Jason Hartman starts the show with in-house economist Thomas discussing 1031 exchanges. He goes into how you can incorporate your primary house in the exchange. In the second segment of the show, Jason introduces Rich Dad Advisor and multifamily property investor Ken McElroy. They talk about Ken’s recent sale of $300 million worth of property. The discussion goes into inventory of multifamily properties and why Ken is still bullish on real estate.
The people that I’ve been introduced to from Sarah to Karen next door, the person that handles your organizational things, our operations manager, yeah, the people in the markets, to the financing people, property managers and your local real estate experts, they’ve been just more than helpful. I mean, seriously, and that’s why I’m back for more, I’ll be buying more properties this month. And as you point out, it’s a little bit of work up front, really the works up front and later on as with my other properties, it’s really not too bad. And the returns are just outstanding. The downside? It’s not that significant. Yeah. So I think it’s just a wonderful program and doing a great service for people just like to add them. Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:29
Welcome listeners from around the world 165 countries worldwide. This is Episode 1167 1167. I’m here with Thomas today, we want to talk in the intro portion of the show about one of the awesome tax benefits of the most tax favored asset class in the country. And that is income property. So let’s talk about the 1031 tax deferred exchange. Thomas, you got a few things that you want to talk about here, right?
Yeah. 1030 Want to exchange a 1031 exchange is a way for investors to avoid capital gains. So say you’re an investor with 200,000 in gain and also 200,000. In net proceeds after closing on a home, this equates to 140,000 in capital gains depreciation, recapture a net investment income tax. If you don’t use a 1031, only about 130,000 in net equity remains to reinvest in another property. But if you use a 1031, then you have a chunk more money. The difference in terms of how much more of a home and investor can purchase using a 1031 versus Yeah,
Jason Hartman 2:40
and don’t don’t say home because people think it’s like for their home, right? We’re talking about income property. Of course, there are other exchange rules, by the way, listeners under I believe it’s section 1034 of the IRS code, talking about personal residence. So I just want to make sure we’re kind of clear on that. We’re only talking about investment property. But Thomas, I can’t wait. Because we’re going to talk about the way this, you know, goes over the lifetime of investor very significant, but go ahead with what you’re saying.
So the personal residence, capital gains can be avoided up to, you know, $500,000 home.
Jason Hartman 3:17
You know, I haven’t kept track of that rule lately, but it for married couples 500,000 in gain for single people 250,000. Now, that was the rule, but since I’m not really involved in that market, I have to be honest, I haven’t kept up with it. Because there was like, $125,000 thing, but hey, this show is not focused on personal residences, but you know, just a quick comment on it, feel free. And then let’s get back to investment property. thoughts on that? Is that the current law 500 Yeah, that’s, yeah, that’s mine.
Yeah. 500,000 is the current statute going back to 1031. So, by deferring capital gains, it makes a difference of being able to purchase an investment property. That 700,000 versus a million, there are a couple changes that were made with the tax cuts and jobs act of 2017. The first is that the 1031 can only be used for real property.
Jason Hartman 4:12
I know you can’t trade cattle anymore. You know that the 1031 exchange used to apply to a few other things like cattle, you know, you could trade livestock on at 1031 tax deferred exchange, but I guess that is out the window now. And I do want to mention the ongoing disclaimer that applies to everything on the show, of course, we are not tax advisors. So always check our advice with a professional because everybody’s situation is different and individual and taxes are a complicated area for law. But you know, we give you concepts and ideas, just run those by your tax
prep expert. Go ahead, Thomas. Yeah, just a couple other notes. So personal property can be lumped into the deal as long as it does. An account for more than 15% of the market value of the property.
