side of that, you know, Dave Ramsey is a pretty wealthy guy from not only his thing, but he does a lot of real estate as well. Once you once you get in that position where you can find out all right, you can get money from the bank to go buy an asset that puts money in your pocket every single month. And oh, by the way, it’s not just cashflow, its appreciation, depreciation or tax benefits, right? It’s the tenant pay down. And oh, by the way, that last piece, that fifth piece that Jason just masterfully put together, is profiting from inflation induced debt destruction.

Jason Hartman  17:48
I know it’s a mouthful.

Tim Lyons  17:51
 Well, I think you have a copyright it as well. And I’ve heard it so many times. Now. I feel like it just rolls off my tongue. Right. But and just so you know, listen, when you go to the supermarket, right, I think the last three years, our inflation, headline, headline CPI? Well, headline inflation, I should say, is around, I don’t know, 18 or 20%, meaning that your dollar is actually worth about 8082 cents, right? I mean, in purchasing power, right? The same thing happens to your debt at the bank. Right? It goes down by that much each year. So, it’s a really powerful, powerful strategy. Jason, I want to pivot into right now, we’re recording this in the third week in January 2024. And if you read the headlines, Jason, a lot of people are waiting for the housing market to crash. There waiting, interest rates for single-family homes are, I don’t know, anywhere from six and a half to eight and a half, probably somewhere in that range. They’re traditionally higher than they have been. But we just came from a 40-year period of declining inflation. Since I’ve been alive. I’m 41. All I’ve ever known are low-interest rates. I’ve never known high-interest rates. I’ve never known anything, but it’s going down and to the right. So, it’s been really easy. Money has been free. Right now, interest rates are kind of where they are historically kind of been, they’re kind of normal right now. But to us, it feels like it’s crashing. And people keep on saying I’m going to wait until the market crashes. And I’m going to swoop in the Feds going to lower the rates and it’s going to be this panacea of real estate investing. For something tells me that doesn’t that doesn’t jive well with you. And you have a couple of thoughts about that. 

