Building Wealth Through Real Estate Isn’t That Complicated

TRE 176 | Real Estate Wealth Building

 

The ultimate goal in real estate investing is to keep building your wealth either passively or actively and achieve financial freedom. In this episode, Jason Bible talks about how you can do that by investing in real estate in Texas. Know why he believes that the industry experts have been wrong in their predictions as he breaks down the math behind Texas’ real estate appreciation. Jason gets real by acknowledging that people tend to overcomplicate things and shares how you can look at the market from a simpler vantage point. Go back to the basics of supply and demand and make sense of the market’s behavior for the previous years and the years to come.

Listen to the podcast here:

Building Wealth Through Real Estate Isn’t That Complicated

I have a fascinating little story. We bought a whole bunch of stuff in Corpus Christi. In fact, we’re still buying assets down there and we bought a beach house. We started bringing our crews to Corpus Christi to finish our projects. The fascinating thing is we decided, it would be a great idea to use our beach house so our staff could stay there. As you’d imagine, that became one of the nicest places to stay while you were working down in Corpus. We finally got the beach house done. We’ve got a whole bunch of other properties done, so we’ve moved our stuff into other places where they can stay and finish up our properties.

In any case, Rob is going down there, a bunch of our mastermind folks is going down there. The property is broken up in suites, so it’s going to be a socially-distanced mastermind group. We’re also going to do it virtually. I’ll be here in Houston, running the virtual group from the Heights. That’s what we’re doing. That’s where Rob is at. He’s on his way down there. He’s already stopped at Buc-ee’s at least once and he’s going to enjoy the coast. I’m hoping that the seafood restaurant he keeps talking about is open because that’s what I want to go down there. I want to try the all-you-can-eat. Was it $0.50 oysters and shrimp and all that other stuff? Hopefully, those are back open again.

Real Estate Experts

The theme of our show is to illustrate how wrong the experts are. What do I mean by experts? I’m talking about the folks with the PhDs, from the Ivy League Universities that tell you what’s going happen in the marketplace. I can’t tell you how wrong these guys have been for several years. They’ve been especially wrong during the Coronas. All I read all day long is how the world is ending and it’s ending and there’s nothing you can do about it. Everybody is going to lose everything, the economy is in shambles, mortgage defaults are record highs, mortgage workouts are at record highs, and people are missing payments. The world is going to end according to all the experts. However, when you begin to analyze the underlying data, it is absolutely not the case. The amazing thing is, and I’m going to speak from a Texas standpoint because the show is now nationally syndicated coast-to-coast. For those of you on the coast and wondering what you should do with your investment dollars with regards to real estate, invest in Texas. It’s hard to screw up real estate here.

The appreciation of properties that cash flows in Texas are not going to stop because of Coronavirus. Click To Tweet

There’s a great thread on Facebook and I can’t remember which group it was in, but somebody posted, “Knowing what you know now, what would you do differently in your real estate career?” I’ve been doing this for many years now. July 4th was my anniversary as a real estate investor. I would have bought everything that cashflows. I don’t care about equity. Don’t get me wrong, it’s great sometimes but I would buy everything that cashflows. If you live here in Houston, Texas, go back and look at what property sold a few years ago and what they are selling for now.

That appreciation is not going to stop because of Coronavirus. To circle back to my first point, we’ve had a massive appreciation and the question is why. It’s a very simple why. There are not enough houses for me to demand. It’s that simple. Now, all of these experts are now catching up to that idea. I’ve been talking about this for years, if you think real estate is expensive, just wait. There are zero economic indicators out there that say that real estate, especially with regards to residential real estate is in “trouble.” We can’t put enough houses on the market.

Let me paint a picture for you. When kids are not in school, let’s say vacation or a shutdown for a natural disaster, 50% of your workforce is not at work. Right now, we’re somewhere between 70% and 90% of GDP, the productive economic indicator of a country, is sitting at home watching Netflix. They’re not at work. I have a lot of guys that love to argue with me on Facebook, which is fine. It doesn’t bother me anyway. Truth be told, I will tell you guys a little secret. What Rob and I do are traffic and attention. That’s why we post all that stuff on Facebook. It keeps us in everybody’s feed. People start commenting and arguing back and forth. You’ll notice 90% of the time. I don’t even address most of that stuff because all I’m doing is trying to get in people’s feed.

