Rising Middle Class Impact On Real Estate & Data Science For Real Estate With Anna MyersListen to Anna’s most recent podcast guesting, an interview with Jason Hartman of Creating Wealth Show.
Rising Middle Class Impact On Real Estate & Data Science For Real Estate With Anna Myers
Speakers: Anna Myers and Jason Hartman
Rising Middle Class Impact on Real Estate & Data Science for Real Estate With Anna Myers
Female Speaker: My name is Gwen and I’ve been investing—well, we bought our first property in 2013, but we’ve been listening to Jason’s podcasts since 2011.
Well, after the market crashed in 2008, we needed to do something different and so we started listening to different podcasts about real estate and it just kind of went from there.
Announcer: 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 multimillionaire who has actually been there and done it. He’s a successful investor, lender, developer, and entrepreneur whose 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: Welcome to Episode 1185! One thousand, one hundred and eighty-five. Thank you for joining me. I am still here in Shanghai, China, and wow, spent the day yesterday looking around this amazing city of about 24 million people. It is giant. This is a giant, giant place. Wow.
What were the impressions from yesterday and what do they have to do with overall economics, real estate investing, and the whole game that we’re in, in terms of accumulating assets? Assets that are needed globally, and we look at the rising middle class in China and in other places around the world, but China is the biggest player, just because of their sheer numbers, the massive population of the Chinese people, really something else.
Carmen, some impressions from yesterday, before we get to our guest today.
Carmen: Well, we can add that to the 24 million-city that we’re in right now, there’s actually a national holiday going on.
Jason: Oh, yeah, yeah. It’s their version of Labor Day, right?
Carmen: I think so.
Jason: May 1st.
Carmen: And they work a couple of weekends before this, so they’re taking now three days off. This city is packed. There’s no space for one more person. I mean, 24 million wasn’t enough. Now we have a few extra million visiting.
Jason: Yeah, it’s just amazing. I mean, yesterday, when we were out, remember when we tried to get into that garden? What was that garden called in the dairy where we got off the tour bus and we took one of these hop-on-hop-off, you know, you’ve seen these in every city, these cheap little tours, but they’re kind of really convenient, it’s nothing high-end. But you’re on the double-decker bus and so the view is good and the videos that we took of just these masses of people, just in normal life, it’s just normal. These are just walking down city streets and in cafés, and then going into that garden yesterday, that was just incredible.
Now, one thing also that I want to make sure we mentioned, is the Chinese surveillance state. Remember how I was taking pictures of all the cameras, the military people, and interestingly, no guns on any of these people, right?
Carmen: Yeah. Well, remember, we saw the trucks that they had the military in the back.
Jason: Oh, yeah. They had all these soldiers and soldiers were so coifed, you know. They were great posture and they had their big hats on and their sort of dress uniforms.
Carmen: Yeah. While we’re walking on that landmark, which it wasn’t really walking, it’s just moving at the rhythm of the mass.
Jason: Yeah. But it’s like waves of people, yeah.
Carmen: Right. And then the military is there acting as a human wall. All they’re doing is just guiding this massive amount of people traffic. [Laughs]
Jason: China does seem very concerned about terrorism and it’s definitely kind of a police-state vibe. There are cameras everywhere and all sorts of other more sophisticated equipment than just cameras. I assume that those were license plate readers and maybe even temperature readers. I mean, certain at all the Customs checkpoints that we’ve come in and out of, they have the infrared cameras that are scanning your temperature to see if you have a fever, and just a lot of surveillance. Loudspeakers built into the camera post.
I’ve always heard and read that London was the most camera’d and surveilled city in the world. I don’t know about that. Shanghai has cameras just everywhere. I mean, all over China it’s that way, but here especially so, I think.
Carmen: Yeah. One interesting comment you made yesterday, even with the amount of people that we had around us, which tends to feel sometimes not very safe—
Jason: I know what you’re going to say about safety, but just kind of a tangent to that, if you really like your personal space, don’t come to China because you’re just being pushed and shoved all the time.
Carmen: At least not during the holiday. [Laughs]
Carmen: But actually, it did not feel unsafe. What do you think? I mean, I think you mentioned something about that yesterday.
