Welcome to Passive Real Estate Investing. I’m your host, Marco Santarelli. You know, Warren Buffet used to say, “look at market fluctuations as your friend, rather than your enemy profit from folly rather than participate in it.” And there’s a lot of truth in that, you know, it reminds me of another saying, and that is “the trend is your friend until the end.” And the nice thing about real estate is it’s pretty easy to identify and follow trends, and they show you where things have been, where things are today and where things are headed and as a real estate investor or any investor for that matter, it’s good to know where things are headed and what the trends are, because then you can get into the opportunity. You can get into the game and ride that train, and you can get out of harm’s way when things are coming.
And you can see that coming from often months, if not years down the road.
So my guest today has a lot to say about the markets and the trends that are going on. He’s very dialed in, has many years of experience investing in real estate, but also as an analytical person, as far as I know him, he has very much been dialed into pulling data from public records and whatnot, and looking at what is going on in terms of the markets around the country and real estate as a whole. So with that, let’s bring on our guests and talk about the housing market and what’s going on for this year in 2021 and beyond.
Download your FREE copy of The Ultimate Guide to Passive Real Estate Investing.
If you missed our last episode, be sure to listen to Ask Marco – 3-Pack of Listener Questions
Enjoy the show!
– – – – – – – – – – – – – –
Download your FREE copy of: The Ultimate Guide to Passive Real Estate Investing.
Get your FREE coffee mug by leaving us a Rating and Review on iTunes. Here’s how.
See our available Turnkey Cash-Flow Rental Properties.
Please give us a RATING & REVIEW (Thank you!)
SUBSCRIBE on iTunes | Stitcher | Podcast Feed
It’s my pleasure to welcome Sean O’Toole to the show. Sean is the founder and CEO of property radar. And prior to launching property radar, Sean successfully purchased and flipped more than 150 residential and commercial foreclosures leveraging his 15 years in the software industry. Sean used technology as a key competitive advantage to build his successful real estate investment track record. He’s an amazing guy, very knowledgeable. I’ve known about Sean for many, many years and followed him when Property Radar was originally Foreclosure Radar, which goes back a few years. And with that, Sean, welcome to the show.
Thanks for having me. It’s great to be here.
Well, I think you are long overdue for being on the show because you are just a wealth of knowledge and the amount of data and detail that you’ve gone into over the years, pulling out foreclosure information from public records is mind boggling, cause that is a very labor intensive task.
I’ve been there myself and I did not enjoy doing that. So, but let’s start with that and start with you, tell us a little bit more about yourself and how you ultimately launched Foreclosure Radar and then rebranded to Property Radar
Yeah, so computer guy, software developer early on and dropped out of college twice, actually for software companies and worked in Silicon Valley through the nineties and the.com boom. And after the.com bust ended up flipping houses and flipped, like you said, over 150, uh, properties, mostly bought at the foreclosure auctions. And I started tracking every foreclosure in California and at the end of 2005, you know, saw some worrying signs in the market and got rid of everything that I had, but I kept tracking all the foreclosures and they just started to skyrocket. So it turned that into a software application, kind of a picks and shovels to arm, everybody that was going to go after that business.
Interesting, great timing by the way, leaving the market in 2005, because I know when I first caught wind of what was going on was early in 2006, I got a call from one of our mortgage brokers and they said, Hey, you know, the loan product that you guys are using for like all your clients has disappeared. They’re not even going to close the ones that were in underwriting. They just literally pulled the rug out from everybody. And that was the first sign that I knew something was coming down because when credit starts to dry up, it creates problems in the real estate market. And, you know, things are going to start to falter. Yeah, for sure. Well, good timing on your part. So here we are in 2021 and we had a very interesting year in 2020 last year. Real estate was on fire pretty much everywhere yet at the same time, businesses were going out of business in these lockdowns with COVID. Let me ask kind of a general question, but you can be as specific as you want. What real estate rate trends were you seeing last year in 2020 that maybe were surprising to you?
You know, I just, I think overall, right, when you have such a deflationary event, like a pandemic is, was surprising to me, like it wasn’t so surprising to me that people wanted to move and go to different areas, but how much more they were willing to pay and how much price has got pushed up in that period of time definitely came as a surprise. I definitely didn’t see that coming that big, a move in prices. I live in a vacation kind of resort town in Tahoe and homes that sold two years ago for 500 resold for 750. I mean, it’s just crazy.
What do you think the main drivers is in that? Is it interest rates or do you think just demand was pent up and it’s finally coming out of the woodwork?