If you think real estate is expensive now, just wait. Click To Tweet

There is no way you can debate me and say that the state of Texas has been open. People are not going anywhere. They haven’t since March 2020. I will never forget, a couple of friends of mine on the west side of town were like, “Let’s go do a dinner happy hour thing.” I was like, “Okay, great.” I forget if it’s City Center or Town Center, but it’s Memorial City Mall right there at I-10 in the Beltway. I parked in the parking garage because that’s always where I park so I can find my truck. The place is gigantic and I hate parking somewhere else and having to find my truck. Anyways, I park right there behind the movie theater, I walked downstairs and I’m out on the street level, that main street there that runs right through Town Center.

Coronavirus In Texas

I’m looking around and there are virtually no cars. The people I was there to meet parked literally right in front of the restaurant. I walk in and all the staff looks at me like, “What are you doing here?” I’m looking around and I’m like, “I’m here to meet some people.” They’re like, “They’re over there by the bar.” I walk around the corner and it’s our table and one dude at the bar. There are more staff members on a Monday night in July 2020 than there were patrons in a place that’s normally packed you could hardly hear yourself think. This is one of those restaurants. That’s normally you walk in after 6:00, 6:30, it’s going to be somewhere between a 30-minute to 1.5 hours wait. There’s a bunch of them down there, whole bunch of great restaurants. The reason I mentioned this is we’re sitting here and no one is there. We have some cocktails. We have a fantastic dinner. It was about 3.5 hours and we were the only table in this restaurant. When we left, we didn’t even see another car. This is in Town Center, I-10 in Beltway. If you’re not from Houston, it’s a nice side of town. There’s virtually no traffic outside.

I was riding my bike. I’m getting out about 2 to 3 days a week now during the workweek. I’m riding down White Oak which is inside the Beltway in the Heights and I‘m about to go north on Studemont. I’m looking up and down the street. It’s like 8:00 Monday night, there are no cars on the street. Nobody is going out. Christian’s tailgate is right there. I’m moving by Christian’s at a good clip but I looked in, 5 or 6 tables had patrons at it. BB’s has always seemed to be a little packed. Little Woodrow’s is completely shut down because they’re a bar. All the other bars up and down that street were completely closed. No one is going out. I made a joke and it turned out to be true. When I was chatting with Rob on the phone, I said, “aside from you and my other business partners, I’ve not seen someone over the age of 50 out in the public since March 2020.”

TRE 176 | Real Estate Wealth Building
Real Estate Wealth Building: The state’s economic productivity has been sitting at home for the most part since March, but real estate prices are up.

 

It is rare for me to see somebody over 50 at a restaurant. If you’re over the age of 50, you haven’t been a whole lot of places since March 2020. Why am I beating this point to death? It’s simple. The state is not open. It hasn’t been open since March. 70% to 90% of the production, the GDP of this state has sat at home, watching Netflix, or picked up another hobby. I see some people gaining a lot of weight and complaining about it on social media. I see people getting ripped because they got nothing else to do other than workout and sit on Zoom calls all day. Brooks Brothers announced that they’d be filing for bankruptcy. They’re the oldest men’s clothing company in the United States. All the analysts, the experts blamed it on the fact that you don’t have to get all dressed up to sit in front of a webinar cam to do a Zoom meeting. The reality is when you start digging into the company’s financials, they were over-leveraged. Brooks Brothers is an extremely strong brand. They’re going to restructure their debt. Somebody is going to come in and buy them. It’s a decent little company.

The reality is that everything has been closed since March 2020. However, the prices of real estate have increased since March. Put that into your economic model and try and make some sense of it. The economic productivity of the state has been sitting at home for the most part since March but real estate prices are up. This is the title of the Facebook feed, “Properties we bought a year ago are up 48%.” The after repair value of the properties we bought a year ago in a certain little sub-market. We bought six of them there and we still own them. The after repair value was $200 a square foot. We bought them somewhere between $140 and $160. At that time, they were $200 a square foot. We’re now seeing properties that are being closed transactions at almost $300 a square foot.

