Welcome to another episode of Passive Real Estate Investing. I’m your host, Marco Santarelli, you know, Andrew Carnegie many decades ago said that 90% of all millionaires became so through owning real estate. You know, that was true back then. And it is certainly true today. I was having dinner with Robert Kiyosaki a couple of years ago, and it was a very interesting conversation about the future of real estate and the economy and all the money printing that is going on, especially now, as we just approved a $1.9 trillion stimulus package. And it seems that year after year and decade after decade, this money printing or these stimulus packages keep getting bigger, almost exponentially bigger, but you know, Robert Kiyosaki once said that real estate investing even on a very small scale remains a tried and true means of building an individual’s cashflow and wealth. And that is Oh, so true.
It is true today. It was true a year ago. I believe it’s going to be just as true a year from now or even a decade from now. So before we get into today’s show, I first want to take a moment to thank each and every one of you for being a subscriber to the show and providing positive feedback. You know, I get so many reviews on iTunes and everywhere else, and I do read them all. And I really appreciate all the feedback. The most two recent reviews said, this show is on my weekly podcast rotation and brings timely and relevant information to listeners. If you want to level up your wealth-building strategy, this is your show! And I appreciate that. One more quick review. Someone wrote, I recently discovered this podcast found it to have great content and practical steps that can be used immediately. If you are a real estate investor, do yourself a favor and subscribe today. And yes, on that note, if you like the content and today’s episode, be sure to subscribe if you are not already a subscriber.
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So what is today’s topic? Well, I want to talk about why I’m bullish on real estate today and why you should be too. So why is this? Let’s break it down. It comes down to two basic things. One is the fundamentals, two is the economics. So I’m going to get into the fundamentals a little bit to give you both a 40,000-foot view of this, as well as get into some of the details of what is going on and why it makes sense to be invested in real estate and to continue investing in real estate. These are what I refer to as the fundamentals.
The other part of it is the economics. And I’m going to explain to you why figuratively, literally real estate is an ideal investment, and I’m going to break that down because it is actually an acronym, but I’m going just give you a quick overview of that because I actually recorded a very detailed episode about why real estate is the IDEAL investment. And I’m going to give you some examples today about that. So with that, let us jump in and talk a little bit about what is going on in the country, some national trends, and why the fundamentals make sense and make this one of the best investments to be invested in today.
So let’s begin with supply. You know, economics is all about supply and demand and it’s just economics one Oh one, it’s the fundamental of economics. So the reason why real estate is such a good investment today from a fundamental perspective is twofold. Supply is tight. In fact, in many markets, remember, all markets are local. Supply is very tight. And to the point where there’s almost no inventory, when you have less than one months of supply to supply the demand in that market, that is very tight. The flip side of that, or the other side of the coin is the demand side of the equation. Demand is very strong. So these two dynamics playing at each other is causing a tremendous amount of interest and demand in real estate, which is causing prices to go up pretty much all across the country, especially in the mid market and smaller markets. So let’s talk about supply for a moment here. What we’re seeing with baby boomers is they’re basically staying put, they normally would be out in the market, especially in the springtime, putting their houses on the market and moving either up or down, but that never happened last year, partly because of COVID.
But we’re also seeing that today because it’s become harder for them to move laterally or up Freddie Mac not too long ago, came out with a report or a study. And they were showing numbers that range from 900,000 on the very, very low end to 4 million on the high end, in terms of housing units being short by the year 2030. Let me explain that that means in less than 10 years in the United States, we’re going to have a housing unit shortage of up to 4 million housing units. That’s a very big problem because we already have housing shortage now. And we have had for many, many years, in fact, well over a decade, the last statistic I remember reading was in 2017. At that point in time, we had a shortage of 370,000 units across the country. That means there were more people that needed housing that couldn’t find it because we didn’t have it.