Well, I think there was a pretty big shift in demand, right? Like, so with work from home becoming more possible, right? A lot of people were saying, Oh, early on repeat saying like places like Tahoe would suffer really badly. As people had to contract their income and leave those places. And I was like, no, you know, Tahoe is the place where the person wants to be. So if you’ve got to make cutbacks somewhere, you’re not going to make it in the place where you want to live when you can work from home. Right. You can make it a place that you are having to be for your commute. So, uh, you know, I think a lot of people got that wrong early on. You know, I think we saw just a lot of movement where people said, geez, I now need an office at home. I need another bedroom. Right. You know, I think a lot of people for the first time spent a lot of time in a house. It, they probably didn’t spend much time in before. Right. Because they were out at work and then maybe out to dinner, maybe out to a movie and suddenly they got to spend a lot of time in these four walls. Right. And I think a lot of people realized, wow, you know, this isn’t where I want to be. And uh, so it really created a lot of movement.
So that movement probably led to some demand, increased demand because people were being pushed out to other areas or maybe households that were densely populated with, you know, four or five people now started to split up and now they needed two households. Now it just increased the demand pool.
And folks in apartments wanting to, you know, have their own four walls and not have to share hallways with folks. And so, you know, just lots of pieces moving all at once. Uh, that created just a lot of demand, especially for a particular product, you know, rents in San Francisco are way down. Right. So not everything one.
Okay. So that’s 2020. I mean, we can come back to that. Let’s talk about 2021, one question that we find people are asking a lot and even some of our clients they’re saying, well, I’m just going to sit tight. I’m not going to buy real estate right now because I think there’s a foreclosure crisis coming. And you know, I’m sure you have a lot to say about that. I have my own opinion about it, but do you think there’s a foreclosure crisis coming in the next year or two? And why or why not?
It a little bit on how you define foreclosure crisis? Right. Are there going to be a lot of people that haven’t been able to make their payment who lost their business, who are struggling? I think for those folks, there’ll be a crisis while we see a repeat of 2008 where we see prices fall dramatically. No, that’s not going to happen. The regulatory framework has changed and kind of, regardless of how many people are in trouble, we’re not going to see that same kind of downward price pressure and the flood of inventory that hit the market. I can dive into exactly why that is, but yeah.
Expand on it a little bit because I think a lot of people are really curious. In fact, I don’t, I’m not so sure as some of the people listening to this are convinced that we’re not going to have a foreclosure crisis. I mean, I’d like you to expand on it because, you know, I can touch upon, you know, what’s going on with forbearances. And I think a lot of people think that these forbearances are gonna lead to foreclosures, but I’d like to hear your opinion on that.
The fundamental thing that changed, and it really happened in like September of 2009, right. Is because before that regulators required banks to get bad assets off their books as fast as possible. Right. It was just that straight up, what banks had to do. Right. And what you saw happen was really starting in 2006, right? People got qualified into mortgages. They couldn’t afford, or, you know, for whatever reason, they said, Hey, I’m done. I’m not going to make my payment. And we started seeing an increase in number of folks not making their payment. Well, as soon as that started happening, right. The bank start the foreclosure process. Right. And then, you know, in California, it’s 120 days and the banks are literally held accountable for how they move that property. Pre 2000, September, 2009, how quickly they get the property through that process. Right? And then at the other end of that process, they’re required to put it on the market and sell it at whatever price it will sell for.
And you know, one of the things you need in order for prices to go down is you need motivated sellers, right. And a bank that’s required by regulators to get rid of a bad asset had asset, right. Somebody’s home is a seller at any price, right. They just have to get whatever the market price is. Right. So at the same time you have that happening, you had, like you mentioned earlier, the loans being removed from the market, right? So there’s no financing. So that pushes that price down, even farther. And it wasn’t until, you know, I think in Stockton, we got up to something like 16 years of inventory and it wasn’t until investors said, Oh, wait a second. If I buy this and rent it, it’s a 10, 12, 15% return on investment. And when we went from 16 years of inventory to like very little inventory in a very short period of time, right? Because the economics made sense. Now post 2009, what’s changed regulators. Aren’t going to force banks, right? The regulatory framework has changed to keep homeowners in their homes at pretty much any if at all possible, right? So forbearance loan modification, like you have to go through all this. In fact, it’s become not only a regulatory thing, but state law that you have to go through and try to do a modification, maybe look at where your lease loss is in arrests and banks learned, you know, and Fannie and Freddie learned that there’s a floor here. We’re better off not putting all these properties on the market. Cause that’s what caused the price declines. Right? If we have to hold them, we’ll hold them or we’ll sell them off to, you know, a colony or one of these big guys, right. At a fair price where we’re not going to push the whole market down. It’s just not going to happen again. We learned enough from 2008, it won’t happen again.