Jason Hartman 5:03
Okay, so in other words, if you have an investment property and it has some personal property included with the sale, so here’s an example of that. So you have $100,000 house and it’s an income property of course, and 15,000 of that value is some sort of personal property. Now, there are big discussions and definitions as to what is considered real property and what is considered personal property. Usually, real property is attached with a screw. Okay, now, there’s a lot of debate about this stuff. It’s a gray area okay. And personal property is not attached with a screw. This the sort of very laypersons definition of it. For example, if a painting is hanging on the wall on a nail, that is personal property, most people would consider it that way. But You know, painting isn’t always quite the way you think it is. Sometimes it’s the size of a wall. It’s like what they call installation arc. And I know most of you will not deal with this in your little rental properties in Indianapolis, Okay, I get it, you know, or wherever. But just so you know, real property and personal property, there’s a difference. So Thomas, this is pretty cool. Because if you want to lump sum personal property into the deal, you can make that part of the exchange. That’s kind of interesting. You know, one area that I’m trying to think of, like, in the area of the smart home world in which we live nowadays, where a lot of our investors are in homeowners are making their properties smarter. Some of these smart home appliances aren’t attached to the house, so they’re not real property. Now, if you have a ring doorbell, or cameras, and they’re attached, those would be considered, you know, by most people real property, but maybe you have some Alexa vices and those aren’t attached or some routers, or things like that maybe some external speakers for music and, you know, smart speakers and such. So those would be considered potentially personal property. So it’s kind of interesting there, you know, to think about Do you have any other thoughts on that? Thomas?
I know I hadn’t thought about the smart home. I my guess is the IRS probably is dealing with it right now making rules on what is personal property versus what isn’t in relation to Smart Home type of clients. Yeah.
Jason Hartman 7:32
But you know, if you have, if you bought some lawn furniture or stuff like that, you know, with the property to make it maybe more attractive to a renter, you can lump that into the exchange, as long as it’s not more than 15% of the value, right? Yep. Okay, cool. That’s good to know.
What else do you want to say? And just one other note, when you do the 1031 exchange, make sure you have the second property purchased within 180 days. That’s the limit in the new statute.
Jason Hartman 7:59
Yeah. Is this Hundred 80 days. Yeah, good point. And so it’s 45 days to identify what’s called the up leg property, or the property you’re exchanging into, and the relinquished property, the property you’re selling. That’s what’s called the relinquish property in most cases, and so 45 days to identify it. In other words, you have to have usually a postmarked document that you send and you want to keep the postmark Okay, so you have proof that you identify it. And you can identify more than one property. There are some rules about that we’ve done deep dive shows into 1031 tax deferred exchanges. If you want to know more, just go to Jason hartman.com. Type in 1031 exchange in the search bar, and you’ll find several episodes on the topic where I’ve interviewed experts on it, and then you’ve got 180 days to close on that property, that new property or you’re going to pay tax. And folks fees are very strict deadlines. The other thing I want you to know is you have to have an exchange accommodator and be careful because like the world of self directed IRAs and these custodians and so forth. This is not a regulated industry, or at least not a very regulated industry. And there have been scams out there, where the exchange accommodator because basically, they’re in the role of keeping the proceeds from the loot, relinquish property. And they can keep those proceeds. And if they’re crooks, they can just run off with the proceeds. Okay? Just liquidate that trust account and go to some foreign country that doesn’t have extradition. Okay. So, be careful. These things have happened over the years and you know, you I’m sure you can find stories about them by looking them up. And so you want to make sure you’re dealing with a reputable 1031 exchange accommodator. Okay, but the thing is that you gave the example of the difference that this that equates to being able to purchase only a $700,000 replacement property instead of a $1 million replacement property. And as we know, in the world of retirement planning, and IRA accounts and 401k accounts, and these types of plans, one of the beauties of them and I’m not a huge fan of these accounts, by the way, I I kind of agree with our meet the Masters speaker, Tom wheelwright, who has talked about this fairly extensively. I don’t think these plans are awesome. I think they’re okay. I think if you already have one, I probably wouldn’t go as far as he does and saying, hey, liquidate the plan and invest the money outside of the plan. I would just keep it I keep mine. I’m not going to liquidate it. But there’s a case for that and that’s up for debate, but the beauty of it is Is that you are reinvesting tax deferred money. So you haven’t paid the tax on that relinquish property, you haven’t paid any capital gains. And you’re reinvesting at the higher amount. If only you could do this with stocks, bonds and mutual funds, right. But you can’t, unless it’s in a qualified plan. Now, here, you’re outside of a qualified plan, and you can still do it. Hence, income property is the most tax favored asset class in America. And it’s just a beautiful thing, isn’t it? Thomas?
It’s an amazing thing. Yep.