Jason: Right. Yeah, definitely. In a country where you have a very strict set of laws, I mean, China is in theory a communist country. It’s sort of a hybrid, obviously, and we all know that. We’ve talked about it on many prior episodes. I think the penalties for crimes are pretty darn severe. There were signs all over, throughout the trip, “Watch your belongings,” and so forth and things, but I did not feel the least bit threatened here.
In an American city or many other cities around the world, and of course, I’ve been to 83 countries now, I feel much less safe than I do here. In a place like this, if you’re an outspoken government critic, you probably have a reason to feel unsafe, but otherwise, I think as a normal citizen, if you’re going with the flow, I don’t feel threatened at all. I don’t feel like I’m going to get jumped or mugged or anything. Maybe some pickpockets. There were a lot of signs about that, we’ve seen. But even that, I don’t know, that sneaks up on you, so didn’t feel threatening to me. What about you?
Carmen: Yeah. Yeah, I feel the same. I mean, I’ve been here many times, sometimes by myself, and I honestly don’t—I feel safe. I think you can be on the streets day or night and I mean, using some common sense, that’s normal, but it’s just a safe place.
Jason: Yeah, yeah. It feels very safe. Now, the other impression that I’ve had throughout the trip, but here, once again, I mean, we had this impression in Guangzhou, and you’ve been here several times, this is my first time, but of course, Hong Kong, South Korea, same thing. We will get to that Kyle Bass video probably next week, but the wealth, the rising middle class, the looming asset shortage. I talked about the Jeremy Siegel article from years ago. I mean, the number of high-end stores and the duplication of these high-end stores. There’s another Gucci store, there’s another Tiffany’s, and there’s one in the airport. There’s all kinds of high-end shopping malls, not just one or two.
In Orange County, California, where I spent most of my adult life, you’d go to Fashion Island in Newport Beach where our Meet the Masters Conference was, very high-end area, high-end shopping. You go to the famous South Coast Plaza, not far from Fashion Island, in Costa Mesa, and very high-end shopping, of course. But here it’s just everywhere! There are so many of these Rolex, Gucci, Louis Vuitton, Burberry, every high-end store you can think of, right?
Carmen: Yeah. This is what I find interesting. Not only the amount of stores that they have here, which you’re right, I mean, every two blocks you could find a designer store and here’s what’s interesting: There are actually people buying inside the stores!
Jason: And they’re crowded.
Carmen: They are crowded.
Jason: Yeah, the stores are crowded, yeah.
Carmen: I’ve seen Tiffany’s that actually there’s more customers than employees! [Laughs]
Jason: Right. Which is kind of rare. When you go into these high-end stores in other cities, I mean, there’s not many people in them. There’s sort of these super high-end boutique-type stores, but here, people have money and they are spending it. Of course, it’s a banana republic for sure, it’s not like everybody is rich, but it’s amazing. I mean, over 300 million people have been lifted out of poverty and what’s amazing to think of is that many of these people, if they are over 30 years old, a lot of them probably grew up in rural China and came to the city and basically lived on a farm and lived in poverty and now they’re in the big city and their life has just totally changed.
I mean, unfortunately, not enough people speak English, or at least good-enough English for me to interview them in any real way, but I bet you there are just masses of people who in one generation have seen their life radically changed.
Carmen: Yeah. I remember talking to some of the tour guides that I had in the past and it was usually the same story. They were born in a town close by and at some point, they just had to move to the city because the small towns where they were born, which small here is a relative term. [Laughs]
Jason: Right, yeah, good point.
Carmen: But there’s no jobs. They probably can’t work on the farm, so if they want any more advanced job, they have to come to the cities.
Jason: Yeah, that’s true. What does all this mean to real estate investors? Well, there’s the old saying that all real estate is local and that’s certainly true. But the key to understand is that all real estate—and what I mean is improved real estate, of course, real estate with buildings on it, houses, apartment buildings, whatever kind of improvement is on that piece of land. All real estate requires the same ingredients. The same ingredients. The same set of commodities build all of this stuff. Lumber, concrete, petroleum products, copper wire, glass, steel, labor, energy. Right? All of these ingredients are common throughout the world.