So what do they do? They ended up staying at home, living at home parents or otherwise, or bunking up into multi-family housing units. But you know, that is just pent up demand and we’ll continue to grow until we can release it. So what does that do? What does, what is the impact of that? Well, that leads to essentially three things. And if you’re a real estate investor or you want to be a real estate investor, this is huge because this is why I see a great opportunity and why you should see an opportunity as well. So this pent up demand and lack of supply leads to three things, increased occupancy in housing units of all kinds from apartment down to single family homes, rental rates, increasing, which is great. If you’re an investor, if you’re a property owner and rent rates are strong and they continue to grow year after year, well, that just adds more cashflow and increases your rates of return.
And thirdly is it increases property values. This just creates through market dynamics, price inflation. And that is in addition to the price inflation being contributed by increased lumber costs because lumber costs have increased dramatically over the last 12 months, as well as other commodities being more expensive, copper, concrete lumber, bricks, you name it, all this stuff is becoming more expensive. It’s price inflation, all that just flows right into the housing sector and increases property values.
Now let’s look at the flip side of this coin. So we know supply is tight, but demand is also very strong and growing. I’ve already talked about this to some degree, but let’s break this down in terms of numbers. So Fannie Mae has said not long ago that we need about 1.6, 2 million housing units per year. That’s how much new inventory we need each and every year, but we’re not producing that much.
We’re producing a little more than a million to 1,000,300 thousand somewhere in that range. It just depends on when you read these reports and you know what, when it was written and by whom and whatnot. But the point is, is there’s a shortage with this strong demand that has been increasing year after year. We don’t see that changing in the near term. At least I don’t, because you’ve got all these dynamics going on, including gen Y the millennials who are now starting to move into that rental market, they are now feeding the rental pool. And this demographic is approximately 72 million people in the United States. Now let’s add another layer on top of that. Let’s look at gen Z. This is the latest generation. And the oldest of this generation is now approximately 23 years old. They are about 68 million to 82 million more people that are slowly but surely getting out there.
And they’re going to becoming renters and they’re going to becoming ultimately homeowners, just like the millennials, the gen Y, because now they’re getting into the years where they’re going to get married and they’re going to start having kids. You can see where I’m going with this, right? So this is a good thing in a way, because it’s driving demand and prices for us as real estate investors. So this is what you need to look at as a real estate investor. You take a step back and look at the national trends, and you’re really trying to see what is going on in the country in terms of housing in general. And it comes down to this supply is tight. Demand is strong. That’s going to continue to push home prices and rental rates up. So you need to take advantage of this opportunity. There’s one last thing I’m going to mention about this before, moving on here to other juicy things, something that is referred to as shadow demand, we’ve already talked about demand, but what is shadow demand?
Well, you’ve heard of shadow inventory back in the 2006, seven, eight period of time where we had all these foreclosures and foreclosed properties that the banks were holding on their books that they weren’t releasing, or at least not quickly, but ultimately we’re going to let out and onto the market. Well, the problem with that is it increases supply and sometimes so quickly that it pushes prices down. Well, flip that around. What if you have a whole bunch of people, young people living at home that are looking to get out, they’re looking for more space. They’re looking to get out, you know, branch out on their own, become independent, start families, whatever that is. Well, there’s a lot of that going on. Uh, we’ve just talked about it, but there’s, you know, there’s just so much more to it. Um, so this is just going to continue to push demand through the roof.
Now here’s an interesting thing to consider, and this is part of that whole shadow demand equation, us young adults, living with their parents. These are people who are between the ages of 18 years, old to 29 years old has hit an all time high. Recently. This was in the last year or so, what this means is this there’s 52% of young adults, those 18 to 29 years old living at home with their parents right now, the last time in the last hundred years that we’ve seen a number almost as high as that was in the 1940s, that one decade. And that was obviously right after the great depression of 1929 to 1939. And of course, that was shortly after the war. So we peaked at 48% back in the forties, and then it dropped to a low of 29% in the 1960s. And then it started to increase decade over decade slowly.
And then more quickly to the point where we are now at an all-time high of 52%. So these people don’t want to live at home forever. They are ultimately going to want to get out of the house for various reasons. And when these young adults start moving out into the market slowly at first, and then quickly later, you’re going to see even more demand and price going up. So that’s just basic economics supply and demand. It’s the fundamentals of it. So let us move forward here. So we’re talking about the fundamentals. Let’s talk about the economics briefly. I’m going to just talk about why real estate is an ideal investment and then give you some real world actual examples that we are looking at today here at Norada Real Estate Investments. Our clients are looking at them. These are properties, real investment properties that they are purchasing and investing in, including my team and I we’re all buying the same types of properties from our pipeline and pool across 25 different markets, but it comes down to being an ideal investment.