Jason Hartman  19:29
Yeah, first of all, it’s been proven over and over again. I mean, there are so many studies on this, that in any asset class stocks, bonds, real estate, precious metals, cryptocurrencies, market timing does not work. Okay. The people that make the money are the people that just get in for the ride. They buy good investments and they just hold them. You know, Warren Buffett says my favorite holding period is forever. Okay. And you know, market Timing, it’s just a fool’s errand. I mean, look, if someone could figure out market timing, they would be a trillionaire. Right? You know, it’s just you just nobody can do it. There are just too many actors, there’s too many forces on the economy, nobody knows. But also, it would be really myopic to try. And I mean, look, lots of investors in real estate, make tremendous amounts of money, as prices are declining, because they don’t care. They’re not selling. They’re just getting return from their cash flow. And there are other multi-dimensional aspects of the real estate. So, all of these fools out there that are thinking, oh, well, the market is going to decline, like, so what, you know, what they never account for, they never account for the return on investment they’re missing, while they’re waiting for that to happen. And if the last 12 years is any indication, you know, people been saying this since 2012. They’ve been telling me oh, you know, coming out of the Great Recession, you know, though the markets now it’s overvalued, it’s overheated. And then they said the same thing in 2014 10 years ago, 2015. And definitely in 2016, they thought, oh, my God, the business cycle, the market is going to crash, I’m just going to keep my powder dry, I’m going to wait. And then I’m going to buy properties. And then, you know, in 2019, it kept going, and they said, ‘ Oh, my God, 2019, you know, the repo market? The other thing, you know, this unfair election? You know, actually, I shouldn’t say that word, I have to say erection. Because, because the algorithms going to pick that up. So, the unfair erection and you know, the country’s a mess, and all this stuff, and the markets going to crash and then COVID Oh, my God, if you ever had a reason to believe the market was going to crash, it was COVID. Right? And so, you know that oh, yeah. You know, now the markets totally going to crash. Everybody was making videos about it. I’m just gonna wait. And you know, let this COVID thing play out for six more months, 12 more months, and I’m going to buy everything in sight. I’m gonna have so much cash ready to go. The complete opposite happened. Okay, all of these people missed the market. And you know what? I get trolled by them all the time. So, I’m, I’m bugged by it. I’ll just be honest with you. Okay. These are the same people who are I mean, here’s an example. Right? Is, you know, you’re if you’re single, and you see a pretty girl, and you don’t do anything about it, you don’t go up and talk to her right? And then you miss the opportunity. Right? You generally rationalize all these things as she probably wouldn’t have been very good anyway, you know, she probably a bad person, you know, whatever, right? People make up all these rationalizations, right? But the reality is, they just simply missed the boat. Okay. And now, they’re so angry with themselves because of their lack of self-confidence. That, you know, they just sit around and complain about everything. And they, they have all these theories as to why the end of the world is coming. And, you know, somehow humanity just keeps going. Okay, 8 billion people get up every single morning. And you know what their dominant thought is every day? How can I improve my situation? No matter what situation they’re in, if they’re a billionaire, they want to improve their situation. If they’re an alcoholic, they want to improve their situation, either they want to quit drinking or get another drink, right? Because they view that as improving their situation. Okay, so that’s the dominant thought of every person always, how can I improve my situation? Right? How can I make things better? No matter how good or bad it is, that’s what they think. And since most of the world lives under capitalism, thankfully, they can’t make things better for themselves, at least not legally, without making them better for other people. Okay, so this is why humanity just keeps persisting, I highly recommend everybody read a book by Matt Ridley. It’s a phenomenal book. It’s called the Rational Optimist. Okay. It’s a really good book, The Rational Optimist, who takes a very reasonable objective and in-depth view of this whole topic. Okay. But let me just talk to you about where the market is, and you know, maybe where we’re going. Okay, so here are a couple of visuals that will help. Okay, this is this is how we ended the year. Okay. We ended the year with 499,000 homes for sale in the United States. Now, compared to what, that’s always the question to ask compared to what? Well, if you look back to you know, the last several years 2015 or so 1.2 million homes for sale, this is normal inventory, 1.2 million right about there. That’s what most people will agree on. Currently, we have Half a million homes for sale. So, we have a shortage of 700,000 homes on the market. Now, there’s about 140 million housing units in the United States. So, 1.2 millionish is about 1% of the housing stock being for sale at any given time. That’s considered normal. Right? We only have less than point 3%. For sale. So, we have a significant shortage. Now, inventory is down, not up. We’ve had the cost of money triple we’ve had; we’ve had interest rates that are the fastest interest rate hikes in history ever, right? And yet, the inventory of homes for sale is down by 10.3% year over year. And it’s down by half from 2019 when everybody thought the market was going to crash. Okay. Why is inventory so important? Here’s why. Because there is one, absolutely unequivocal necessary ingredient if you want to have a housing correction or crash, this one thing, you can’t bake the cake without this ingredient. And the ingredient is if you want to bake the crash cake, okay. You’ve got to have millions of distressed homeowners who can’t afford their homes. And those millions of distressed homeowners who can’t afford their homes have to become millions of distressed home sellers to put their houses up for sale. We have the complete opposite of that. We have 10s of millions of people who are extremely comfortable in their homes who have extremely cheap mortgages. 25% of the country has a mortgage at or below 3%, 65% of the country has a mortgage at or below 4%, and 42% of the country has no mortgage at all. They have a free and clear home. Underwater is an important concept to consider. So, during the Great Recession, a lot of homes were underwater, meaning they couldn’t sell their home, because their mortgage was so high their mortgage balance that they would have had to pay to sell the house. Okay. At that time, we had 26% of the housing stock that was underwater. Guess what we have now? 2%. We have 2% of the homes in the country underwater, by the way, that balloon effect.

Jason Hartman  27:47
I don’t know how to turn that thing off. It’s funny. Whenever I do a peace sign, it does that like to you know. So, we have urgently low inventory. And without high inventory, we just don’t have any data yet to support a crash. I mean, look, if you want to tell me there’s going to be a crash, just show me some data. I’m happy to say there’s going to be a real estate crash. I just don’t see the evidence for it. So, let’s look at a couple other things. Now the Fed is promised to pivot and mortgage rates have already come down in response to this. So, this is a new chart that we just published. And it is a mortgage rate sensitivity and buying power chart. So, let’s start with a baseline of 7%. Now, mortgages could be a little higher or lower at any given time, but we’ll just use that as our baseline for discussion. Okay. So that means at 7% You have a P&I mortgage payment of about $2,200 a month. And that means 55 million people in the country out of 339 million people and a few a smaller number of adult people, okay. 55 million people can afford a house. If the rates dropped by half a percent, another 2.8 million people can afford a house. If the rates dropped to 6% and other 5.4 million people can’t afford a house. These are highly likely scenarios. In fact, Fannie Mae is predicting that by the end of the year, we will see rates around five and a half percent. If they’re right, that means 7.7 million people can now afford a house. So, what happens? Here’s the number of people affording a house on the bottom. Here’s the mortgage payment, you see the payment differences at the different interest rates? What happens if you take 2.8 million people or 5 million people and they come into a market of only 500,000 homes for sale? Okay, if not all of them will buy even though they can’t afford, right, obviously, but say 1/3 of them decide, hey, let’s buy a house, right? We can afford it now we can qualify. So, you have almost 3 million people at the smallest decline in interest rates, not the most optimistic one. If a third of them come into this market, and we’ve got 500,000 homes for sale, and that’s almost a million new buyers, what’s going to happen?