Well, in addition to the regulatory environment, a big thing that we have today that we didn’t have in 2006 or 2008 is the amount of equity that people have in their homes today, which gives them so many more options. Plus banks are willing to work with them with forbearance and whatnot.
Keep in mind though, like I hear that argument a lot. Keep in mind in 2006, people had record equity as well, right? 2005 anyways. Right. Because one of the signs that you’re getting to a peak, right? Lots of people had equity prices, you know, it can only go up. And all of the things that led to the 2008 crisis, right. Are the same arguments I hear today. Like we should loosen lending standards cause you know, there’s no risk in the market, blah, blah, blah. Right. And at the end of the day, the value is a pretty arbitrary thing and only takes three comparable sales, right? To set the value of every property in that area. I guarantee you, if you go into all of the major markets in the US right now, or at least the ones that have done fairly well financially, the population in that market can’t afford their homes at today’s prices. And I think that’s the definition of an overvalued market. And so there’s no question, all of our markets are overvalued. The good news is we only need to sell maybe 5% of homes a year. So can we find five people, you know, 5% of the population that can afford to pay overvalued prices? Sure. Can everybody in that market afford today’s prices? Absolutely not. We would have tried this. This would probably fall in half.
Okay. So let me ask you this. What’s providing the stability for lack of a better question. What’s providing the stability in the markets that is keeping them where they are and continuing to appreciate?
I mean, a couple of things. So one is lower interest rates. So, and this has really been true since the 1970s, right? Volcker and Carter pushed interest rates way up. And really since then, I would say we’ve had a debt-driven economy where lower and lower interest rates, what happens is interest rates go down for the same payment. You can afford more principal or you can afford a higher balance, right. Higher price. And so as interest rates continue to go down, prices are going to naturally go up after world war two. And the GI bill, we saw this major increase in home prices. Right? Well, part of the GI bill was 30 year financing, pretty affordable for the returning GI’s. And so you think that would help affordability for those GI’s. It didn’t help affordability at all. It changed the price of the underlying asset. That’s the same thing that’s been happening. So interest rates are definitely a part of this, right? The other part of this is a lack of supply, especially in places like California, where nimbyism right is basically keeping new stuff from being built and title 24 and all the rest make new builds very expensive. And when you have to have meet a hundred-year flood, a hundred-year earthquake and all these other requirements, when you build a new property, that new inventory is so expensive that it’s bringing up the old inventory and making it more expensive than it probably should be.
Right. So, yeah. Supply and demand keeps coming back into the, you know, the conversation because it seems to be the main driver for every single real estate market around the country. Sure. Where do you see gen Y and gen Z, which are two very, very large cohorts, you know, anywhere from 60 to 72 million people, each that’s like a pig and a python, as the saying goes, how are they going to impact real estate here in 2021 or even for the next two, three, four years?
It’s a really interesting question. I don’t know if you just saw one of the founders of Robin hood, you know, the new low-cost trading platform, but all the gen, I guess Z’s are hopping on to, he just said that stock ownership is the new homeownership for, you know, the younger generations, which is a little surprising. I think we hear a lot about Airbnb just using other people’s and just renting and not owning. Right. But at the end of the day, once you start having kids, you want that stability. And whenever you start seeing a track record, like we’ve seen for both stocks and housing, right. More people pile in. So I think we’ll see more, uh, you know, a shift as they get older. Those homeownership rates are going to increase even if maybe they were a little more resistant early on. And I think as we, if we continue on this path of higher and higher prices, they’re going to go wait a second. I don’t want to miss out. So I expect homeownership to rise even in the younger, younger cohorts.
So Sean, that kind of goes back to the previous question I was asking. And I’m not sure if we completely answered it. Cause I wanted to ask you your opinion on whether we’re going to see a foreclosure crisis. And you know, you said it depends on how you define foreclosures.
Where the crisis, right. Is it the crisis for the person who’s losing their house? Absolutely. It’s a crisis. We need your price declines. No, I don’t think so.
All right. So you’re pretty bullish then on real estate going forward for the next, at least the next year, if not longer.
You know, I think there are some interesting things, right? As lockdown start to come off and people say, Hey, we want you back in the office. Right. You know, do we see places like Tahoe where I live right. Would have seen incredible rise in prices. Do we see some of those folks go, Oh wow. I didn’t realize shoveling snow was this hard. Right. And do we see some exits? Right. So I don’t know. I think it could be a mixed thing. We could see some areas go up and others maybe at least flatten or go down. I mean, we’ve gotta be real here. We’re not through this pandemic. Like I know we all want to be through it and past it, but you know, I think there’s things get captured with, uh, variants that maybe vaccines aren’t effective against. That’s looking good so far. But if that starts looking bad, right. I think that there’s still a lot of possibilities for another shoe to drop. So I’m not a hundred percent bullish, but I think that right now it looks pretty good for a strong year.