So what does that ideal is simply this it’s an acronym. The I in IDEAL means you have INCOME, income producing real estate generates monthly cashflow, annual cashflow in some markets, more than others in certain property types and certain locations like neighborhoods that varies, but it always is a cash flowing investment. That’s the beautiful thing. And I always call cashflow the glue that holds your real estate deal together because as you’re earning income each and every month and year, the property value increases. So I’ll get to that here in a second. So the D in IDEAL is DEPRECIATION. Now this is a tax function, but think about this. There is no other asset class out there that has the tax advantages of real estate investment real estate. The IRS allows you to depreciate that property, a residential property over 27.5 years, which means that you can literally depreciate and write off one 27.5 portion per year of the improvements of that property, which means everything except for the dirt, the land.
So if you take the improvements of that property, which is the bulk of the purchase price and have a phantom, write-off a, write-off against your income, your passive income, that you don’t need to spend a single penny or dime on to get it. That’s a wonderful thing because that lowers and potentially eliminates the tax impact on the income coming from your properties. And as you build your real estate portfolio, that depreciation amount goes up. And it’s more that you can apply to your passive income, to lower the tax impact from the income. That’s a wonderful thing. And it’s a beautiful thing because you really can’t do that with other investments or other asset classes. It has to be real estate. The E in IDEAL is the EQUITY growth through the amortization of the loan. Remember, you have a tenant who is your customer, but you have a tenant in your properties.
They’re paying down your mortgage each and every month and each and every month. Your equity in that property goes up month after month, year after year. And as the years go by that equity growth accelerates, it actually starts off slow and grows faster each and every month and each and every year. So your equity, which ultimately is your net worth, your net worth is going up every month and every year. So that’s the E in IDEAL. The A is APPRECIATION. We just talked about this because of supply and demand dynamics and whatnot, and through inflation, that is a natural thing that we have in our economic environment. The price of that real estate will continue to go up. Now, there’s no guarantees on this, but we do know that over time, it almost always goes up. It’s just averages out to being whatever the rate of inflation is the real, not the nominal rate, but the real rate of inflation, which can be four or five, six, 7%.
So that is an amazing thing. The equity growth comes from two places, the amortization of your loan and the price appreciation on your property last but not least the L in IDEAL, it refers to the fact that you can LEVERAGE the purchase, which means that you don’t need a hundred percent of the purchase price to buy that property. You can invest in a a hundred thousand or $150,000 rental property in a single family, home, three bedrooms, and only put 20% down and borrow the other 80% from a banker lender. And we have many of them. This is what we help our clients with all the time. So when you can borrow 80% put down, only 20%, you magnify your returns. You, you leverage up your investment capital goes further because now you can acquire more rental properties. And so you can build a larger portfolio faster, generate passive income, uh, increase your net worth quickly because that equity that we just talked about is growing across all your properties, not just one property, but every property that you own over time that will grow.
And so that is why real estate is the IDEAL investment. Again, I recorded a full episode, uh, not too long ago, several months ago about why real estate is the IDEAL investment. And I go into this and, and more detail. So we’re talking about the economics of why I’m bullish on real estate investing today and why you should be too. So we talked about the fundamentals and now we’re talking about the economics of it. So real estate is the ideal investment. Now, let me give you a few real world examples here. And by the way, I should mention that I can go into great detail about the economics and the fundamentals and talk for hours. But obviously I don’t want to do that. I want to keep this episode to a, roughly 20, 25 minutes if I can, but let’s take some real world examples.