It’s a 48% appreciation in a year. That’s like Tesla stock territory in gains. Let’s do the math. What’s 48 divided by 12? It’s four. They’re appreciating 4% a month. Do I expect that to occur for the next 40 years? Who knows? I’ll tell you, we made 50% on our money in twelve months in appreciation. The irony in all this is all of the supposed be experts, some of these folks have got podcasts, radio shows, they run real estate clubs, they stand on stage and speak. I will never forget all those guys that when Rob and I were in the sub-market buying all these properties said, “You guys don’t know what you’re doing. This Airbnb thing is dangerous. You have no idea and you’re going to lose a whole bunch of money.” I said, “Just watch.” I knew they would appreciate somewhere between 10% and 15% a year. I didn’t expect 48%.

Buy everything at cashflows because, at the end of the day, nothing else really matters. Click To Tweet

Supply And Demand

To give you an idea of what we’re buying now in the sub-market. I contracted property. I got the contract, the seller signs their side, we signed our side. Two doors down, a lot sold for $93,500. I bought a house with the exact same lot for $105,000 meaning I bought a house for less than $10,000. It’s hard to screw real estate up when you’re buying the structure for what it costs to fix the roof. When you buy it at lot value plus a couple of thousand bucks, it’s hard to screw up real estate. If there’s one thing I could do over again, it’s buy everything that cashflows. We’re buying in these marketplaces where we think there’s going to be massive appreciation. How do we predict appreciation? It’s simple. It’s supply and demand.

How much supply is there at a certain price point? How much demand is there for that product at that price point? I’ve heard people telling me before like, “Jason, you guys are buying in this neighborhood. That’s a terrible neighborhood to buy in.” It depends. What price point are you buying at? Westbury and Meyerland are a challenging market from Hurricane Harvey but if I get them cheap enough, it works. We bought a triplex on the Southeast side of town. This is a deal we sent out to our mastermind. We’re going to talk about it at our mastermind. I can’t remember the numbers. I picked it up for it. I’ll tell you why the numbers don’t matter because the cashflow is absurd. Who cares? We’re buying it for $120,000, $130,000, or something like that. We’re putting $40,000, $50,000 into it. Let’s say, we’re in for $180,000.

It runs for almost $3,000 a month. Our note on this thing is PITI meaning all the expenses including debt service, $1,600 a month and it’s bringing in $3,000 a month, meaning you’re netting $1,400 a month. The challenge with this property, this is what I’ve told everybody in our mastermind group. I said, “I am not going to be able to predict what the ARV on this property is. What it is worth once it’s all fixed up? There are few comps, it’s hard to peg a value to but I do know this. It produces a ton of cash.” You may be out of pocket $40,000, $50,000, $60,000. I can’t tell. Let’s say, you’re out of pocket $50,000 and it’s cashflowing $1,400 a month. If we could do the math, it’s quick. $1,400 times 12 equals $16,800 net-net divided by $50,000 is a 34% cash-on-cash return.

TRE 176 | Real Estate Wealth Building
Real Estate Wealth Building: Coronavirus highlighted the importance of the single-family home. It is now the most important real estate asset one can own.

 

I hate to do the guru math for everybody. How many of those do you need to meet your financial goals? Most of you out there, it’s 10 to 20 of these things. That’s it. There’s a guy I watched on YouTube. He’s got this fantastic quote, “Men are masters at complicating their lives to justify their decisions.” I’ve got to tell you, I’m scared about the first networking events post-Corona because there are a lot of you out there that have been putting together this complicated ornate business plan on how to build wealth with real estate. You’ve had nobody to talk to since March 2020. I know what’s going to happen.

You’re going to run up to me or Rob and say, “Jason, Rob, we got to talk and go.” “We can talk.” “No. We got to go over to the corner of this room. I’ve got the secret to get rich in real estate. It’s got to be something crazy. It always is. We’re going to do this land, deed of a trust thing, we’re going to put it into an LLC. They’re going to roll it over to IRA and then a UIL. We’re going to do this.” You’re like, “What are you trying to accomplish here?” “I’m trying to get $15,000 a month in profit for my rental properties in cashflow.”

I’ll say, “Why don’t you buy twenty of these triplexes that we bought. It gives you a 34% per year cash-on-cash return, not including debt pay down, non-included equity, which is an appreciation that you get overtime, not including the increase in rents that the submarket will likely have.” We are masters at making things inordinately complex. It’s not that difficult. On the webinar, we did the mastermind preview. While Rob was talking, I was texting our real estate agent seven deals. I got on MLS, I went down the list, I take screenshots with my phone, and then I text them to her and I’m like, “Offer this.” We’ve already contracted two.