Yeah. I kind of break that in my opinion. I break that, the answer to that question to a couple of different categories. I look at it this way people will walk or drive as far as they need to go till they reach affordability and housing. And that’s especially true in the tier one markets, the expensive market, San Francisco, LA New York, Washington, DC. I mean, Washington DC is a great example because all the surrounding cities and communities are benefiting from the expensive price in Washington. I think that there will probably be a flattening or correction in these very expensive, large Metro areas. You know, pretty much the cities that make up the, um, you know, the case Schiller, you know, top 10 and top 20 markets. But when you start to get to the secondary markets, the tier two markets, Kansas city, Indianapolis, Memphis, Tennessee, and all that they’re growing, they’re going to continue to grow. People are migrating. Those housing markets are healthy in any of the job environments, broad. So that supports the income needed to, you know, to finance purchases and the affordability there. So when I say I’m bullish, I think I’m very bullish on the secondary markets and to a large degree, the tertiary markets, what some people might refer to as excerpts. Um, but I would never invest in a tier one market. Anyway, I wouldn’t be investing in San Francisco or LA or, you know, Manhattan, you know, that’s, that’s crazy.
I agree with you. And I think I would add just a couple of pieces of newlands, right? So two things there, right? So you think about, uh, I’m just gonna use the Bay area. Cause I know it well, you’ve got similar things in SoCal, but you know, in the Bay area let’s take like the primary market of San Francisco, right? The peninsula, a secondary market getting out into the East Bay like Brentwood and places like that. And then the tertiary markets say being Stockton. So when we did have declines, right, we saw about a 20% decline in the primary market in San Francisco. Right. We saw like 30, 40% declines out in Brentwood and we saw much 80% declines out in Stockton. Right. I had a property I own in Stockton that I sold was the last one I got rid of my inventory that, uh, I sold it for $260,000 in, I think, uh, may of 2006.
It sold on the courthouse steps for $45,000 in 2000. Wow. Right. Like, so yes, I think that there you’re right, right now we’ll see some more folks move out to these tertiary markets for affordability and the rest. And that’s going to be a natural thing of prices going up. However, I personally think like I would much rather own property even with a lower return on investment in a primary market than a secondary market or a tertiary market. Right. Can you get more income today, you know, in a better ROI in the tertiary market? Yes. We, uh, interviewed a, uh, investor. Who’s been at it for 39 years and he started in tertiary markets and slowly started kind of trading his assets. Right. And now everything he has is in primary markets. And you know, I think that there’s a lot to be said for that is your return, you know, is the income you can make on rents in San Francisco. Great. Right now, no, it’s terrible. Right. Over 20 years, will you see a greater return in San Francisco than in those tertiary markets? I think you probably will.
So my listeners who have, sorry. No, go ahead. My listeners who’ve been listening to me on the show for a long time will come to realize that the difference between your two examples there is that if you’re focused on income and you want higher cap rates and cash on cash returns, you’re going to be investing in secondary and maybe tertiary markets. Right. But if you are more of a long-term growth play investor, you’re going to be looking at not speculatively, but the larger markets. So, you know, I don’t necessarily endorse, you know, investing in San Francisco because odds are, if you’re putting 20% down, you’re going to be negative cashflow. You know, you’re going to be bleeding every month. Yeah. Um, but you know, the analogy I use and based on what you just described as this you’re investing in San Francisco or LA, and I say investing in air quotes, because it doesn’t necessarily mean you’re investing. You might be speculating. Like a lot of people did in 2004, in 2005 where they were rolling the dice and they wanted to see appreciation continue because that’s where the big money was, at least in unrealized terms. But you know, that’s what they were focused. But you know, these big markets, these tier-one markets, I refer to them as essentially like blue-chip stocks. You’re investing in a blue-chip stock when you’re investing in a secondary market, a tier two market, which is very stable and successful and has great stability as an investment place. That’s like large cap stocks. Okay. But they may not be blue-chip, but those are your large-cap stocks. And then the tertiary markets and the far excerpts and maybe borderline rural is what you might call your small-cap stocks. I mean, that’s the analogy I use if I want to use the stock market.
Yeah. It’s reasonable.
