High Interest Rates, Low Supply and the Memphis Market Profile

Jason Hartman gives us an overview of the economy and the real estate world. He looks at interest rates rising and discusses the challenges that come with it. He talks about how to analyze deals even when rates are high and how as time goes by, the numbers will look better. Later he does a market profile feature on Memphis.

Announcer 0:02
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 0:52
Hey everybody, welcome to Episode 977 977. Thank you so much for joining me. This is your host Jason Hartman and today we’re going to talk about a few things. It’s just yours truly with a little market profile and mini market profile for you. But I want to tell you about something we have done. That has been very enlightening. It’s been enlightening. And that is we did a survey and thank you to all of you who responded to our survey last week. We have about 200 responses so far, I think. Well, I guess your responded over the weekend. It wasn’t last week. They have been very enlightening. I have read exactly half of them so far. I read 100 of them. First thing I want to say is that, as usual, I learn a lot from you, our clients about learn a lot about investing, frankly, and a big part of my job is to feed that back to aggregate that data that we Learn from you all of the great things we learn from you, our wonderful clients and feed it back to you. So you can all learn from each other, which is really what we’re doing. Of course, we have the client case studies, and so forth. But a lot of it just gets into our collective knowledge, the staff and the team at my company, and then we share it back with you. Of course, we do some of that here on the podcast, but we do a lot of it one on one in various investment counseling sessions. Now, the other thing I want to say, besides the learning, that’s the what’s in it for you, but let’s talk about me now, what’s in it for me? Well, I just want to first of all say I am truly honored. I am truly honored to have you as listeners and clients. Because, number one, I just appreciate your feedback and appreciate your business and it is Sometimes humbling to read some of these surveys. And it’s sometimes gratifying. And it’s just a mix. You know, it’s, it’s great. I absolutely love it. When we do events and we get the evaluations back from you, I read every one of them. And I’m trying to go through and read every one of these surveys. I’m halfway through, but the answers are still coming in. More people are completing them. So more to come on that but I just thought we’d use this show to share some of this stuff as the Fed is meeting and they are talking about raising rates yet again, rates are going up, up, up, up, up up, and you know what that’s doing? It’s making the inventory shortage. Even worse, even worse. Yes, it’s making it even worse because the rates are going through the roof. Well, no, they’re not going that high. But it is definitely making inventory. Very short because when rates go up It has the effect of simply creating urgency, as I’ve talked about before, so many times, people as part of human nature, and you will notice this too, people are more motivated, mostly not everybody, but most of us are more motivated by fear of loss than desire for gain. So when rates are low, and they’re just hanging out, and there’s no big urgency, then people tend to not really be extremely motivated, but take something away. And Whoa, people are just flying into the market to buy everything they can. And so that is that’s what’s happening out there. It is really, I mean, business is just just it’s booming. It’s gotten actually worse because of the rates increase has made the market busy Earth busier. And then I heard this today. Now the first part of this message I’m going to play for you from the Wall Street Journal news brief is not applicable as much. But the second part is very applicable to you. And it’s about housing inventory. And this is rather startling. So listen to this for just a few seconds. Many markets in New York, keep an eye on the positive interest rates at your bank,

Jason Hartman 5:32
they might be ready to move higher. Well details on that in a moment. But first, here are some money items you need to know the Wall Street Journal’s real estate team says America’s new housing crisis is likely to center on the factors simply not enough new homes with fewer new homes being built in America