Jason Hartman 11:37
Anything else we should talk about in terms of 1031 tax deferred exchanges before we adjourn for the rest of the show? No, I think we got it covered. All right. Thanks for joining us.
Jason Hartman 11:52
Hey, it’s my pleasure. Welcome back, a returning guest and that is my good friend Ken McElroy. You’ve heard his name. He’s the author of several of the books in the rich dad advisor series with Robert Kiyosaki. And he is also a huge apartment investor. In fact, he just finished a round of selling several of his properties totaling about 300 million. Yes. $300 million in sales volume. Ken, welcome back. How you doing? Hey, Jason, what’s going on? Great to be on again. Thank you. Good to have you back. Congratulations. Wow, that was a lot of work to sell what 14 of your properties for? bucks? Yeah, yeah. So much work but all worth it. You know, that’s why I read the business. Right? Yes.
Ken McElroy 12:37
Well, that sort of leads to a good question Can Why did you sell Do you consider the market to be a little topped out or what do you think and what why was the indeed you exchange or did you strictly sell and liquidate all? Good question. So let me walk you through kind of the methodology around it. It all started when we felt like The market was peaking or getting close to its peak. And, you know, as you know, I’m not always trying to time the market perfectly. I don’t go crazy trying to figure that out. But I know and I agree with that, by the way,
Jason Hartman 13:13
timing the market is a fool’s errand.
Ken McElroy 13:15
Yeah, it is. It’ll drive you nuts. But you know, here’s what I know. Everything I bought is worth significantly more than it is today. So, but also what was happening is that we were finding the deals that we were trying to buy, you know, we’re getting harder and harder and harder and people were stretching for pricing and they were paying, you know, what we thought was significantly more than they were worth. So that’s kind of how it started. And then we started to take a look at because what happens is it doesn’t matter if you own for us, it was 10,000 apartments but you know, if you own 10 houses, you know for sure, there’s, you know, your bottom few houses, the ones that you know are doing as well as the to the top, you know, you always have some good ones and some problem. Children. Right. So yeah, so so stay with us. So we started to take a look at what we called our bottom 20%, which was the properties that, you know, we spent a lot of management time on. And so we were looking at that and say, Okay, what happens if the market is changes and occupancy goes down and rec row stays flat, and all those kinds of things. While in the middle of all this, there’s so much capital, trying to pay high prices. And so we started take a look at that. And I gave it to back actually all to the management company. I said, here are 14 properties. This is a year ago, right now, if we sell these at a 5% capitalization rate, I want to know what we have to do with rent growth and noi growth in order to match what they’re worth today. You know what I mean? So they went to all these different generations and random that read all the numbers and they said, Well, if cap rates go up from say five to 6% are what we call the exit cap rate. Because you know, there’s what you buy for and then there’s what you sell it for in commercial and multifamily, it all equates down to a capitalization rate, which is simply the price of the property divided by the net operating income. So we looked at that. And we found Jason that if cap rates went up one point from, say, five to 6%, we would have to grow our net operating income by 20%, just to breakeven. So, so yeah, so that’s how it started. And so I said, Okay, well, we’re clearly not going to do that. We’re not going to grow our net operating income by 20%. So maybe we ought to, we ought to list these. And then from there, it was a really a feeding frenzy. We had 45 offers, and we spent 45 offers on 14 properties are the first one on the whole portfolio. Yeah. So it was crazy. You know, I spent basically most of the summer with my partner Ross Guinea. I’m into escrow and we got them all into escrow. And then you know, each one had its own, you know, without its own track, but we end up selling those because for two reasons. One is we felt like 80% of our time or management time was kind of spent on that on those properties. And also, we felt like the market was peaking. So that was good for our investors, you know, let’s exit. And let’s not just hold on to the, for the management fees, and all that kind of stuff. Let’s exit and recoup some of our capital, you know, and then try to redeploy if we can. That was kind of fluffy.