Yeah. So I’ve always been a big believer and where I invest is in, you know, large cap stocks. I like Kansas City. I like Memphis. I like Indianapolis. And I do well there. So, you know, that’s my focus and I really don’t want the gyrations of Los Angeles or San Francisco. Yeah. I can make a lot equity wise. I could lose a lot equity wise. So, but that’s just a philosophy, you know, you have to understand what your investment strategy is. Right. So we talked about gen Y gen Z. Do you have any thoughts or comments about baby boomers? Because they’re, you know, kind of the, the older or the oldest generation, you know, from what I see, they’re staying put, they’re not giving up their homes and moving to active living facilities or going to, um, I hate to call them old age homes, but you know, assisted living facilities. Right. They’re staying put, they want to stay at home. And so that inventory never came out on the market last year, which further perpetuated the problem of short inventory.
Lack of supply. Yeah, for sure. You know, that there’s the old saw that, you know, you spend the first 40 years of your life, uh, acquiring assets and the second 40 getting rid of them. Um, but you’re right. We’re not, we’re not seeing that quite at the rate it’s been, uh, you know, one thing I would say about baby boomers though, is they are more leveraged. They have more cash and more equity than pretty much ever before, but they’re also more leveraged than ever before, right? Like, you know, our parents probably retired with no mortgage, right. And if you hit 65 and you pay off your mortgage, like you’re going to have a better retirement, it’s going to be a lot easier, a lot less stressful, a lot less issues. And when we have a such a strong market here for such a long period of time, right, that helps a lot.
If we get into a real downturn, I think we’re going to find that there’s a lot of baby boomers who are still carrying more mortgage than they probably should, you know, post-retirement and maybe forced to be sellers. So I think, you know, if you think what could go wrong, right? That’s one of the things that could potentially go wrong. There’s lots of reasons to say that won’t happen, uh, to cash, lots of retirement savings, like big picture, right. For the economy as a whole. But because it hasn’t happened yet in a market where prices are going up and stocks are going up and all the rest doesn’t mean it won’t happen.
Well, I agree with you. I guess if anybody were to have a healthy debate with you, their argument to that would be that 34% of residential properties today are actually owned free and clear. And a lot of that, as far as I know, is the baby boomer generation. So there’s a lot of that equity out there with no mortgages, 54% of the mortgages out there today are below 4%. So, you know, you want to talk about formidability and it’s not a monthly payment is going to kill someone. They can survive a few years. I’m sure on these lower monthly payments and the average amount of equity out there today, just based on appreciation that has happened is 52%. I mean, the loan to value on average is 52%. So I think the dynamics are there where we have cushion, we can absorb some market shifts, even if interest rates did bump up. And, you know, we went into a long recession, but that’s my opinion. Yeah. So I mean, yeah.
I think, I think that’s all, those are all very good arguments. Right? And so just like in 2005, there was lots of good arguments about why the market was, it felt like it was only going to go up. People wrote books about why there was no bubble and as human beings, right. We’re bad prediction machines. Right. And we discount the possibility of pandemics. We discount the possibility of what can go wrong. And so, like I said, overall, I think I agree with everything you said there. And I think that there’s good possibility going forward, but like, I like to keep enough cash reserves to make sure that I can weather a downturn, right? Because you look even at 2008, you know, which is a huge crisis, a huge downturn in prices, right. If you bought a house in 2005, you’re probably fine today. If you kept making your payments and the rest, and what happened to the value in the meantime, didn’t really matter at all.
And yeah, you didn’t buy it the best time to get the best return. But if, if you enjoyed where you lived and you could afford the payment, that whole price is didn’t matter at all. Right. Right. If you were in a position where you were forced to sell during that time, you had huge traumatic losses. And so I just think it’s important to leave yourself in a position to not always just count on everything being bullish and better, but leave yourself in a position that if things are better, you’re going to be fine. Anyways, you can make it through to the other side. So I agree with what you’re saying. I think things look pretty good on cash reserves and equity and payments. And I think the risk of interest rates going dramatically up is really low. Like if you just think about the amount of debt, like one of the things that we’ve seen since 2008 is corporate debt is way up student debt is way up household, it’s still really way up, right? Like all of these forms of debt, car debt, auto debt, like all these things are, are kind of through the roof. And you know, I’d say we’re in a debt bubble. And the only way we survive that is with, and, and the federal government too, right. Top of the list, right? So the only way we survive that is lower and lower interest rates. And I think at this point we don’t, a lot of people talk about free markets. We don’t live in a free market. We live in a completely artificial economy and it’s a controlled economy. And one of the primary controls is interest rates and interest rates are only going up.