Men are masters at complicating their lives to justify their decisions. Click To Tweet

I will tell you this because I make it seem like it’s simple. Part of our sales pitch, when my agent gets on the phone with the seller’s agent is, “Here’s our offer. I know it’s not what you want but Google the buyer.” Meaning looks up the Mr. Texas real estate group. This is not some low-ball offer and then it doesn’t close. This is a number we can buy at. If you’re interested in selling this property, these guys are going to close. She told me that. She was chatting with another agent and they were concerned, “This is a little bit longer close time than we anticipated.”

She’s like, “Google these guys up. Your property has been on the market for a year. It needs a lot of work. They’ve already bought seven more in that same marketplace. If you’re interested in selling, they’ll buy it or your property can sit on the market for another year and you’re going to sell it for the same price a year from now plus all your holding costs.” That takes a while to develop that reputation in the marketplace. The other fascinating thing is the agent I work with, we’ve bought so many properties now that she’s working with the same agents on previous deals. She calls up our friend Mark, “Mark, remember we closed XY?” “It was great. It did really well.” “My buyer is interested in another property.” “What’s the number?” “That’s not the number the seller wants, but I’ll go present to them anyway and then we’ll put a deal together.”

That reputation is important but it doesn’t happen overnight. I don’t want to be callous with the, “I made seven offers. We got two under contract. We’re going to pick up another two out of that mix.” However, it’s the reputation. The Texas real estate reading radio network sponsored by Mr. Texas real estate, it’s that brand that we’re building and it’s not this worldwide brand. The brand only has to be important to those people who are your customers. The seller’s agents for us are our customers as are the sellers. Even though technically we’re the customers because we’re paying for the service. Why is all this stuff important? These same deals we’re buying, I know other people in the marketplace have passed on. “Wait a minute, you bought that one? How much did you get it for? How did you guys get it for that price?” This is the price that works well for us. We’ll have sellers that come back and ask us like, “That’s a low-ball offer.” I’m like, “This is the number that works for us.” By the way, I’m investing a lot of people’s money that are folks like you, families like you and they can’t afford for me to be wrong.

TRE 176 | Real Estate Wealth Building
Real Estate Wealth Building: There’s no real estate crash in Texas. If you don’t start investing now, you’re going to completely miss out.

 

Rob is on his way to Corpus Christi. He texted me and said the June HAR report is out, which is early, it’s the 9th. Usually, it’s in the teens in the middle of the month. I imagine they want to get this data out quickly. I have not read it yet but I can almost predict what it’s going to say. It’s going to say everything is fine. It’s not even going to look like a V-shaped recovery. It’s going to be an even tighter V. it might be like an eye-shaped recovery. I don’t know how you can make it any tighter than a V but it’s going to be banging up. That’s going to be my guess because we do this every day and we’re out there in the marketplace every single day.

Real Estate Numbers

I’ll make a little cut on your real estate guru coach, whoever you guys hired to help you through real estate. If they haven’t bought a ton of real estate between now when Coronavirus started, you might want to question their coachiness unless you’re in Vegas. If I were in Vegas, I’d be like, “I’m not doing anything until December.” We’re going to get a sweet pit place in Vegas and another one in Miami. I can’t wait. Let’s take a look here. This is the HAR report. A Houston Area Realtors is our MLS. If you have an on-market transaction if you’re listing a property where the real estate agent, it ends up on HAR. That’s our Multiple Listing Service.

They produce a report. There’s a lot more stuff I’d like to see on these reports, but I don’t make the rules here. Even though I’m in Mr. Texas Real Estate, I don’t make the rules for doing real estate in Texas. HAR produces this report every month and it’s good. It gives you an indication of what’s going on in the marketplace. They’ve been doing this for many years. They archive all the reports on their website. All you have to do is type in the HAR report and you guys can see all the numbers. You don’t have to be a licensed real estate agent to have access to this, to get into MLS, you absolutely do. For these reports, just type in the HAR report and it comes right up. I’m going to start reading from the top here. July 8th, 2020, a flurry of homes going under contract in May after COVID related stay at home orders expired led to a surge of closings in June. Driving home sales volumes back up to levels considered more normal for summertime in Houston and even beyond 2019 records pace. Rob and I’s team has been, if you think real estate is expensive now, just wait. We shut down the world for months, it’s still shut down, and people are still buying real estate.