Tim Lyons  30:32
So, Jason, that’s a great chart. And that’s great information. Because for the people out there that kind of follow the mainstream media or they follow the Case Shiller Index, which is the National index with, I don’t know, maybe 14 or 15 MSAs that they kind of track or something like that, you can’t get good data

Jason Hartman  30:51
It’s 20 MSAs. And I think what you were thinking there is that 15 of them are cyclical markets, and only five, only 25% of that index consists of hybrid or linear markets, all the rest are cyclical, which are markets we wouldn’t want to invest in anyway. They don’t make any sense. So, Case Shiller, I don’t like their index. 

Tim Lyons  31:14
So, like, if you’re a Wall Street Journal type reader, that’s, those are the stats you’re going to see. Right. And like for Greg, and I, that was not good enough, but like, we were also, we’re from New York, so everyone’s guilty till proven innocent. We have a little bit of a skeptical outlook on we’re working on Jason, but that’s where we are. But it wasn’t until we found people like you and then other another, mentors and masterminds and, data sources that you can pay for, I mean, you can pay for a ton of great data sources. But there’s also a lot of free ones that are free one that I picked up from you was a guy named Mike Simonson from Altos Research. And for those who really want to dive into this, I highly suggest you follow him. He’s now acquired by Housing Wire; you can follow him alto’s research. And you can see the data, he puts out a 12-minute video out every week about how many homes are on the market, how many are getting sold, what are they getting sold for? And the other thing I wanted to stack on top was people buy based upon the monthly payment, Jason, isn’t that correct? They don’t necessarily buy based on the nominal price of the home. So, when these new, 2.8 million people come back into the market if interest rates come down by only half a percent. And I think, my personal opinion, we’re heading that way, right? Where is the demand gonna come from and where we were supposed supply gonna come from? Because now we’re gonna have increased demand. And people know, basic economics, increased demand, low supply means higher prices

Jason Hartman  32:43
Absolutely. And this chart shows you why nobody’s selling and why the inventory is so low, because their deal is just too good. They have too good a deal to leave it. What people have come to realize is that the mortgage is a huge asset. Okay, it’s not the property. Yeah, the property is an asset. Sure. But the mortgage is a big part of the asset. And so, these mortgages are so valuable. And this is why the experts got it totally wrong. They were focused on the last year and a half when we saw these big rate hikes. And you guys mentioned this earlier in the show, okay. Since we got those big rate hikes, sales volume decreased dramatically because housing affordability went down to the lowest level in four decades. Okay. So, sales volume went down. That means only about 5 million people approximately traded since the rate hikes. But remember, I said earlier, there’s about 140 million housing units in the US. So, what the experts focused on was, if you want to buy a house today, and you’re one of those 5 million people, oh, yeah, it’s too expensive. Yeah, sure. But what they didn’t focus on is the 130 5 million people that already have a house. Like they’re so myopic, they just completely miss that. And they made all these doom and gloom predictions about the market, when there’s this huge lock in effect of people that aren’t selling their house because they’re extremely comfortable. In fact, I did a study on this, you probably heard it on my show, where I looked at unemployment insurance. Say for example, we have a bunch of layoffs, right. And by the way, the layoffs we’ve had are nothing Okay, that’s a drop in the bucket. Okay, so far. So, unemployment is still extremely low, and the job market is still extremely strong. Right. But let’s say that changes and let’s say a lot of people do get laid off. They these people can literally qualify for the mortgage they already have on unemployment insurance. When is that like ever been true in history? It probably never Okay, so they’re not selling folks, they’re not going to add inventory to the market in any significant way. Yeah, you know, nibbling around the edges, maybe a little bit, but until you see inventory, get to the normal level. And I’m not saying it’s a crash, it’s just a normal level of 1.2 million homes for sale. There’s just no data that shows crashes. Okay. And by the way, I do want to say something about that. These statistics, depending on which source you’re getting them from, they do vary. And here’s why. The National Association of REALTORS who’s been publishing inventory levels for the longest time, the index is different because it counts the contingent sales and the pending sales as active, as in inventory. And I think that’s wrong. And that’s why I follow the Alto statistics; they only count the actives. But it’s okay. If you look at the NAR statistics, so long as you compare them with the old and error statistics, right apples to apples all along the way. Either way, is fine. Because either way, we’ll show you inventories very low.