Jason Hartman 5:48
than almost any time before. Here’s the problem. While demand for housing is a land of construction costs has roughly doubled since the end of the last housing boom a decade ago. So that’s an interesting update. on housing inventory, and you can see why the housing stock is just so diminished. But every cloud has a silver lining. Remember, the harder it is to acquire a good property, the better that is for you in the long run, once you acquire it, okay, once you acquire it, so, you know, it’s two sides of the coin, obviously, right? Very good in some ways, and it makes it difficult in other ways. So housing inventory is the challenge. And many of you on the surveys, by the way, said that the properties were out of your range that you were expecting better numbers. Listen, I hear you. I get it. I feel the same way. You could have had those better numbers in 2010 1112 1314 1516 even just keeps getting more challenging. And you may get better numbers in the future, on rent to value ratio, but I say that overall, you will not get overall better numbers. Remember, every 1% in interest rate equals about 10% in purchase price 1% equaling 10%. So if you’re thinking you’re going to wait for some kind of crash that you’re predicting, even if you’re right, even if you’re right, and you are the genius, the one who can time the market, you are probably going to be sadly mistaken, based on the multi dimensional components of the investment. That’s the thing. That’s the thing you got to consider. Okay, so, we asked in the survey, are you facing any challenges when building your investment portfolio, right? And of course you are. I mean, everybody else Challenges Well, 49.71% 49 we’ll just round it off at 50%. Because Hey, it’s right there. 50% of you said, searching for the right property, finding the right property. That was the hardest thing to do. Some of you have purchased many, many properties. And hey, you’re getting a little tapped out cash wise. So 26% of you said, if you want to buy more properties, you need more money. For more down payments, I get it. 10% of you said can’t qualify for any more traditional financing. Now, we understand that many of you are above the 10 loans, or 20 loans if you’re married for Fannie Mae, Freddie Mac agency type loans, the traditional financing right. And then 13% of you, by the way, does this add up to 100? huh, yeah, I guess it does. Okay, so 30 13% of you said, You’re just too darn busy. You don’t have time to buy the properties. Now, those of you that that 13% you’re the ones I’m most concerned about, okay? You know why? Because you will easily be wooed by the commercial for TD Ameritrade or Merrill Lynch, or Charles Schwab, or whatever, because they make it so easy. That’s what Wall Street does. They make it so easy to separate you from your money, which ultimately that’s what they do. So, be careful. For those of you who say you do not have time Yes, I know. This does take a little bit of time. We make it much easier. But hey, it’s gonna take some of your time. You’ve heard me say it before. There is no such thing as a passive investment. There is no such thing as a passive investment. Either The bank is not a passive investment, you must be an engaged, responsible investor in everything you do. And the times when I’ve lost out on my deals, and I’m not just talking about real estate deals, because most of those go pretty darn well. But my deals that I’ve been in various deals over the years are the deals that I, I just didn’t pay attention to, you know, just too busy with other things. And stuff, you got to give it a little energy. Gotta give it some attention. But I say that the amount of energy, the amount of time the amount of commitment you give, it is so out of proportion in a good way to the results, you’ll get very out of proportion in a good way to the results you’ll get okay. We also asked you to rate your investment counselor on the Jason Hartman team, and here was a bit of a problem. Okay, that’s not a problem with the ratings. Thank you for the ratings. They were mostly extremely positive. We gave you between one and five, you know, would you give them five stars, four stars, three stars, whatever, right? But there is a real science in designing surveys, yes, a real science and designing surveys. You gotta be an expert about this stuff. Because some of you don’t have an investment counselor. And you still gave them a rating? How do you do that? You must have an investment counselor in order to rate your investment counselor. That’s our fault. We will fix that on the next survey, where we will make it so you need to say here is my investment counselor, and now I will rate them. We did that in reverse order our mistake, but overall, the average rating, the weighted average rating, which is how the surveys software does it. I don’t know why it does it weighted but I’m not a mathematician. So whatever. 4.33% 4.33% 61% of you gave your investment counselor five stars 19% of you gave them four stars. And 14% of you gave them three stars. 4% gave them two stars. And 2% gave him one star. That was three people that responded to that particular question. But the interesting thing is, when I see when I’m reading the surveys, and I see that you rated your investment counselor, a two, but you don’t have an investment counselor and you didn’t purchase any properties yet. You can’t do that. Okay, our fault will engineer the question better next time. But overall ratings were extremely positive. So we got a good team, I tell you, okay, now before I go on with this fascinating survey, that is going to teach you something about investing. Let’s take a little break here and go to a market profile give you a mini market profile. On one of our markets, here we go.

Announder 13:08
What about the Memphis market makes it attractive for investors?

Jason Hartman 13:12
Yeah, the thing that makes the Memphis market most attractive for investors is that year after year, we’re seeing the same results. It’s very consistent market for my investors. That’s why it’s a perennial market for investors to come back to year after year. And the reason is because of our workforce. Memphis is a logistics town. We ship a lot of things out of Memphis, we have all the major shipping lines coming through Memphis, which are of course the interstate systems, interstate 40, that runs east to west across America, interstate 55, from the north to the south, and most recently, interstate 69 that connects Canada to Mexico. Because of all of our shipping lanes. We have a lot of warehouses, a lot of warehouse workers and we provide quality properties to the workforce.

Market Profiler 13:58
What other industry To support the Memphis economy, what are the big ones?