Now these are markets that we’ve been in for many, many years, and I’m talking about, you know, what’s going on in these markets in terms of opportunities. Uh, I’ll keep it at a high level because, um, you know, it gets very granular when we talk about specific properties, but you’ll get the general point. So I’ll give you three Memphis, Tennessee. That’s the first one. Why do we like Memphis, Tennessee? Do our investor clients like to invest in Memphis, Tennessee? Well, the job market is very strong and healthy. It has a relatively speaking low unemployment rate, and it’s been dropping, of course, in every market, across the country. There was a bump up last year because of COVID, but that has normalized to a large degree. And so, again, we’re in those single digit unemployment rates right now, but when you look at the 10 year growth for job growth, it’s 37% for Memphis.
There’s two key things we look at when we pick our markets job growth. Second is the population growth. So that’s my next point here with Memphis, Tennessee population growth is expected to continue to grow quite rapidly for the next five years. They are expecting a population of 1.4 million by 2025, just four short years from now. So that is a strong growth. Tennessee’s a great state, great tax environment, great business environment. A lot of people are moving there. That’s the migration. So jobs and population growth. We’re very bullish on Memphis and have been for many years. So when you look at deals in that market, and you look at what we call the price to rent ratio, um, it is very favorable properties range from about 80 to 150,000 in kind of the investors sweet spot. Of course, they have multiple hundred thousand dollar properties there.
That’s not what I’m suggesting you invest in necessarily, unless it there’s, you know, a good reason for that. The numbers really make sense, but your rates of return tend to drop off after you get over the $200,000 mark. And especially when you hit the $250,000 mark, you know, numbers just don’t make sense. So if you’re listening to this and you’re one of those expensive markets or bubble markets, especially along the coastal markets of the United States, California, New York, New Jersey, um, Seattle, et cetera, you’ll know what I’m talking about. I mean, when you’re looking at 500, $700,000, $1 million properties, they just don’t rent for enough for the numbers to make sense. This is why you need to be market agnostic, do not be married to your local market. You have to look at the markets that make the most sense from an investment perspective. And that means often looking well beyond two or three hours from where you live.
That’s irrelevant, it’s a moot point. It doesn’t matter. You don’t need to drive to the property cause you’re going to have full service property management. You need to look at States and cities and markets and metros. That make sense both fundamentally and economically. Remember we talk about the numbers, but we talk about the markets as well. And that’s what we like to look at here. So the numbers make sense when you can get a property that is 90 to a hundred thousand dollars or more in the Memphis market and it rents for a thousand or more a month. That’s great. If you’ve got $120,000, three bedroom home in a good B class neighborhood and that rents for 1200 a month plus or minus the numbers, make great financial sense on that last but not least the one year forecast in the Memphis Metro area. Uh, at least looking at it from today is a little over 8%.
So that is a very healthy rate of appreciation. Again, these are forecasts. There is no guarantee when it comes to price appreciation, but we can see the trends in the market and we know what’s going on. So let me give you two more quick examples. I can go through these quickly, cause I’ve already explained, um, you know what we’re looking at, but Indianapolis, Indiana, great market. Another one of our perennial markets, we’ve been there for many, many years. In fact, Memphis, we’ve been in the Memphis market for about 15 years, Indianapolis. Um, almost as long, the job market is great in Indianapolis. Very diversified. Unemployment is low 3.6%. The ten-year growth in that job market is 37%. Again, very strong job growth in that market population growth. It’s expected to grow to 2.5 million people by the year 2050, that’s a ways away, but it’s a positive upward trend.
And in the Indianapolis market, you can get great three bedroom homes that are around $145,000 mark that rent for 13 to $1,400 a month, sometimes 1500, very close to 1% of that purchase price. So that is great because the numbers make sense. The cash flows are strong. The cash on cash returns are very healthy. And again, when your forecast is a little over 8% for that particular market last but not least, a lot of people think about Florida. Talk about Florida, Florida is quote unquote, a hot market. Well, Florida’s not a market, it’s a state, but it’s made up of many, many, many local markets, but Florida is, has been very bullish for us. We’ve been in Florida for a long, long, long time. We first entered the Florida market back in 2004, 2005. And the market has just been continuing to grow. Many, many people have been moving to Florida for many reasons over the years, a great job growth, no state income tax, uh, a healthy business environment.