Greg Lyons  36:10
For our listeners, Jason has these wonderful slides that you can see on YouTube. So, if you’re just listening on your Apple podcast, if you switch over to YouTube, these are fantastic charts that we’re kind of going over right now. But Jason, I think we talked about, you just kind of touched on it a little bit. I was going to ask about employment. And if there’s some sort of unemployment that kind of sweeps the nation, right is some sort of recession. What kind of effect would that have on the housing market? And I think you touched on it. If you have a 2% interest rate, you could probably find another job doing something not exactly. And your children

Jason Hartman  36:48
need another job. Exactly. You can pay your mortgage with unemployment insurance, which that lasts for 26 weeks. And whenever there’s a crisis, they always increase the benefit and increase the length. So just stay unemployed. I mean, like you can afford your house. It’s just

Greg Lyons  37:05
Yeah, and that was that was the thing with unemployment that I was going to ask and there’s the answer. But what well 

Jason Hartman  37:13
What we need to grade to have a crash is a black swan event. Okay. Which could happen. Okay, we need World War Three. Okay, we need a serious conflict in the world, another disease, okay, something like that. And the other thing we need is a black swan event, number one, but we also need a government and a Federal Reserve that doesn’t engage in that crisis, like they always do so far, right, where we go into the black swan event, and they keep the money tight. They don’t loosen the money; they don’t increase unemployment vision. Benefits, they don’t give out steamy checks. They don’t loosen the lending standards. They don’t lower the rate. If we had a super tight fed and a super tight government at the same time, and the black swan event, we could have a crash

Greg Lyons  38:17
Yeah, I mean, Black Swan event, no one ever sees, but to increase inventory with the lock in effect, people are 2% mortgages aren’t selling their homes, even if they move, they’re probably going to keep them and rent them out. But how do we increase inventory to get it even to an acceptable level for the 1.2 million homes for sale, I’m gonna do that with the current environment, 

Jason Hartman  38:42
It’s incredibly unlikely that inventory is just always going to be a problem for a very long time, probably well into the 2000 40s. Okay. So, here’s why. We have zoning laws that make it difficult to build. And even if they didn’t make it difficult to build, the cost of the materials, and the labor are so expensive that it doesn’t even matter if you loosen the zoning laws, okay. We have a whole culture, not only in the US, but around the world that wants to protect homeowners and protect real estate prices. It’s just ingrained because most people making the laws and running things, they own properties, okay? Every member of Congress, I’m sure owning multiple properties, okay. Every buddy in the elite class running the world, in every country, everywhere owns property, okay? They’re not going to do things counter to their own interest. They’re not going to say, well, let’s somehow build 10 million new homes in America. So, my house goes down in value, right? It’s a sacred cow. It’s just not gonna happen. 

Tim Lyons  39:58
We call that nimbyism, right? Not in my backyard. 

Jason Hartman  40:01
This is like nimbyism on a national scale. 

Tim Lyons  40:04
And one of the things, just real quick that we that we noticed, \being in the multifamily space was that in 2019, 2020, 2021, there was so much demand for rental housing. The rates went up really, I mean, rental rates went up quickly. And what does that do in a capitalistic society? Well, it spurs development, right. Right now, we have a lot of new units coming online. And a lot of the cyclical markets, Jason, that you talked about, which is putting downward pressure on rents in some of those areas. However, a lot of those not a lot, there’s a significant amount of material amount of builders that have hit pause on their projects, because of the financing. construction financing can be very onerous, the rates can be higher, there’s a lot of drawers, and you have to have, you have to be well capitalized even on your personal balance sheet, so there’s a lot going on, where they’re just saying, you know what, it’s not worth it right now. And to stack on top even further when they do want to build something, Jason? Do they want to build an entry level home for the first-time homebuyer? Or do they want to build something that’s going to make them a decent profit, that’s going to be maybe that middle tier or that higher tier, single family home, right, they’re going to build the stuff that’s going to make them a bigger profit. So, what, like you said, is going to be well into the 2040s? It’s been several studies on this, and even if we build all out, for the next several years, it’s going to take a really long time to get to where we need to be. So anyway, I just wanted to throw that