Jason Hartman 16:34
Yeah. So it’s interesting that analysis you did where you said, to achieve that 1% cap rate difference, it was a 20% growth in noi, I believe you said, Right. Yeah. Okay,
Ken McElroy 16:45
Jason Hartman 16:46
But what cap rate doesn’t account for and this is why, I know in commercial real estate, it’s the Holy Grail. Well, IRR is always really the holy grail but you know cap rate is the first cut. It doesn’t account for appreciate So you have to think that. Okay, from that vantage point that you just mentioned, definitely, it seems like selling was a very good decision. But you also have to factor in that sounds like you don’t think there’s a lot of appreciation left on the table. Or maybe then it could go the opposite way. You could have some Lawson capital
Ken McElroy 17:18
value, right, blah, incredible question. Yeah. Because you’re right. That’s exactly right. In our case, you know, we had owned these properties for a while, we had tried to do some value add, you know, I love you know, when you talk about forced equity, because I think that’s a misunderstood thing, you know, you know, take taking something and improving the value and making it worth more it doesn’t account for any of that. We had tried on these particular assets, you know, all those different strategies internally. So, okay, you know, what if we value added, you know, what if we put a bunch of capital and these are they going to be worth more, and what’s the market going to do over time and for in my world, World, if we have flat rent growth, you know, that’s kind of a killer because your expenses, they continue to go up year over year. And so maybe not very much, but just a couple percent to 3%. And with utilities and all the other things and just cost of goods, all those things go up every year. So for rent stays flat, then we have, you know, flat to negative net operating income growth, you know, so that’s why we made that decision. Right.
Jason Hartman 18:29
And, you know, it does seem like the multifamily world and has been pretty oversupplied. I mean, the construction coming out of the Great Recession can has been like mind boggling in every I visit a lot of cities, certainly around the US but also around the world. And it’s like there’s just cranes everywhere building multifamily. It’s mind boggling. You know, how much supply has come on to the market is that one of the reason you don’t use that one of the things you saw And you know, you see that causing rents to flatten a bit. The markets become more competitive.
Ken McElroy 19:05
Yeah, I think yes. The interesting thing, Jason is is we had you forget about the period before this period, you know, right now everything’s frothy and great, but the new construction, believe it or not, we are still seriously under supplied. All the numbers suggests that we’re under supplied through 2021 and some still under supplied them, okay, deal under supply. Now, that doesn’t necessarily mean that a sub market can’t be overbill. Right? Of course, you know, because that’s actually what happens. Like in Scottsdale, where I live, he you know, they dropped a couple thousand units and all of a sudden Scott’s is out of balance. So that can definitely happen. But if you just look at the period of time where there wasn’t a lot of construction, people are still aging out they’re still moving out of their house are still going to get jobs and so that’s actually what is happened. That’s why occupy fee rates across the US are in the mid 90s is because of the lack of supply. So you’re right, however. And so that is definitely one of the factors we look at. We look at what’s happening. So we know for example, Phoenix is going to deliver 11,000 units in 2019. And those are either under construction. That’s right. Yes, it is. Right. And so yes, and then you have to take a look at where they’re being developed and what that’s going to do to those little sub markets. And in lot of cases, that can annihilate a sub market pretty quickly. Yeah. In terms of meaning it puts way too much supply on the market. It makes it very tough to get renters, right. That’s what Absolutely, yeah, yeah. Really interesting. You know, I’ve never asked you this can do you do or have you done any, you know, senior housing or assisted living stuff? So yeah, we actually own three age restricted communities. So 55 and older. Yes. And we’ve looked at assisted care and You know, all the other things that go along with that. And we so far have elected just to stay away from it at the moment, because of the extra level of services. We’re just, you know, we’re not really set up for the nursing and the physicians and the food and all of that. And so we’ve just decided to just be a apartment, guys. Right, right. You know, and I’ve got to think that
Jason Hartman 21:23
that market is pretty oversupplied. I mean, the one great thing about demographics is you just know exactly what’s coming, because all you have to do is math. Right? You know, it’s not hard to tell unless there’s a plague, God forbid, or something like that, right? Or some mass immigration and only a certain age group. But you know, you know, if, if you’re dealing with the population that’s already here, and you go, you know, 20 years, they’re gonna be 20 years older, right? That’s not hard to figure out. You know, the, the assisted living stuff. I mean, I remember reading all kinds of articles in the late 80s about you know, it just seems Seems like that people have been ramping up to supply that market for a long, long time. But I don’t know. You know, that’s just my anecdotal feeling about it. Everybody talks about, well, the graying of America. Sure, you’re right. But there’s also people who’ve been supplying to that market for
Ken McElroy 22:16
decades now. Yeah, yeah. And so so here’s my experience. This is what I learned from being in the 55 and older space. And by the way, I can now move into that place.