Market Profiler 14:03
Of course our big employer is FedEx. FedEx world headquarters is in Memphis, Tennessee. Therefore we have the world’s largest Air Cargo hub here in town. The other one that a lot of people know about is St. Jude Children’s Research Hospital. St. Jude is an amazing place. First of all, they’re saving babies from childhood cancer, but they’re also a large employer. Right now, St. Jude is building on to their campus in the amount of $9 billion. So a $9 billion investment to Memphis, Tennessee right now about St. Jude, other major employers. Hilton Worldwide has a large presence in town and employs 2500 people. AutoZone is based in Memphis and several other companies.

Market Profiler 14:43
And so you mentioned the St. Jude’s development and are there any other developments currently going on? And how do you see those developments impacting the rental market,

Market Profiler 14:52
you know, the current developments that are taking place in Memphis and how they’ll impact the rental market. Right now we have a serious crisis. town building in 1927 I believe it was Sears put their logistic headquarters in Memphis. So even going back to 1927, we were a logistics town. That building after the Sears catalog went out of business set vacant, and to Memphis Ian’s came in, did a $280 million renovation to the building and created a vertical community. So there’s a university, middle school, high school of hospital and the high end housing and shopping as well. Other development going on right now is in the Midtown area where you’re seeing a lot of new hotels and things spring up. But there’s a lot of warehouses being built. Nike just put in their 3 million square foot world distribution hub. So every shoe, every piece of apparel and equipment is shipped out of Memphis, Tennessee, that created about 30,000 jobs. So most of the people working there are going to be paid $50,000 or less. And that equals, you know, workforce housing that’s needed for these employees.

Market Profiler 16:00
What is your typical tenant profile?

Market Profiler 16:02
You know, it ranges so I’ve got duplexes that are on the lower end, and I’m building brand new homes that are on the much higher end for a rental. So I’ve got FedEx pilots that are running the brand new houses, and I’ve got people that just started working at Nike running the duplexes.

Market Profiler 16:18
Now, are there any specific neighborhoods investors should either avoid or focus on, like any areas where the numbers may look good on paper, but circumstances make them unattractive, or areas that numbers may not look as great, but people might want to get in on regardless.

Market Profiler 16:34
So areas that you should avoid or places that might make sense on paper, but you know, don’t in real life, the best advice I could give there is, you know, buy nicer properties. my brand new construction would be the highest level you could get in real property as far as the type of tenant you’re going to attract. Whereas the lower price homes just aren’t gonna attract as quality of a tenant. So if I were to give advice there, I’d say Buy on the higher end. And of course there are a few areas of town that I don’t buy and renovate and sell properties in. I don’t even manage in and that will be Northwest Memphis and then South Memphis just below the downtown area. Where are you doing your new construction? What parts of town is that? Generally located in right now? several areas. So recently I was at the meet the Masters with Jason and we sold out of our new development down in White Haven. Most people know where White Haven is because it’s close to Graceland, which was Elvis’s house. So we’re really proud to do that project with Jason. Right now. My new construction is out east in Cordova, Tennessee. It’s just a little suburb of Memphis. Now the really attractive part about that is that they’re in a county only tax area. Now what that means is you only pay county taxes versus county and city. So it’s a huge savings to the investor makes the return on investment really high. These homes are 1700 square feet, four bedroom, two bath which allows for us larger family or a more corporate renter to have a bigger house. They come standard with granite countertops in the kitchen and the bathroom stainless steel appliances in the kitchen. And they’re really going after the executive renter. What’s

Market Profiler 18:13
the average price point for properties that you’re offering?

Market Profiler 18:15
So last year, we sold 280 properties to investors in the Memphis area and our average sales price was $101,000.

Market Profiler 18:24
Outside of new construction, what sorts of renovations are you doing before offering the properties to investors

Market Profiler 18:30
my average renovation on a turnkey property includes the big three to start out with that’s a roof, hard surface floors, no carpet, and mechanicals, meaning your hv AC and appliances and that makes up 65% of a total renovation budget. So the other things are just cosmetic, few light fixtures, paint landscaping, but if you take care of those big three up front that’s going to cut out on the maintenance problems in the future. I’ll call them maintenance preventers. If you have a new roof new agent V AC and all hard surface floors. Your house is pretty bulletproof moving forward,

Market Profiler 19:05
what sort of inventory? do you have now? new construction rehab, turnkey? And how many units do you currently have available?

Market Profiler 19:11
Sure. So I work hard to maintain the largest inventory of investment properties in Memphis at all times. We currently have 87 under contract, and it’s only January 23, that we have 47 homes available right now. That’s a mixture of turnkey and new construction. And now moving to the property management side, how many doors does your property management company currently have under management? Sure. So that’s one of the real strengths to our company is that we have everything under one roof. Our property management is part of our company. We manage 18 51,850 properties now and growing quickly.