Jason Hartman  41:33
To your point, just to elaborate on that for a minute. The builders just can’t make money building cheap entry level houses. And that’s what’s most needed. We looked at the gross inventory numbers, that includes all properties, all price ranges, all areas. Okay. Really, that’s misleading because this is dramatically worse. In the entry-level market, you think inventories low nationally, if you are an entry level home buyer, there is nothing. I mean, it is so scarce. And that’s what my company sells, right? We help people buy those entry level properties because those make the best rental properties. So, inventory is in very short supply. I mean, we have it, we can help you go to Jason, follow my podcasts, YouTube, whatever, and reach out to one of our investment counselors. But yeah, it’s a challenge, no question about it. And the reason it changes in 2040, late 2014, probably is because the population and the demographics change, okay, we are in the middle of a baby bust. And people just aren’t having enough kids. Now, immigration, of course, I mean, we don’t control our borders anymore, sadly. So, there’s going to be a lot of housing demand from all these people coming in the country. But, overall, there’s been a baby bus. But people wrongly interpret that as thinking, oh, my gosh, if people aren’t having kids, that means the real estate market is going to slow down or crash. Well, that’s there, they don’t understand. You have to do a lag on that in terms of years by 25 to 30 years, at least. Because what matters now is all the people that were born in 1991, okay, or 9094. Okay, that’s what matters now to the housing market. And there’s a lot of those people out there that were born then in the millennial generation. So, there is a massive shortage of housing for those people.

Tim Lyons  43:08
Well, Jason, I feel like I could ask you about 4000 more questions, but in the interest of time, we’re going to transition to our last three short answer questions. So, the first one is from a de facto mentor of ours named Jim Rohn. And he says that a Oh, I love him. And he says that a formal education will make you a living and a self-education can make you a fortune. What does that mean to you? 

Jason Hartman  44:04
I think that’s a great quote. Jim Rohn was one of my four original mentors I discovered at age 17 changed my life, along with Denis Waitley Earl Nightingale and Zig Ziglar. And later Augmon Dino and a little bit Tony Robbins, too. And, yeah, it’s, really a great point. And, look, the type of education taught in school is the education you need to go work for someone else. Okay. The type of education you teach yourself could be the type of education that produces new value in the world, right? That’s the entrepreneurial education where new ideas, new business models are created, new inventions, things like that, not to say that people, they don’t work for big corporations, they invent stuff to Okay, of course, but most of that value goes to the employer, not to the employee, and that’s why when You engage in self-education. And you go into your own business, which, by the way, folks, I want to make sure I define being a real estate investor as starting your own business. Okay? You can go to work and have a W two jobs for a big corporation, but you have your own business on this side, your real estate investments are a business, okay? So, think of it that way. You’re an entrepreneur or if you’re a real estate investor.

Greg Lyons  45:26
No, you totally are. I mean, there are not too many passive activities that you can do in real estate, but you’re definitely a small business owner at that point. The second thought we have is from Robert Kiyosaki. And I feel like this one is teed up perfectly for you. He once said that savers are losers and debtors are winners. What does that mean to you? Well,