Jason Hartman 22:29
AARP here we come. Yeah,
Ken McElroy 22:30
Jason Hartman 22:33
we got to make a distinction before you say where you’re gonna say 65 and older is a lot different than assisted living. I mean,
Ken McElroy 22:41
I was having Yeah, see where I was heading. So. So here’s what I found because we looked at a one of the most remarkable senior communities in Arizona is Sun City that was formed by Del Webb years ago back in the 50s. In the 60s, obviously a visionary company. So really neat. What what I, what I learned is that if you’re active and healthy and say 60, which you and I know there’s a lot of folks like that, yeah, they don’t, they don’t want to be looking at, you know where they’re heading. They don’t want to be connected to an assisted somebody, it’s called care, we are wheelchair, etc, etc, that has to be nurse, they consider themselves super active. So we actually looked at a property in Sun City that believe it or not had active in one part had assisted in another part and they were having a tough time on the active side, because the people didn’t want to move. They didn’t want to see where they’re heading. Right. In other words, they don’t want to be classified that way.
Jason Hartman 23:46
Right. Right. That’s what you mean, right?
Ken McElroy 23:49
They know they’re heading there. You know, I know I’m heading there, you know, but, but I don’t want to have to be reminded of it in a community that I live in.
Jason Hartman 23:58
Got it. Got it. Okay, good. Where do you think the overall real estate market is heading now? And however you answer that question, the listeners have to know that you’re viewing it from the chair of, you know, a large multifamily operator. So yeah, you got a segment out. And by the way, you know, when you talk about what geography right, we’re looking for you we’re looking at Arizona, Texas, where else couple other places. Yeah,
Ken McElroy 24:24
yeah, Oklahoma, Nevada. I’m still very, very, very bullish on single family. I gotta tell you, I spent a lot of time looking at single family, the one thing that I’m seeing, even though prices are back up to kind of where they were, but you’re not seeing the massive single family development happening. And really, honestly, you’re not really seeing that to a large extent on the multifamily side, either. I think construction lenders have been super conservative on what they’ve been financing and so Lack of construction financing has kind of kept, called the supply piece minimized. And so just in the like the Phoenix area and Nevada and Las Vegas is still not back to where it was. And if you look at Phoenix or let’s say even Las Vegas, there’s tremendous value. Now, if you look at it as compared to five years ago, you’re going to be disappointed. But if you look at it as compared to other places to move or live, I think that there’s still a lot of value in a lot of markets. I really very, very bullish on real estate. Yeah, you know, interesting,
Jason Hartman 25:39
but we’re not really too far away from another presidential election that is around the corner and you know, election timings, right? You know, where the campaign’s going to start ramping up here soon. Things could change I don’t really know that they will. I don’t see the democrats putting up anything great yet but but you know, I don’t know There’s a sadly there’s a movement towards socialism in the country. But
Ken McElroy 26:04
I don’t know, you know, I mean, the business cycle, the global economy is cooling off. There’s legitimate problems in the global economy, right? You know, there’s all kinds of signs of, you know, freight shipments are down and stuff going on with China. I’ll be in China for a couple of weeks next month, you know, what do you think of all this stuff you’re reading and hearing why I agree with you and I do track all that stuff. I still think the US is the safest economy in the world, even though what we read every day, it freaks everybody out. I think that’s why if you look at foreign investment, whether it’s Canada or Asia or anywhere else, even Central America, Mexico, there’s a significant amount of money coming into the us right now, because I wouldn’t consider our dollar super safe, but I would consider it the safest. As you start to line it up along you know, some of the other There’s I mean, you know, we can just throw so many under the bus, you know, even what’s happening with the euro. And, you know, the Canadian dollar has been all over the map and, you know, nobody trusts, you know, a lot of the Asian currency and their Asian government and there’s a lot of criticism locally at the US level, but I think that is the I still think the best and the safest.