Market Profiler 19:47
So what’s your vacancy rate and what’s your practice on rent increases

Market Profiler 19:51
over 98% occupied if you went back six months and put an average to it out of 1800 properties, that’s amazing. Our average tenants day is 2.75. years, and we have less than a 1% conviction rate, written creases we really track with newly renovated homes. We’re replacing tenants. We track this number, methodically. And we’re seeing about a 5% uptick annually right now in rats. Now that might not be as attractive as other markets, but it’s steady. We’ve had that same 5% uptick in rents in 2010 11 and 12. were other people were having to lower

Market Profiler 20:24
their rents to get someone in the door,

Market Profiler 20:26
what maintenance deposit, if any, do you require from investors

Market Profiler 20:30
on all of our properties that we manage a $500 maintenance reserve as required by the owner?

Jason Hartman 20:40
Alright, I am back. Now. What else do I want to tell you about this stuff? Well, let’s just share some of the things that went on in the survey. So one person said, I love you guys. I bought 12 rentals and have four land contracts directly or indirectly through your network. I’ve referred multiple friends and family as well keep up the great work. And that came from Damon Santa Maria Damon, thank you. We know you. So appreciate the comments. And let’s see here. Another comment, the information from the podcast and the Jay Chou live Jason Hartman University live event have been of great value to me and to my wife. Thank you very much. So that was a good comment. Oh, this one was funny. They rated their investment counselor, a five, five stars. And they say they hit the Fannie Mae wall, meaning they’ve can’t do any more conventional financing properties. And they said their investment counselor was the magnificent Sarah. Love that. And then is there anything else you want us to know? How can I be swanky like Jason? Well, Jason’s not that swanky. He’s just a regular person. Okay, so problems, things challenges facing you. building a portfolio life is too busy. investment accounts are got a five rating. And I’m not pleased with the management company in Memphis. Now we have several management companies in Memphis. So this was a negative comment, just FYI, in case you have any other complaints about them. I’m happy with. I’m not mentioning the names of the companies, by the way, that’s for our internal use, but we will share them with you individually. I’m happy with this other management company I use through their network. So we do get some complaints on managers. As you know, that is the biggest challenge in our business. Period. Point blank, the biggest challenge and the last episode, where we talk more about moving one step closer to self management folks, I’d really encourage you to consider self management, not if you’re brand new, but if you’ve got a little experience under your belt, and with our help and listening to all of the podcast on self made Management, I think it would be a good option to consider. Anyway, I’ve got to get these together in a nice format where I can really, you know, share them with you more easily. But overall survey has been super enlightening. And we thank you for all the nice comments, and we thank you for the feedback when it wasn’t great. By the way, I have to say, we didn’t get any actual negative feedback. But some of our people in our network did get some negative feedback. So here is one of the things that frustrates the heck out of me in my business, is that we are not the manufacturer. You know, we’re a network. And this business is fragmented. And it is challenging to keep these people on the ball, some of the providers, some of the local market specialists that we thought were going to be the greatest people ever have disappointed us. And some that we thought, Oh, well, we’re working with this guy, but we’re not so sure about them have totally impressed us. What can I tell you? It is an ongoing process. It is not you know, there are certain things in life, certain problems in life certain challenges in life that you just don’t solve. You just never solve them. You only manage them, you only manage them, you do not solve them. Again, thank you for the survey results, folks, if you got that survey in your email box, by the way, the average time spent on the survey was like four minutes, okay? And if you don’t write comments, and you just do click, click, click and answer the questions really quickly, you can do it in a minute. So please, please, please look in your inbox. If you got our survey and answer it. We really appreciate that. If you own Bitcoin, the IRS is coming after Yep, yep. Coinbase has shared more of their records with the IRS. I think the IRS subpoenaed the records. I don’t know if They did it voluntarily. I doubt it. But the big old government, the long arm of the law coming after people, the IRS got a hold of records of Coinbase they’re one of the main places you can buy bitcoin and aetherium. And these cryptocurrencies and you can use it as a wallet or not use it, you can just buy it there, you can, you know, blah, blah, blah. Anyway, they’ve got about 13,000 records of people who bought sold, sent or received digital currency worth $20,000 or more between 2013 and 2015. And most of these people just thought Uncle Sam was never gonna figure it out, and never going to figure out how to collect their cut to take their share. The tax man cometh, and I think there might be an amnesty but they’re probably going to make an example out of a couple people and send them off to hotel gray bar, hotel gray bar. Yeah, that’s called prison and it’s probably no fun. So try and avoid that one if you can, you know, give Caesar his cut. Okay. sad, sad thing in Arizona Of course you probably heard about this. I’ve talked extensively about