We’re in about five or six different markets in the state of Florida. So we have a lot of our investor clients purchasing properties in different places around the state of Florida. Uh, one of the areas of Southwest Florida, very healthy markets down there. There’s about four of them that we’re in and unemployment’s very low to low 3.4%. The tenured job growth is a high 41%, which doesn’t surprise me because of the hyper-growth that’s going on down there right now, population growth, uh, in Southwest Florida, it’s expected to grow to 1.5 million people in the next four years, which is, I don’t remember what the exact number is right now in terms of the Cape Coral area, but we’re in four other markets surrounding that location. And as far as prices, you know, you can’t judge on price. Remember people buy based on payment, whether it’s rent or mortgage payment, they don’t basically, um, make their decisions on price or price alone. It really comes down to what is their monthly payment and what can they afford. But when you look at properties in this market right now, we have a very wide range of properties from single family homes to duplexes, occasionally fourplexes, but you can get units, uh, or when I say you, and so I’m talking about single family homes in the 200 to $230,000 range that rent for roughly 17 to 1800 a month, a little bit lower on the rent to value ratio.
But what you’re going to give up a little bit on your cash on cash return, you’re going to make up in terms of price growth or appreciation because of the strong, strong demand and growth that’s going on down there. So the point of all this, the reason I wanted to give you those three quick examples, those are only three of the 25 or so markets that we’re in is to show you to illustrate that there are lots of opportunities out there. If you know where to look and you’re working with the right team, the right, you have the right people that you’re working with that can provide you the acquisition, the financing, the property management, um, the, the title companies inspections and everything else. I mean, that’s obviously what we do here at Norada Real Estate, but I, but you can do this on your own. Of course, you know, it’s just a learning curve and it takes more time to build your team, but the opportunities are out there.
I want you to know that, and this is why I’m bullish. You can see that there is, um, you have no headwind here. You have all the tailwind that’s pushing you forward, uh, to succeed and profit from this great opportunity in real estate. So you never want to buck the trend. Don’t buck the trend real estate investing makes a lot of sense today, both fundamentally and economically. And if you are not clear on everything, I just said, no problem. Talk to my team. You know, you can have a strategy session with our investment counselors and they can go through this with you as well, and a little bit more specific to your particular situation, or just wrapped around your questions. But remember, real estate makes sense. It always has. It always will. It’s just, you have to pick the right markets, the right neighborhoods, the right property, and have the right team.
If you can do that, you eliminate your downside risk. You’re positioning yourself for success, right from the beginning. So don’t buck the trend real estate investing makes a lot of sense today and look, think about this. What are you comparing it to? What are your other options? Where else are you going to invest your investible capital? Whether it’s in a self-directed retirement account, like a self-directed IRA, or whether you have liquid capital or you have it stuck in another type of investment right now that you can liquidate and put it to better use by building a real estate portfolio or adding to your existing real estate holdings. It just makes a lot of sense. We are at historically low-interest rates. As I record this money is not only so cheap. It’s effectively free. When you can get mortgage financing for non-owner occupied property that is rental properties, income-producing property at the upper three lower 4% range.
It makes a whole heck of a lot of sense. I mean, they made a lot of sense when it was in the 4%, 5% and even 6% interest rate range. I’m talking about 30 year fixed rate mortgages. You’re locking in to historically low-interest rates that just get inflated away over time, which means more money in your pocket. That debt becomes worth less year after year after year. It becomes worthless because of inflation. So you have everything working for you to assure your success. It’s an amazing time to be investing in real estate. Well, that’s it for today now, you know why I’m bullish? I could go on, but we’re keeping it to the 28 minute mark. And so with that, if you enjoy the content, please remember to subscribe to the show. We love to share this information with you and we will continue to do so each and every week, just subscribe. And we will make sure that this is pushed out to you on all platforms from iTunes to iHeartRadio. Also, don’t forget about the free reports and downloads available on our website. And there’s no obligation. Just go there, find what you need. Download it. We have market reports. We have an Ultimate Guide to Passive Real Estate Investing, which is a great primer for real estate investing. And if you have a question about real estate investing, I think my team and I are here to help you. So that is it for today. Thank you for listening and we’ll see you on the next episode of Passive Real Estate Investing.
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