Jason Hartman 27:23
I couldn’t agree with you more, you know, for all the problems the US has. It’s still what it’s been called for decades, which is the Brinks Truck of the world. You know, it’s the safest place the least political risk. I mean, you know, what was so really heartwarming to me. I mean, listen, I’m glad the administration changed last time and but I said it it my It was not the one you spoke out last year or meet the Masters, but the one before that, and it was that event started the day after the inauguration. And it was really just, I mean, it gave me goosebumps, to watch the Obamas go off into the helicopter into Marine One and leave the White House and the Trump’s move in not and I’m not making a political statement there. Although, you know, I was glad to see Obama go. Not a shot was fired. They shook hands. I mean, those two administrations couldn’t be more different, yet just a smooth transition of power. You know, yeah, everybody’s complaining, blah, blah, blah on either side. But, you know, that’s amazing that the US has been able to pull that off for 234 years or whatever, it’s been right. You know, just this is a different deal than the rest of the world and in capital always looks for safety in the US, you know, say what you want does?
Ken McElroy 28:41
Yeah, it does. It does. I was actually at a meeting. I was at a two hour meeting this morning with a huge company, international company, and they had a turret on money flow, and where it was going, and if you take a look, there’s a tremendous amount of money coming into the us from you know, Japan and from China and from Russia from Mexico from Canada is tremendous. And so really smart people managing a lot of smart money, it’s all still coming here and, and while we’re on the inside, you know, taking shots at all these different things that are done every day or a week. You know, it’s easy to do that, like you I’ve traveled a lot abroad and you start to take a look at the different ways economies are set up. And you know, there’s a lot of corruption, a lot of major corruption and a lot of countries you know, at every level and there’s a huge gap or rich and poor in most countries. And so I don’t know I still very very bullish on the US. I couldn’t agree with you more couldn’t agree with you more.
Jason Hartman 29:49
So I used to talk about this all the time and I’ve never talked to you about it and I haven’t talked about it on the on the podcast in a while but the impact of something nice I think is extremely significant to real estate investors. I think it’s a just a game changer. And it’s probably about five years away, give or take. And that is the autonomous vehicle, the self driving car. And here’s why I say that can the three primary value drivers for real estate since the beginning of time since we were living in caves literally, are, of course, location, location and location? Right. You know, I think the self driving car upsets that equation significantly, geography is still meaningful, but I’m just saying, I think it’s becoming less meaningful than it’s ever been in human history. And this has two sides to it. Of course, you know, maybe it means a resurgence of the suburbs, because your car will just take you places, but also parking, where you look at the urban core of any city is I’ve heard studies that say it’s Anywhere between 25 and 40% of that land is dedicated to parking spaces. If we have self driving on demand cars, you know, where we just summon them. And they never really stopped moving except to refuel or for maintenance and car doesn’t need to stop moving. Wow, what does that do? You know, there’s sort of two sides to that equation.
Ken McElroy 31:20
Yeah, no, I’ll credibly good points. You’re right. I think that’ll have a lot to do with a lot. I think it’s interesting. When I was in high school, I could not wait to get my driver’s license. And I just remember that and I don’t remember anybody at my age. Yeah, neither that you know, couldn’t wait. But I will tell you,
Jason Hartman 31:42
your kids don’t care. They don’t care. But it’s not
Ken McElroy 31:45
about you know, it’s very interesting to me. The number of kids that get their driver’s licenses is 16. And honestly, you know, what my kids do now is the Uber know it’s already happening. My son is College, he’s hoovering everywhere. And my other son is in high school. And he overs everywhere he has a car. But he was unique. He got his license early, but, but it’s interesting to me that especially like some of my residents that a car is expensive when you add the fuel and the insurance and the payment and the maintenance and all those things, because, you know, if you’re at a certain income level, you’re not buying new cars, they’re not under warranty. And so, if you live somewhere near where you work, it’s a $5 Uber, you know, or a $10 Uber, it makes more sense. Then buying a car and then trying to park and do all the things that you said. So we’re starting to see that now. It’s been very interesting to watch.