When there’s a building boom in Shanghai, China, that means the cost of construction materials in Memphis, Tennessee, there’s upward pressure on them, right? This is the point to remember. The boom doesn’t need to be in the neighborhood in which you’re buying for it to positively affect your real estate prices, because it’s just about commodities. The commodities are not indexed to any one currency. Of course, the dollar is the reserve currency of the world, but it doesn’t matter, because there are things that have intrinsic value. Everybody needs them, and when you see these masses—masses of people—if you don’t like being around too many people, do not come to China. It is just crazy, the swaths—I don’t even know how to describe it! When we were on the bus yesterday, it was like unfathomable for me. I’ve seen the movies, but when you’re there in person, it’s just so many people.
I felt like that in India in a few places, too, but here even more so. It’s more pronounced because the population and the population density is truly amazing.
All of these people are creating wealth. The middle class is rising around the world and that means more and more consumption of all these raw materials that I mention, but also, more and more consumption of assets that investors are looking for. Investors are looking for these assets, so you want to, in your strategy as an income property investor, own and control as much of this asset pie as possible because the rising middle class around the world wants to invest in American real estate.
Again, the U.S. has always been considered the Brinks truck of the world, the safest place to invest, where money flees to safety, because there’s very little political risk in the U.S., and it’s obviously a very vibrant economy. That’s the lesson.
Let’s go to our guest today. We’re going to talk about data-driven real estate investing, and I think you’ll find this to be an interesting interview, so let’s jump to that.
It’s my pleasure to welcome Anna Myers. She is an expert in data-driven real estate investing. She’s Vice President of Grocapitus. She teaches underwriting for MultifamilyU, or Multifamily University, and cohosts a real estate investor Meetup in the San Francisco Bay Area.
Anna, welcome, how are you?
Anna: I’m doing great. Thank you so much for having me on the show.
Jason: Good to have you on. Data-driven real estate investing. That is a great catch phrase, I like it. Wouldn’t every investor at least hopefully say that they are data-driven? I guess the alternative, Anna, is off-the-cuff or emotional. What do you mean when you say that?
Anna: I mean getting down to the nitty-gritty. I thought when I first started investing—my background is in technology, so I’ve always been a person that was very—thought myself as being very data-driven. I would go into markets that honestly, I didn’t quite know what I was looking for. I had these massive spreadsheets that were doing all kinds of different things, but what I’ve learned is that we’re really looking for several key ingredients.
Some of the key ingredients that we’re looking for, I focus now on multifamily, but I think this also translates to single-family investors, we’re looking for tenants. What do your tenants need? First of all, they need jobs. We’re looking for markets that have much higher than the national average for job growth. The national average is, I believe, 1.6% right now. I’m looking at markets that are 2%, 3%, 4% for job growth, because that’s key for our tenants to have good jobs.
Within those jobs though, I have to say, we’re looking at markets that have a diversity of jobs. You do have to dig in and say, “Great, you’ve got this job growth and this market, that’s 4%, but what’s behind that? Is it just a single company that came to town and suddenly there’s this huge surge in jobs?” Well, that’s not really good because what if that company leaves? That’s not good for us as investors. You do have to go and look underneath those numbers.
We also like to see a diversity of types of industries, so you don’t want to be—maybe you have seven different companies in town, but if they’re overly saturated in one industry type, again, that might not be good for you as an investor, if it’s an industry that could get hit with a market cycle that’s upcoming.
Anna: We like to see lots of diversity in the types of industries that are represented in those jobs.
Anna: The other thing we look at is population growth. We want to see cities, metros, that have a strong population growth over time. For example, if we’re looking at 20 years, you can easily do this, for example, if you go to Google and you Google population growth, you can see the population growth for whatever city you Google. Population growth, Columbus, Ohio. Population growth, Jacksonville Florida. You can see the trend.
It’s really important for us to know that trend because we want to invest in places where people are moving to, not where people are moving away from.
Jason: Right. Anna, before you go on, and please remember your place so we can talk about the rest of the sort of major data points you like, but it’s always made me wonder, I mean, with what you just said, especially about path of progress type population grow and migration, does the past equal the future or at some point, does that growth change? I mean, certainly it does, right? Every city—I remember years ago in the ‘90s when everybody wanted to move in Austin, Texas and by golly, they did.
Anna: That’s right.
Jason: And now it’s really crowded and frankly, I don’t think it’s a very desirable city anymore.
Anna: Let’s think about that for investing, though.
Jason: Certainly, we all remember in California, it used to be the “Welcome to California, now go home,” bumper stickers, right?