Reputation is very important, but it doesn’t happen overnight. Click To Tweet

There’s an excellent quote in the article. This guy is a real estate investor. He does commercial, residential, industrial, all kinds of stuff, big firm. He said, “If there’s one lesson that came out of this Coronavirus thing, it highlighted the importance of the single-family home.” I would argue that the single-family home is now the most important real estate asset one can own. I will tell you, there are people, even in the class-A apartments that are wishing they were not an apartment complex because when Corona started and the shutdown started, all of their amenities were shut down. There’s no pool, no workout facility, no movie theaters, none of that stuff. You are stuck in your little apartment with a $3,000 a month lease. You’re looking around going, “Why am I staying here? It’s time for me to go move out to Cyprus, Woodlands, Katie, Sugarland, Pearland or wherever.” That’s $3,000 a month goes a long way for a single-family house. We own apartments at what I like to call the affordable home model.

These people cannot afford a house but if they could, they wouldn’t live there. An apartment as a business model is an alternative to a single-family house for most people. Humans were designed to live like bees. They want a single-family house. You’re going to see that. We’ve been discussing a lot of those trends on our noon Monday, Wednesday, Friday updates. We do a market update three days a week. We’re going to start doing Jersey, New York, and Southern California to those updates. If you guys are interested in that, go to MrTxRE.com and sign up for our email list and we will spam you to death with the 25 some odd webinars we do a month.

Let’s go back to the housing report here. “However, renewed coronavirus concern stemming from a spike in cases across Greater Houston and other parts of Texas may bring this taste of normalcy to an end by the Fall.” We’ll see. According to the latest market update from HAR, 9,300 single-family homes were sold in June 2020 compared to 8,000 a year earlier. That translated to a 16% jump. A strong rebound from two straight months of declines brought on by Coronavirus and ongoing strains in the energy industry.

TRE 176 | Real Estate Wealth Building
Real Estate Wealth Building: Despite relatively steady home price appreciation, the US housing market is on the precipice of an extended price slump according to a core logic report.

 

By the way, I almost forgot to mention this to you guys. Houston does a lot of this energy stuff here. A lot of oil and gas and the energy industry are getting crushed. Despite that and Coronavirus, we’re dealing with two recessions at once. Sales are up 16%. Homes priced between $250,000 and $500,000 led the way among all housing segments soaring 28% year-over-year. The second best performer consisted of homes in the $500,000 to $750,000 range, which jumped 19% year-over-year.

Single-family home, medium price increased to 4% in a historic high of $262,000. That is mind-boggling when you think about it. The median home price meaning the middle house of all the houses sold, not the average what I like to call the affordable house. That’s the middle 50% of the market. That house now in Houston, Texas is valued at $262,000. In 2003, it was $150,000. That means those houses have appreciated $110,000 in seven years. If you think real estate is expensive now, just wait. Let’s get down to the bottom here. June 2020 leases of single-family homes surged 15% year-over-year.

This is where it gets fascinating. Total property sales are up 20%. Total dollar volume is up 15%. Total active listings are down 18%. What does that mean? It means there are fewer houses coming on the market for sale. However, sales are up 20% meaning we can’t put enough products on the marketplace to satisfy the demand from buyers. This is historic that delta, that difference. Sales up 20%, volume down almost 20%. That’s a 40% delta, a 40% swing. If you’re waiting for a real estate crash, it got canceled. There’s no real estate crash in Texas. If you don’t start investing now, you’re going to completely miss out.

Your brand only has to be important to those people who are your customers. Click To Tweet

Home Price Slump

Let’s take this thing full circle. Realtor.com, A Home Price Slump is Coming. These Markets Will Be Hit Hardest. You immediately pick this up and go, “Our home is going to lose 100% of its value.” All the news right now, the world is going to end. There’s going to be 900 million people in the United States. Unemployed. I listened to Tucker Carlson. He was playing some of Joe Biden’s greatest hits. He gets up there and he stammered, “Does anybody believe this guy is totally with it? Does anybody believe that? No one can believe that.”