Jason Hartman  45:51
Kiyosaki didn’t coined the phrase I did, but it means inflation-induced debt destruction. Savings are constantly debased by inflation, inflation is destroying the value of your savings, your stocks, your bonds, but it’s also thankfully, destroying the value of your debts. Now, that doesn’t mean all debts, okay? And this is where the Dave Ramsey crowd really gets mixed up, and so does Dave himself. Okay. Dave Ramsey is good for the audience he’s intended for, okay, he’s intended for the typical American who has a bunch of credit card debt, who spends more than they make, and is buying depreciating assets with debt. That is bad. No one would ever say that’s good, okay. And Dave Ramsey is good to help those people get out of the hole and break their bad habits, right, and start accumulating wealth. But you gotta graduate from Dave Ramsey because he really only takes you up to about sixth grade. Okay. So, once you’re out of sixth grade, you graduate to the idea of using debt as an instrument to create wealth. And when you leverage your real estate, here’s something we didn’t talk about. Let’s assume you put 10% down on a piece of real estate, just for simplicity, as an investor, you’re probably gonna have to put 20% down, so cut it in half my example. But if you put 10% down on a property, and it appreciates at 6% per year, right, that’s about the average historically, okay. Lately, it’s appreciated dramatically more than that, but if we average it out over decades, it’ll be about 6%. Usually, most people agree. If it appreciates 6% annually, and you have 10% down on the property, you multiply that return by 10. That’s a 60% return. Try beating that on the stock market. Good luck, right. And so real estate is incredible, because of the leverage. But and most people can understand that one, because it’s just easy math. But it’s also incredible, because the value of that debt is declining, based on inflation, inflation-induced debt destruction. So, it’s like you get what I call, I call this the double inflation arbitrage. Okay. And remember, over time, you raise your rents to soy and your commodities, the ingredients of the house keep going up in value, too. So, you’re winning in so many ways to assume that real estate is about. I mean, I heard Jim Cramer make this comparison. It’s totally complete fucking lie. Okay. He says, he says, well, historically, the S&P 500 outperforms real estate. Because the S&P does eight or 9%, in real estate does 6%. And Robert Shiller has made these comparisons to they’re just complete lies, okay, these people certainly must understand this, that they’re not telling the truth. Because all of these multi-dimensional assets or aspects aren’t considered, right? If you were just looking at the appreciation, that would be like one of seven benefits.

Tim Lyons  49:12
And that’s why it’s so important to have an education, right? We always talk about here on this podcast, Jason, we say education times action. That’s what we got from one of our mentors. That means a lot to us, right? Because if we needed a PhD, every time we needed to make a decision, we would never do anything. But it’s that application of that education. That means everything, especially in this business. So, it wasn’t our third and final question is after all this, you’re at a cocktail party, or you’re out somewhere and someone says, Jason, what do you do for a living? You tell them, and they go, isn’t investing in real estate too risky? What would you say? What would you tell, how would you respond to that?

Jason Hartman  49:51
Well, I mean, the first thing I would say is compared to what? I mean. Are you going to give your money to a bunch of Wall Street crew So, where you have one or at most two, dimensional asset, in other words, buy low, sell high, you get a dividend-paying stock, buy low, sell high get dividends, two dimensions, right? That’s a simplistic investment compared to income property, which is multidimensional. But it does take involvement, and it takes some work, but there’s no such thing as a passive investment, folks. It doesn’t exist, okay, like, even leaving your money in a savings account is not a passive investment in reality, because you’re getting destroyed by inflation and taxes. Banks go under, I mean there, there are things that have, everything has to be managed, okay. And it’s just a spectrum. There’s no way you can give your money to some financial advisor and assume you’re going to be okay, you’re not, okay, you got to pay attention to everything. And real estate requires attention, like anything else, and it requires some education and some learning. But overall, it’s a pretty simple asset class. I mean, you don’t have to understand inflation and do step destruction to benefit from it. It’ll be there anyway, right? My mom started investing in real estate decades ago. And she made a lot of money, she didn’t understand any of this stuff. She just bought and rented houses and collected the rent every month, right? Simple. It’s, if you understand more, and you optimize it, you can do even better. 

Tim Lyons  51:28
It’s simple, you know, but if you know, if you understand, the more you understand, the better you’ll do, and simple as that, right? And the more educated you are, the better decisions you can make. And to be quite honest, Greg and I have benefited greatly from being around people like Jason at conferences that we go to, and some of the masterminds we’ve been a part of, and stuff like that, because it can compress time decades in today’s is sometimes how it’s referred to. So anyway, Jason, this has been a great episode with tons of value. If people want to find out more about how they can work with you and your investment counselors and some of the other things that you’re up to, what’s the best way to for them to get in touch?

Jason Hartman  52:03
Yeah, just go to Just my name. And my podcast is available on any podcast platform, my main show is called “The Creating Wealth Show”, just type in Jason Hartman, and you’ll find it on YouTube, type in Jason Hartman, and you’ll find me

Tim Lyons  52:23
 Love that. So that’s going to do it for this week’s edition of The Passive Income Brothers podcast, and we look forward to serving you again next week.