Jason: These things do change. It definitely shows, if you’re looking at past population growth, a city that at least was desirable, maybe it still is, but I don’t know. I’m just asking.
Anna: Let’s talk about that desirability. Are we just talking about desirability from—again it doesn’t relate to jobs.
Jason: Investment standpoint, investment, yeah, definitely.
Anna: Austin is still a great place for jobs. There is still a lot of population moving to Austin and for those people that did invest in Austin back in those days—
Jason: They did great.
Anna: They would have a—be sitting on a pretty pile of money right now.
Jason: Hey, we were recommending, and we sold lots of properties in Austin in 2004, 2005. Certainly, that was well into the boom. People still did extremely well. Our clients did great, yeah.
Anna: Absolutely. I think that if jobs and people are moving there and that’s a trend, then that is definitely a good place to invest because that’s where the people are moving to. They need some place to live.
We look at 20-year trends. For example, if you do that Google search, you’ll see the trend over time and you can see, is it flattening out, is it increasing? What has it been doing in the past 20 years. We look at a long-term trend, not just the short term. We’re trying to see over time how is this metro doing?
There could be metros that have a significant uptick in the last three years. It’s going to be up to the investor to do their due diligence on that research to say, “I see this uptick happening, is this something I’m willing to bet on? Is this just a temporary trend or is this because Apple has moved in there or Amazon or Google? What’s going on for this uptick and is this going to be something that’s going to stay?” Because as investors we have to **** [0:17:55.1].
Jason: It’s always hard to tell. When you look at things like if the city has a master plan, hopefully they do, and they say, “Okay, we’re going to build X-number of homes,” they’re issuing a lot of permits, and that could be homes or apartments, I’ll call it housing. You’ve got a lot of permits being issued, a lot of starts, then a lot of job creation, but you never know if those two things, that supply-and-demand curve will meet or get out of balance.
How do you put those two together? I’ve struggled with that over the years when I research areas.
Anna: Well, when you have a lot of new construction and a lot of new jobs coming in, that does also create a lot of other jobs because you’ve got all that coming in. We tend to invest in class B and class C properties. As you have new construction coming in, your class C isn’t going to get hit as hard as your class B. I don’t think I quite answered your question. Could you repeat the question though?
Jason: Well, just matching the supply and demand curve, right?
Jason: Of the building permits, the housing starts, versus the job creation. I’ll take it one step further because of the comment you just made, which is interesting. You obviously create a lot of jobs just by having construction. Right?
Anna: Right. Yeah, poor construction and then the people that are moving in. Construction is only temporary, we know that. Those jobs are temporary, but if you have people who are moving into those places and the job is moving in, for every job that’s created, non-construction but these other jobs, there’s other service jobs that eventually are going to be created around that.
I say that because if the job is being created, that this new construction is going after, might be a white collar office workers, that might not be my tenant, because my tenant is potentially—if I’m investing in class C in that area—my tenant might be the service workers, the jobs that are created that are supporting those white collar jobs. I look at it that way.
Now, when we’re looking at a city, for example, there’s a project in Tucson that we’re working on, it is a class C apartment building, and there is new construction in the area that’s four miles from the property. But when we look at that new construction, that new construction is all student housing that’s right around the university. It’s all-purpose built student housing. My tenant is not a student. That’s not my demographic. When I’m moving into a market and evaluating a specific property within that market, I’m going to look at the new construction and the upcoming construction. Like you said, it’s very important to know what’s coming down the pipe. But I’m also going to understand who my tenant base is and how that’s going to impact me and my demographic that I’m going after.
Jason: Okay. What is the rest of these major data points? You were kind of going through those, and you went through several, but there’s more?
Anna: Yeah. Yes, we’ve got job growth and population, and then more at a neighborhood. We’re looking at a price-to-rent ratio. We’re looking at the price to buy a house versus the price of rent. We like to invest in places where the median rent is like $800 to say $1,200. There’s kind of that area in there that we find to be the most profitable.
Then within the market, we’re also looking for the valuation of real estate to not be—we’ll call it a bubble. The value of housing is not way above what I look at as the economic engine that’s supporting that housing. Areas that are more like Atlanta or Raleigh, they’re more on par. We don’t want to see it way under either, where you’ve got the economic engine and prices of housing are so low, it’s like, oh, that’s hard, because people can easily just—instead of renting, they can just buy a house. The cost of housing is so low. That’s valuation.