Sean, you know what, you’re probably the only guest I’ve ever had in five and a half years that said that I think the only other person who may have said that was Jim Rogers, you know, self-made billionaire from the quantum fund who I had on a couple of years ago, maybe a year and a half ago. But it’s very rare to hear someone actually say that, but you’re right. We are a credit based economy. It is certainly controlled. It’s not a free market. We have to keep interest rates low to keep the house of cards up, which kind of begs the question I’ll throw out at you is do you think the US is going to mimic Japan in terms of inflation and interest rates? Because I mean, it seems like half the world is running on negative interest rates.
Yeah. I mean, so this one’s very personal for me because I own a real estate magazine in the Hawaiian islands. It’s the one break I took from software. I went to as a kid and my dad wanted to retire. He asked me to go out for two years and run it before he could take early retirement from being a professor. And I said, sure. And we bought that just months before that Japan crisis happened in the late eighties. And it was a huge problem. Right. And it really hit Hawaii because we had so many Japanese buyers and they’d push prices up so high. And so, yeah, I’ve paid a lot of attention to that one. And you know, if I compare us today, right, a hundred percent debt to GDP, they hit a hundred percent debt to GDP way back then I think there are 300 or something. Now there’s a lot of similarities. And after the 2008 crisis, I really thought, geez, this could be why more republic, like stuff where bread goes from whatever it was. I think it was like 8 cents a loaf to like a trillion marks. Right.
Crazy right. Led to the rise of Hitler. And I was really concerned about that after the 2008 crisis, that, that, that could lead to something like that. Like this debt to GDP thing was just out of control. And then I really looked at Japan. And why did Japan not have that kind of hyper inflation that you saw on the Weimer Republic and Zimbabwe and these other places, Japan was too important to the worldwide economy too tied in, right? So the Weimer Republic, everybody was off at, after world war one. So they said to heck with you and they let them collapse the mob away. We let collapse Japan, we didn’t let collapse. So it’s just kept going. Now people will talk about the savings rate in Japan and the rest, but I think that’s the bigger picture issue. And then I look at the U S and it’s like, okay, we’re like Japan, but we’re way more tight into the world’s economy where the world’s reserve currency, which doesn’t necessarily have to last forever.
But like, we’re way more tied in like the world can’t afford to let us just, you know, some would like to see us fall for sure. But that’s a very tough unraveling. So I think we can go a lot farther than Japan. Wind has gone with a debt GDP and lower interest rates and all that. The last time I looked, I think mortgage rates in Japan were like one and a half percent for a 40 year fixed mortgage. You think about what that could do to prices in the US and how much farther home prices can go. If that’s the path we’re on. Um, that’s pretty bullish.
Yeah. It’s unbelievable. The whole concept of kicking the can down the road, you know, how long can you keep doing that? Apparently, if you have a printing press, you can keep printing money, you know, or currency, technically speaking, its currency, not money, but you keep print to infinity and you essentially inflate the dollar away, not fast, but slowly, you know, you can avoid a hyperinflation. You just inflate the dollar away over hundreds of years. What’s interesting to you.
And that’s where I wanted to just touch on it. And that’s where I love those primary markets, right? So it’s a very poor return today. But over time, if you really pick the right primary markets, they’re going to stay primary over decades. Right. You are going to see all of that in those markets and probably in your large-cap, you know, secondary markets as well, but certainly in those primary markets, if you pick them, right. Yeah,
I know what you’re saying. And I agree, but I would actually argue that inflation and monetary policy affects all markets equally because all real estate in the United States is denominated in us dollars. So it doesn’t matter what market you’re in, you’re buying and selling in us dollars. So, you know, the same currency is denomination.
I still think though, that there are places that are rising, right? So you think about pebble beach before it was pebble beach, right after it’s pebble beach, right. The values go up far more. Um, and if you find there today, it’s going to be pretty safe. Cause it’s probably going to be pebble beach nail forever. Right. Whereas you do get Detroit’s right where industry leaves and the only solution is a bulldozer and you’ve got to remove, there’s still, and there’s still places in the country where there’s really no bottom to the prices because people have just left. So I think you still have, right. Careful. And that’s probably tertiary, but they were proprietary at some point.
Yeah, absolutely. And, and really that just comes down to the supply and demand dynamics. I mean, if jobs are leaving, people are leaving and demand drops through the floor. And so of course, you know, the real estate becomes less, much less valuable there because nobody wants it.
Hard to see how that happens in LA. Right. Hard to see exactly the diversity of economic activity in LA. It’s hard to see how LA ever becomes a Detroit. Right?