Jason Hartman 32:47
Yeah, it really is. And but I think it goes further than that. You know, you live in Scottsdale, I used to live in Scottsdale, by the way, it’s still my favorite city that I’ve lived in so far. But if someone’s lives in Phoenix, right, the Greater Phoenix area. And I just give this example and say they like the ocean and they like to surf and say they have a traditional, you know, nine to five job during the week, right? It’s not too far fetched to think that that person could just get into their self driving car Friday evening at midnight, and wake up in Newport Beach to go surfing at 7am a wrestling Oh, you know, and that just it really disrupts the concept of location, location location where you could have, you know, a nice home in the Phoenix metro for maybe no $600,000 that same property in Newport Beach would cost you you know, $6 million. Well, maybe not that much, but it’s quite a difference, right? Yeah.
Ken McElroy 33:52
Yeah, I mean,
Jason Hartman 33:54
that’s a game changer, man. I don’t know what it will actually mean but and then you look at the garage space. Dedicated to normal single family homes or, you know, will that be needed? Is that all going to be converted to another bedroom? It just has pretty wide ranging implications. You know that? I don’t think any of us really know yet. No. Yeah. It’s been interesting to watch. You’re onto it. Yeah. It’s less than less need for that. I think it’s been fascinating to watch. It’s gonna be huge implications on real estate. Yeah, yeah, we we will see how it all shakes out. He the Fed was really taken away the punch bowl raising interest rates. I think they went too far. And I think a lot of people agree with that. But now they’ve come out. And it seems like you know, Jerome Powell is about the most transparent Fed chair we’ve had. And, of course, you know, listeners should know that the Fed doesn’t directly impact mortgage rates, but they do indirectly. They pretty much said, hey, look, you know, we’re done. We’re cooling off. We’re not going to try and push rates up and tighten the money supply any any more this year, but interest rates are notorious. difficult to predict. What do you think about mortgage rates and stuff?
Ken McElroy 35:04
I believe rates are going to stay flat or even go down. You know, if you look at all the indicators show that, you know, there’s been a drop in the with the 10 year Treasury right. I don’t know if you saw this, but the 10 year yield collapsed last week, and whenever that’s happened, it’s been followed by a recession. So, I don’t know. We’re all reading the same stuff. You know, I was just meeting like I said, I was just meeting with these super smart guys this morning. And, you know, they all believe that but I will tell you what, Ross and I, my partner, we know we spent the good part of the last two or three years trying to go to fixed rate on everything because the Fed was saying we’re gonna raise we’re gonna raise we’re gonna raise. So now, you know, obviously that might have been the wrong decision. But we will see I don’t believe that, that we can push rates any more because low interest rates provide credit, you know, and I think people, people are getting squeezed a little bit.
Jason Hartman 36:05
Yeah, yeah, they are fed, I think is is wise to just cool it on that for a while, you know, because they Yeah, they got they got too aggressive. They definitely did. You can’t do that. So suddenly without some serious ramifications, so they’ve cooled off.
Ken McElroy 36:20
Exactly right. Kim, is there anything else you want to share with our listeners as we wrap it up? I think that, you know, I know you do such a great job Jason of educating your folks, I would just be the one thing that I always tell people, mostly investors and and people that are that are syndicating to invest, is make sure that you’re not just arbitrarily basing next year’s return on something that’s completely fabricated from the last year. So in other words, don’t say just because you know, it’s gone up three or four years in a row, it’s going to continue, you know, always be super diligent and super conscious around all the Things that could potentially stop or you know, hope put an economy on a hole for some reason, because I think a lot of times you go back and you look at the few years before and then you say, Oh, it’s going to continue but you as you and I both know, it doesn’t just be super careful whether it’s your own money or somebody else’s. Try to talk yourself out of it more than you try to talk yourself into it.
Jason Hartman 37:24
Yeah, absolutely. You know, folks, what you’re hearing there is good advice from a seasoned investor. The amateurs and the novices will buy into the the famous last words of every every investor right this time, it’s different. Yeah, yeah, you know, so so that’s good advice can give out your website
Ken McElroy 37:43
that Ken McElroy com www Ken McElroy calm. And, you know, we have all kinds of videos and blogs and podcasts and things and this kind of just education just like you Jason. So that’s why I really appreciate being on your show. Fantastic. Well, thanks for joining us again cam that’s always great to have you and keep up the good work. Okay, buddy, thank you talk to you soon.
Ken McElroy 38:06
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