Once you’re in a market and we look at specific things at the neighborhood level. At the neighborhood level, we’re looking at unemployment rate, we’re looking at median household income, poverty level, those types of things.
For example, if the unemployment rate for a specific market, we’ll say it’s 6% for the city, and again, you can Google it and find out, what is the unemployment rate for that city? In a neighborhood, the few blocks around the property that we’re looking for, we don’t want the unemployment rate to exceed 2 points above that city unemployment rate. If it’s 6%, I don’t want the unemployment rate to be over 8%. I have a tolerance for 8% and lower. Once we get beyond that, I’m much less interested in that property.
Poverty level, similarly. We have a certain tolerance, and then outside of that tolerance. Even though you’ve got a good market, you have to then look at the neighborhood to make sure that the neighborhood is going to work for you, the few blocks around there. It all comes down to delinquency. You have to make sure from a median household income ratio that your tenants can afford to pay you rent 12 months out of the year.
Anna: If the median household income is too low—we like the number 40,000, by the way, for the median household income. Now, that number could vary a little bit, depending on if you’re in the California market, it might be a little higher, of course. If you’re in a market that has a large student population, you might adjust that a little bit, because a lot of students don’t work full-time because they’re in school. But as a general rule, we like the number 40,000.
Once you’re way below that, again, you may not get paid rent 12 months out of the year.
Jason: Okay, good. Anything else?
Anna: Well, we look across markets nationwide. We redo our analysis on a regular basis. We also look at landlord friendliness of the state and the county.
Jason: I love it. That’s something we’ve been saying for 15 years.
Jason: A lot of people leave that part of the equation out. Just looking at the regulatory environment in any given municipality and state, is critically important because that doesn’t show up in the stats, right?
Anna: No, it doesn’t.
Jason: The court decisions you win or lose when you have to evict and try to collect and the economic vacancy loss, not the physical vacancy, but the economic vacancy, it can be huge and there’s no tracking for that.
Anna: Absolutely. Yeah, you’re right talking about the municipalities because the state is one way, but then once you get in the city, you want to understand which areas have—because sometimes it can be a judge that’s sitting in a certain area that is going to favor the tenants more or the judgments are always going to go against the landlord in some way and they’re going to tie you up in court. Once you’re in a city and you’re investing there, you want to understand that. But we tend to, you know, we’re going for places we like, for example, Florida, Arizona. In case you weren’t away—you may be aware, you’ve been investing for decades at this point—it’s a 14-day eviction process in Tucson.
Jason: Well, you want to know the **** [0:24:58.7] in the country?
Anna: I would.
Jason: Arkansas. The place where tenants can actually be arrested for not paying rent. [Laughs]
Anna: It’s like same day?
Jason: I don’t have the details, but PBS or NPR or something did like a segment on it, you can find it online, I’m sure. We actually played it on my show before, but that is, I would say, has to be the most landlord friendly, [laughs] right?
Anna: Yeah, that’s pretty extreme. It is so important.
Jason: You know, to take advantage of that, you don’t have to actually try to get your tenant arrested. It’s just simply the idea that they know that. Right? Will work wonders in getting them to do their part and behave.
Look, society collapses when people don’t uphold their contracts. People have to uphold their contracts. It’s just if you want to have civilization, you got to have people upholding contracts or it just all collapses.
Anna: That’s right. I believe that when the rules are in place, like in Tucson, where you’ve got the 14-day, or in Arkansas, the people that understand there’s no leg up that they’re going to be getting. Then it’s up to the tenants and the property managers to work together if a tenant is having a hard time, certain things can be worked out potentially.
But it’s a big difference from what we call professional tenants that are in softer markets that know that they can live for nine months scot-free, by just taking advantage of the rules in place there.
Jason: That would be the socialist republics of California and New York.
Anna: And Chicago, by the way.
Jason: Well, yeah, yeah.
Anna: Those are the places we don’t invest. We don’t have any properties—well, we do have graduate student housing in Buffalo, New York, that’s currently being built, but that’s kind of a different beast all by itself.
Anna: But we don’t invest in California. We don’t invest in Chicago.
Jason: Yeah. No, I’m definitely not a fan of California. Do you want to make kind of a disclaimer to people listening? Listen, I agree with you completely, I just want to make a caveat to that though.