No, I totally agree. And that’s the stability of it. That’s why I refer to it as a blue chip city, even though it’s bloody expensive and it’s got its own political and other problems conversation for another day. Okay. Well, as we wrap it up here, I want to end with just a quick chat about trends. I love trends. I follow trends. I think trends are important to keep an eye on, especially if you’re a real estate investor, because things in real estate move generally speaking slowly. And so if you’ve got your eye on the trends, you can see what’s coming and where things are going. So we’re talking about 20, 21. And I really think that’s the theme of this episode at this point. So, you know, what real estate trends should we expect to see in 2021, by the way, I want to make a quick comment before you answer that question. A good friend of yours and mine, Bruce Norris, who I definitely need to get on the show years ago, he predicted 2% mortgage rates. And I still remember the people who are like rolling their eyes up into their heads saying, you gotta be kidding me 2% now. Or do you know where rates are gonna go back up six, 7% here we are, you know, 2% mortgage rates, right. And they’re still going down.
Yup. Yup. I remember Bruce called me one day and said, got this crazy idea. And I said, I a hundred percent agree and I will take it one step further on our next crisis, not this one, but on the next crisis, there’ll be in the ones.
Okay. We’ll keep buying real estate then.
On, on the next, on the next crisis, whatever it is, right. We will hit ones on mortgage rate.
It is amazing. So you know what load up on real estate now, and then refinance the 1% later. Right? So here’s kind of the wrap up question. Let’s, let’s talk about the trends. What real estate trends do you see this year? 2021 or even into 2022?
I mean, I think the biggest one is we’re going to continue to have a pretty severe supply problem, right? So we’ve seen lumber go way up. I think that we still haven’t fully seen the full supply shock of COVID. When you look at the number of people that stayed home for health and safety reasons, and that affected the production of goods that are necessary for things. My son called me this morning and he bought this ridiculously expensive graphics card and it was like $1,500 retail. He paid over retail and I kind of like, dude, what are you doing? And he said, dad, there’s a chip shortage. It’s going to work out. And so he basically gambled speculated on this graphics card for 1800 bucks. Well, they’re now, uh, they just raised the retail price above the $1,800, which was $500 more than he paid the 2000. And there’s still a shortage and they’re selling on eBay for 2,500. So he’s up $700 in, I think 45 days on a graphics card with the same thing, the same thing’s happening with lumber and lots of other things that are necessary to build more supply. And so I think that’s going to continue to be a really important part of the equation. Here is lot of demand for housing right now and the rest, it’s going to be very hard to meet the supply due to shortages. And that again is bullish for prices and existing stock, even for the guys out there fixing and flipping and rehabbing, right? Those rehab costs are going up right now. So I think that’s a trend that we may see get quite a bit more exaggerated here as we work through the kind of pre-COVID inventory. So I think that’s an important trend.
I’m going to be really interested to see as vaccines start getting deployed and the rest, like who moved out to Timbuktu, that goes, I don’t like Timbuktu. I want to go back to civilization. And what does that mean and how much more kind of market activity does that create? So I don’t know that that will be a trend, but that’s one I’ll be watching. And then I think a lawn Musk and Jeff Bezos are in the news right now with their fight over low earth orbit satellites. Right. Do you think that I went out and toured some kind of rural, very rural areas to say, you know, what’s the opportunity out here in places that don’t have internet today and therefore have very low home prices and are they likely once you can put a dish on your roof and get very fast internet, you can do zoom calls and the rest on, does that create some movement in those rural home prices? The challenge there still is you still don’t have schools and grocery stores and all the amenities that people want. So it takes a hearty soul to make that move. But I think we could see a move up in the rural areas as a low earth orbit satellites kind of come onto the market. So those are some of the things that I’m following.
So it sounds like as far as interest rates go, you’re predicting that they’re going to probably stay flat or maybe drop a little more. Is that what I’m hearing too?
You know, the short-term interest rate thing is, can be very different than the longer term. I think the longer term trend is lower and lower. I don’t watch the short term, you know, kind of up and down durations. I think the other thing is, is like longterm, I don’t see inflation, right? A lot of people are like, Oh my gosh, all this stimulus is going to create inflation. And I think to the degree that you think there’s inflation, I don’t know that you’re fully appreciating how much deflation this pandemic is causing. Right. So stimulus is only inflationary to the degree that it more than offsets the deflation that’s in our right. And yeah, I think that we’re still probably underestimating how bad the deflationary hit from the pandemic is. So I’m not excited about some of the plans. I don’t think we’re not very good at deploying stimulus in a way that doesn’t have things bubbling and that doesn’t leave people still hurting. We’re not doing just not very good at that as a country, as an economy. So I think that’s interesting. And I also think, well, I think long-term inflation is kind of, has to, or it will continue to head down because of automation and technology, right? Those are very deflationary trends over the long haul. And so I think inflation is kept at Bay for the longterm. However, this year, like that graphic ship like cars where they can’t get the chips for cars, we’ve had a supply disruption. And I think we’ll see some short-term inflation in goods and services, maybe a little painful this year.