He’s stammering up there on stage. Six people in the audience go, “Joe is here.” He gets up there and he says, “We’re going to bring on.” Everyone is clapping. This is the very end of the speech. You can tell he’s trying to get away, he rallied up before he has taken out any, “Joe.” “We’re going to bring 700 million people back at work.” Everyone is like, “That’s a lot.” You know what’s so funny now is at these rallies, I noticed that he doesn’t even phase the audience. He’s going to keep saying crazy stuff. At least, Trump’s crazy stuff is funny. Joe’s crazy stuff is like, “This is sad.” You need to retire. You shouldn’t be up here anyway.

This is one of those articles you read. It sounded like all the unemployment stuff, you go back three months. Remember all the unemployment data was like, “900 million people are going to be unemployed in the state of Wyoming.” You’re like, “There are not that many people in Wyoming. This doesn’t even make any sense.” You started to look at the underlying data. They’re like, “How do these guys get to these numbers?” I understand their models. Models are designed by using previously relevant data. You can’t throw Coronavirus into an economic model, expect it to make any sense. The problem is none of these economists explain that.

They say, “According to our predictions, the whole world is going to end and California is going to slide off into the ocean.” That doesn’t make any sense because Coronavirus doesn’t make any sense, we put it in the model. Here is another one of these gray ones. This is from Realtor.com, A Home Price Slump Is Coming. These Markets Will Be Hit Hardest. Despite a relatively steady home price appreciation in May 2020. Let’s back up for a minute here. That sentence alone should make you excited if you’re in real estate. It’s a negative qualifier, despite relatively steady home price appreciation in May. Remember this nonsense started at the end of February 2020 but all the lockdowns and stuff started about March 2020. This is May. This is two months later.

“Home price depreciation is terrible. Despite your house being worth more and you increasing your wealth in May, bad stuff is about to happen.” That’s how these articles are written. I did not realize it until I started studying modern journalism. “Despite relatively steady home price appreciation May, the US housing market is on the precipice of an extended price slump,” according to a CoreLogic report. You read that and you’re like, “This is going to be like 2008 for the next fifteen years.” You’re going to be treating your house in for a sack of apples. That is exactly how this article is written is great. The housing data providers may home price index and HPI forecast report. By the way, I’ve been in real estate for many years now and I don’t know what either one of those is. I have no idea. “It predicts a year-over-year home price decrease of 6.6% by May 2021.” House prices nationally could fall 7% in a year.

The forecast comes on the heels of a host of relatively positive housing data that found demand picking up after its initial Coronavirus-induced decline in early Spring. Let me read that again. We’re supposed to have a 6.6% decrease and then the forecast comes on the heels of a host of relatively positive housing data. They found that demand picking up. Home prices in May 2020 grew 4.8% from the same month in 2019. Let me get this straight. Two months after, we’re in lockdown and make no mistake. We are in an absolute lockdown.

I could drive across the city and get anywhere in 30 minutes. When Houston is open, there’s a little meme going around on Facebook. Houston is an hour from Houston. It’s not as bad as LA. It’s getting there but nobody is on the roads. I talked to the earlier segment. Nobody is at the restaurants, nobody’s at the bars, nobody’s on the streets. I’m looking down 59. There’s like six cars out there. It’s a parking lot. 70% to 90% of the world’s GDP is sitting at home watching that tiger show on Netflix I’ve still not seen and everybody explains it to me. I’m like, “It doesn’t sound like a fun show to watch.” Here I read a report that says in the middle of all the Coronavirus nonsense, home prices nationally in May 2020 grew 5% year-over-year.

They’re predicting a withdraw of prices by 6% in 2021. Doesn’t that mean that we lose this 2020’s gains? Your worst-case scenario from the CoreLogic data says, “Despite all this crazy stuff.” This is absolute insanity at this point. I know I got a real short amount of time but this whole response to the Coronavirus thing, I can get whipped up for hours. If you guys go back and read our earlier blogs, you’ll read what Rob and I recommended on this whole deal. You’re telling me despite shutting down the entire economy for the world, home prices may be flat for a year. By the way, this is national data. I can tell you where the bloodbath States are or at least cities. The number one is Las Vegas.

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