Jason: For example, I don’t like condos very much, but anything, if the deal is good enough and all the other stars align, it still could be worth doing. So, I never want to say never because there are mitigating factors that sometimes can compensate you for the hassle of landlord unfriendliness or whatever.
Jason: It’s all a possibility. Anyway, go ahead.
Anna: Yeah, so of course, a lot of people are looking at job growth and population growth. This is something that a lot of people have caught onto. We spend time trying to look at nuances between. Our list of markets that we’re looking at on a quarterly basis, is probably about 80 markets and we’re really kind of digging into the numbers underneath here, because we’re trying to find our potential spots where not everybody is investing.
We also don’t go places where the cap rates are too low, because it’s just hard to make your money there.
For example, there’s a corridor that’s between Deltona and Tampa that is just this wonderful engine right now of opportunity. Lakeland, Florida is right in between those two and it’s a very interesting place because those people that are living there can go either direction. Not that it’s that close, but they have the potential for jobs and powerhouse places where there’s jobs. Tampa and Orlando are just churning out jobs. It’s a very interesting corridor.
Jason: And do you like Port Richey, too?
Jason: We’ve been active in that market for quite a while. Tampa is too expensive.
Anna: Tampa is overpriced, so that’s where the valuations have gone too far. You’re not going to find the valuation in Tampa. But, there’s kind of like this web effect, where it’s not just a corridor now, but we’re starting to see the impact of this job growth and population growth kind of webbing out in that area along the corridor. There’s all these like little things that are happening.
That corridor is getting longer, so it’s going down now towards Fort Myers and those areas down there.
Jason: Yeah, absolutely. Well, we have a name for this in the business. It relates to the buyer side of the market mostly, but it also relates to the tenant side of the market, and that is drive until you can qualify. Drive until you can qualify. Okay? [Laughs] That’s the way it always works, nothing new there. Yeah, absolutely.
Anna: [Laughs] Yes, yes. We’re looking at a wide range of markets and just trying to understand the underlying things to find potential markets that aren’t oversaturated. Again, not overvalued and you’re right, Tampa is definitely an example of a market that is very overvalued right now.
Jason: But it’s certainly not as bad as, you know, Denver.
Anna: Yes, Denver, I was just in Denver.
Jason: There are many worse than Tampa.
Anna: Denver is one of the most overvalued right now, which might be surprising to some people.
Jason: And I think Austin is highly overvalued, too.
Anna: Austin is very highly overvalued.
Jason: And we don’t even have to get into New York and Los Angeles, that are crashing.
Anna: Yeah, New York and Los Angeles, San Francisco, Boston. I mean, the cap rates, those are the lowest cap rates in the nation.
Jason: Finally, those are crashing, they really—
Anna: I believe they’re starting to come down. You’re right.
Jason: They lasted a long time beyond the point of fundamentals. I think they should’ve crashed three, four years ago. It’s kind of amazing, this irrational exuberance can really play for a while. [Laughs] Yeah, it’s interesting.
One of the other caveats that I think it’s important to mention, Anna, probably should have been the frame from which we started today, so we’ll do it in reverse here, but it’s the context. Meaning that what type of landlord do you want to be? What type of properties are your specialty? What type of properties are your sweet spot? These are the questions every investor needs to ask themselves.
Jason: Because of course, if you started off the talk today with, “Well, we like luxury properties for upscale clientele with a net worth of $5-15 million,” the discussion and the research and what markets you would like, or dislike would have been completely different than the discussion we had. Everything in context sensitive to what the investor is looking for. I mean, as I always say, you can make money in lots of parts of real estate regardless of what the market is doing, as long as you’re a specialist and you know your stuff and you make good decisions.
Jason: But now, tell us, what type of landlord do you want to be? Are these B class, C class? I think they’re not A class maybe. That’s an important question for every investor.
Anna: It is an important question and we do have a couple of—in the portfolio, we have a range. We do have some new build, mixed use, there’s a building that’s just south of Provo in Springville, Utah. Utah has some wonderful markets. It was so hard to find a value-add opportunity that we actually ended up building there because that was just the better play in that market.
Jason: And that’s rare that the better play is building, because the construction is so high.
Anna: I know. Because construction costs are so high, that’s 102-unit, new-build, class A building with commercial space down below, as well as class A self-storage, the temperature-regulated self-storage.