Sure. Yeah. Actually, I’m glad you answered that question. What I meant to ask is mortgage rates, but I said interest rates and whiter, you hit it spot on you’re right. The COVID was well, Kobe was deflationary, but you know, with 25% of the [inaudible] money supply being created in one year compared to when we first started putting out currency in the United States, that’s a big number. I mean, you can’t wrap your head around that. Right. That’s trillions of dollars being put into the system. Now, granted it hasn’t all flowed to the consumer level, which would be inflationary, but it’s out there, you know, it’s out there somewhere.
Yeah. And again, I think I agree that it’s a really big number, but I also think that we are not appreciating how big the deflationary number of this pandemic is worldwide. And so what we think is a big number over here, it’s going to take a few years to figure out, have we under hit, have we over? And where did we end up with that stimulus? Was it, was it too much or is it still too little or right now it’s hard to say, we’re not very good. We just don’t have this economy very well wired. I mean, you think about even just housing, right? Like what depends, who you ask. That’s true. Even with the way we look at public records, data, it’s still two, three, four weeks after the fact. And you look at the national home builders and the realtors association and stuff. Most of these data points that we’re using for housing are 45 days, right? By the time they get collected and analyzed and all the rest, this is not, you think about, uh, even performance athletes in all the way they measure their immediate performance and all this kind of millisecond feedback. We get our economies, nothing close to that. Right. We figure these things out months, even years after the fact. So very hard to tell right now,
Right? Yep. Well, it’s a first, we haven’t been through anything this large, since the fed was created in 1913, that, I mean, this is a first and so we’re handling this without any prior experience. And on top of that, it’ll just be interesting to see where we go from here. I mean, I’m sure this will go down in the history textbooks as you know, an experimentation in monetary policy, fiscal policy, you know, what happens when you pumped 25% of empty money supply into the economy and what does that do? What, what are the implications or the aftermath of that in years to come? I mean, this is unchartered territory and we’ve had the longest-running reserve currency in the world. I mean, we hold the record for the longest-running reserve currency. Uh, there’s just a lot of interesting things going on today, but anyway, unless you have a, you know, an extra comment to that, let’s just wind it down here. I appreciate you talking about trends and where we’re going in 2021. And it will be very interesting. In fact, you know, you’re such a body of knowledge, it would be great to have you on every six months or something just to have kind of these midterm checkpoints, but for now.
Yeah. I’d love to do it. I appreciate it. Yeah,
No, it would be great. And we’ll get Bruce, Bruce Morris on too. So let’s wrap up by, uh, you telling my audience here where they can find you or more information about you and property radar and all the good things that you guys put out there.
Yeah. Foreclosure Radar, which we’ve talked about that was kind of used as the picks and shovels through the foreclosure crisis and our customers bought $40 billion worth of property, something like that. And then we’ve morphed that into Property Radar, which has information basically on every property in the United States. And it’s primarily used by folks who are either trying to acquire property or market to home and commercial property owners. And we’re at propertyradar.com and I’m on Facebook and Twitter and LinkedIn and on Ashana tool, pretty easy to find Property Radar and, uh, would look forward to connecting with any of your folks.
So all your social media information is on your website. Yeah.
Yeah, it’s on the website, and uh, yeah, super easy to find.
Okay, beautiful. Okay, Sean, we’ll sit tight. I’ll uh, debrief with you here in a minute. Appreciate you coming on. I appreciate your time and your knowledge. For everybody listening. Remember to go to our website and request your free strategy session if you haven’t done so already. I know there’s a lot of people who are moving from the stock market into the real estate market right now for the stability of the hard assets. So just take advantage of that. If you have any questions about real estate investing, just submit them to me through our websites at passiverealestateinvesting.com. Remember to subscribe if you haven’t done so already help us spread the word, share the show with like-minded friends and family. Visit us on iTunes and leave us a rating and review. Thank you for listening. And we will see you all on our next episode.
Download your FREE copy of: The Ultimate Guide to Passive Real Estate Investing.
Get your FREE coffee mug by leaving us a Rating and Review on iTunes. Here’s how.
See our available Turnkey Cash-Flow Rental Properties.
Please give us a RATING & REVIEW (Thank you!)