how the game of real estate, the game of real estate, the basic three main value drivers of real estate, are under siege. They are going to shift it at times they are changing, as Dylan says, and one of those main drivers of that change, of course, is the self driving car. Now many of you know in my former hometown where I spent about six years in Arizona, Greater Phoenix area, Tempe and Scottsdale so far my favorite place ever to live. Well they have extensive or had extensive testing, where Uber has been employing these self driving cars these Volvo’s that you see around they’re very nice looking SUV. By the way Well, there was an accident, you probably heard about this. And the self driving car did not try to stop apparently, and it hit and killed a 45 year old woman. So very sad story. But once again, very few people are asking the right question. And what is the right question? Well, regardless of the circumstance, the right question is always compared to what? So if you took the number of hours that the self driving car fleet was operating, and then you take this one tragic fatality, okay, versus the number, the same number of hours being operated by humans? What would the fatality rate be with the human operated cars? Now, of course, these cars are not completely autonomous. There’s a backup driver in the seat. But apparently, I don’t know what the explanation is going to be about. Where was this backup driver where they you know, tech You know, what were they doing? So that’s a good question. But pretty, pretty sad story, obviously, but this technology will ultimately be perfected. And I say it will be a lot safer. And I say it will massively impact the three primary value drivers have real estate and income property. And what are those, of course they are location, location and location. So that is going to be under siege under pressure with autonomous vehicles. We’ll see how that goes. But they’ll be back on the road, and we’ll see what happens. We will see what happens. Okay. Send in any questions you have, or any comments you have or anything you want us to know. to Jason hartman.com slash ask Jason hartman.com slash ask. And thank you to all of those who have signed up for our east coast event. Yes, we will be in the northeastern United States. I do not have A hotel to announce yet, but I do have a place you can go and register to the to be announced hotel location, which I was hoping we would eat that by today. And I could tell you but we’re still negotiating the final touches. Jason Hartman, calm click on events, and you can get your early bird pricing that will be the creating wealth event in either washington dc or Philadelphia. It looks like we’re going to be in one of those two cities, the city of handouts and the City of Brotherly Love. We’ll see which one we end up in. But we’re negotiating in both right now and I can’t wait to do our first event in the northeastern United States. So join us go to Jason hartman.com. Click on events and join us there and we would love to see you there that will be the only creating wealth event that we have planned this year. By the way, let me just tell you a little something about our event format. Of course many of you came and loved our meet the Masters event in January. We decided we were going to do a resort location event. Now we want you to plan to go on vacation with us, okay? And we plan to be in Hawaii, our first Hawaii event in probably October, maybe November of this year, Hawaii. Okay. We’re planning to do a totally new type of event there. So if you’re planning a vacation and tropical paradise, join us in Hawaii, we’d love to see you there. If you want to do a nice city thing in the northeast, of course, we’ve got our creating wealth of them that I just mentioned coming up there in the northeastern us, the opposite end of the world basically. And we also have the venture Alliance mastermind event in New York City in May. So this is gonna be great. Plan these and join us. I also have to say I am getting super excited about our Ice Hotel adventure coming up in just a couple weeks, boy. Wow, I’m leaving for Sweden in two weeks, just about exactly two weeks from today for the Ice Hotel. And we are doing some incredible stuff. We’re doing the Ice Hotel event there, of course, but we’re also going to Stockholm. And in Stockholm, we’ve got a lunch plan where the helicopter takes us to an island and we have lunch together. And then the helicopter brings us back and Wow, so fun. So cool. And since Waikiki, and I just can’t wait, that’s gonna be a really fun event. What we’re doing here is we’re really trying to create more and more experiences where you can have a great time. Do some once in a lifetime, really unique experiences. go on vacation with me and learn about income property investing Just share some great moments together, get some awesome photos, some social media bragging rights. Do you like that one, you know, got to think of every little perk here and some real once in a lifetime experiences. So plan your vacations with us. You know, if you’re thinking you’re going to go to Hawaii this year or some tropical location, hey, don’t plan it yet. Wait till we announce it because it’s coming up fast. And we’re even trying to do a summer event in Europe as well, which is to be announced. We were working on that this morning. So more to come. And again, thank you for listening. Jason Hartman, calm click on events to join us for some of these great events coming up, and we will talk to you on the next episode. Happy investing.

Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes, be sure to check out the show’s specific website and our general website Hartman media.com for Appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice and any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.

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