We have that in our portfolio, as well as ground-up built student housing that’s graduate student housing.
But I would say our bread and butter is value-add class C and class B-, in terms of acquisition multifamily assets.
Jason: Yeah, okay.
Anna: Yeah. That is what drives us and that’s why, again, we’re so focused on jobs and those types of things, because that really matters for our tenant base.
Jason: Okay. Anna, talk to us about the future and we’ll wrap up with this part of the topic here. What does the future look like for rental housing? I mean, I keep moving my prediction forward. Like years ago, maybe six years ago, I started saying that the next ten years coming at the—well probably more than six years ago, maybe ten years ago, actually—I was saying things like, “The demographics coming at the rental housing market over the next decade are nothing short of phenomenal,” and I still think that.
Anna: I do, too.
Jason: Tell us about some of the factors that you see there. I mean, we got millennials, biggest generation ever, biggest demographic cohort, saddled with huge student loan debt.
Anna: You got it, yep.
Jason: They basically got a mortgage, they just didn’t get a house included with their mortgage. [Laughs]
Jason: There’s a lot of factors and interestingly, the baby boomers are renting now, and the stigma has just gone away. It used to be like you looked down your nose at a renter and you think, oh, well, being a homeowner is so much better, but that seems to have really dissipated.
Anna: I agree with all of your points. Those are all things I would’ve brought up. The millennials, part of that kind of being shell-shocked, because they came of age in the recession, so 2007, all of their loved ones were losing their houses and their jobs.
Jason: They witnessed it when they were teenagers, the most impactful part of their life.
Jason: They might have been trying to win the high school popularity contest and then their parents get foreclosed on and they’re moving out of the neighborhood.
Anna: Exactly. I think a lot of people were shell-shocked in that era. Then you have the student loan debt, which is astronomical. Then the baby boomers, who are making different decisions. I think that the recession had a huge impact on all of us, where people really reevaluated what is important. Many of us decided, I don’t necessarily need that house. My happiness is more important. I want to travel more, I want to live more.
Then we’ve got the sharing economy that grew out of that timeframe and the technologies and the application so that people can stay in touch with each other. I think that the baby boomers used to think, “I’ve got to stay where my kids are for the rest of my life because that’s how it is.” Well, now we can stay connected in so many different ways that we didn’t have, and I feel like it’s opened up a lot of opportunities. Now, baby boomers are like, “I can live where I want to live. I can live in an Airbnb six months out of the year, and Airbnb out my house, and live in different cities and visit my grandkids.” It’s just really changed.
I think that it really does go back to 2008, 2009, 2010, and how we all internalized and got through that. The three things, student debt, the millennials, and they’re not buying houses. The rate of house purchasing has just tumbled and it’s starting to pick up little bit, but I don’t think it’s like enough to be a trend that it’s ever going to go back to where it was.
Jason: Yeah, I would agree. I think we live in a much more portable world. The sharing economy has changed people’s attitudes about all of that stuff. People just want to be more mobile nowadays and you can be. It’s really much easier than ever to do it and I think that’s only going to get easier. It’s an interesting trend. It used to be the idea of, “Oh, have a big estate and invite your friends over,” and all that kind of stuff. Now, it’s like, “Enh, I’d rather go meet my friends somewhere in some other part of the world and rent a yacht for a week or two.” [Laughs]
Anna: Right. I think we’re going to see more and more of this co-living going on. I think we live in very interesting times, Jason.
Jason: We do.
Anna: It’s pretty exciting, when you get down to it. But being a real estate investor is definitely a strong way to go into the future because there’s no shortage of renters that we’re facing.
Jason: Yeah. No, I know. That’s interesting. Folks, be a landlord, it’s a pretty good deal, probably for the next 10 years at least.
Anna: Be a landlord and live wherever you want to live.
Jason: Absolutely. Good stuff. Anna, give out your website and just wrap it up for us.
Anna: Sure, you can find me, I’m [email protected] The website is G-R-O-C-A-P-I-T-U-S dot com. I also teach on MultifamilyU.com, which is our education platform. I teach underwriting for deal analysis of multifamily. You can catch me online on monthly webinars that are free, teaching people how to analyze apartments.
Jason: Anna, thanks for joining us.
Anna: All right, Jason, thank you so much for having me.
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