How Trump’s Presidency Could Affect Real Estate Investing | PREI 068
In less than two weeks, we have president-elect Donald Trump taking over the Oval Office. What will that mean to us? How is that going to change the environment? How will Trump’s presidency affect real estate investing?
On today’s episode we talk with Greg Rand about how Trump’s presidency might affect the real estate investing industry.
If you missed our last episode, be sure to listen to 5 Mindset Myths That Are Killing Your Wealth Potential.
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How Trump’s Presidency Could Affect Real Estate Investing
Welcome to Passive Real Estate Investing. I’m your host, Marco Santarelli. I want to give a shout out to all of you listeners out there in 152 countries. Thank you for being a listener. It’s going to be an exciting year this year, 2017. Granted, there is a lot of change going on around the world, especially here in the US. What will 2017 bring, especially for us real estate investors and people who just follow the real estate environment?
Today, I want to bring on a guest who I’ve known for a while and I keep bumping into him here and there. He’s an author and a real estate guru of sorts. His name is Greg Rand. He’s written a great book. He likes to look at real estate through the policy, political and economic and environmental lens. He has an interesting perspective on things. I think you’re really going to enjoy today’s episode.
In less than two weeks, we have president-elect Donald Trump taking over the Oval Office. What will that mean to us? How is that going to change the environment? I really don’t know. I don’t think anybody really knows because I’ve always said that Donald Trump, although he has a lot of great business and marketing qualities, he’s also a wildcard. There’s a lot of uncertainty about this new political regime that’s coming into Washington.
At the same time, he’s a guy who really understands a lot of things about business. I don’t know. You got to look at the tax structure that we have in place and what that could potentially change into. There are predictions out there that home prices will go up. There are comments and suggestions that he will make industry friendly policy changes that will improve, not only the economy in general, but real estate more specifically.
One of those big things that are just floating out there and have been for a long time is the whole Dodd-Frank Act. It’s a bill that is just jam-full of regulation. If Trump gets in and he is true to his word and minimizes the amount of regulation centered around this Dodd-Frank Bill, that will probably ease up on the capital flow. There will be more capital available for real estate projects, specifically for commercial. That will flow into many areas of the economy.
If Trump is successful in creating domestic jobs and bringing jobs that have been moved offshore back into the US, then theoretically that should be good for our economy and good for commercial real estate and good for residential real estate and good all around.
I am politically agnostic and I do not believe that governments create jobs. They sure know how to raise capital through taxation, through inflation and guess what, then they redistribute that into areas that they want to put it into, social programs, infrastructure, whatever else, military. Time will tell. This will be a very interesting year. It’ll be a very interesting four years with Trump in office.
I am going to keep a close eye on the economic landscape and the housing market and just see how that plays out. Because at the end of the day, I can’t control the global economy and neither can you. You can’t control the national economy, but what you can control is your own local economy.
If you stay focused on your own personal finances and your personal affairs and you structure a lifestyle that works for you and you create the financial freedom that you really want, which is doable, it’s very doable, then you can control something that will benefit you short term and long term. That’s all about your local economy. My favorite vehicle of course is income producing real estate. We’re going to get to this interview here in 30 seconds with Greg so just stay tuned. We’ll be right back.
It’s my pleasure to welcome Greg Rand to the show. Greg is the founder and CEO of Own America. Greg is also a leading authority on real estate investment, an author, radio host and media commentator on the intricacies behind real estate. Greg has been a regular contributor on Fox News. He’s the author of Crash Boom: Make a Fortune in Today’s Volatile Real Estate Market, which is a phenomenal book written back in 2011. I highly recommend people pick up a copy because it’s still a great read today. Greg, welcome to the show.
Thank you, Marco. Happy to be here.
It’s great to have you on. We keep bumping into each other at these real estate events. Finally, I asked you to come on the show and share some of your wisdom and wealth.
I appreciate it.
No problem. Let’s start off talking about you for a second here. How did you get involved in real estate investing? Tell us a little bit about yourself so our listeners know who you are.
I’m part of real estate family. I grew up in and around the real estate business. I jumped in when I came out of college. That was back in 1990. I’ve been in it for a lot of years now. Never sold real estate per se, but ran a real estate brokerage, ran a mortgage company, title insurance company, one of those conglomerates of various services merged together into one. When technology hit, when the internet hit real estate back in the early 90s, I saw that as an inflection point, a watershed moment for the industry because it is so information intensive and because the industry was so famous for not giving it up, not sharing the information.
If you go back to the 80s and 90s, it was common practice to hide what was for sale from people and make them jump through hoops. I got involved in real estate technology back then. All along, my career from that point forward, it was real estate technology and single family real estate as an asset class that was largely underplayed. Meaning, your audience, they understood it and they’ve figured it out largely by themselves and through the help of people like you. There wasn’t really a professional industry around helping them. If you were going to invest in the stock market, there’s no shortage of experts. If you want to invest in real estate, there’s really no profession designed to help you. It wasn’t until the housing crisis when I finally said, “Enough is enough. There’s going to be an investment boom.”
I’ve been investing all along the way but when the housing crisis hit, it seemed as though it was the perfect time that everybody seemed to misunderstand the housing market. Except I knew investors didn’t, I knew investors were going to jump in during the correction and become very, very active. We launched this company back in 2010, 2007 really but 2010 is when I went full time into it to basically enable a national investor clientele or just a lot of local investors to build portfolios of rentals and build their wealth in this asset class.
That’s a smart move, Greg. It was a cottage industry. I think to a large degree, it still is somewhat of a cottage industry. You took a different path. Although we’re in similar spaces in this industry, you focused on institutional investors in the beginning. We’ll get to this more later of course. You took a shift and you started focusing more on the entrepreneurial single family residential investor and moved away from those big ten institutional investors.
We didn’t actually move away from that, we just needed to add to them. We were part of what we affectionately call the pie eating contest of 2012, 13 and 14 when very, very well capitalized companies were buying houses as fast as they could all over the country. We took part in that and developed technology and a field army to facilitate that and got pretty friendly with and built an extra reputation in that institutional tier. My heart’s always with the entrepreneurs. Some of the things that we and others built on the fly to enable that craze of acquisitions, we’ve now spun around and said, “Let’s offer these things. Let’s take this technology, this data, some of these capabilities that we’ve developed for this unprecedented acquisition binge. Let’s make products and services for smaller investors to help them make the best decisions they can, to get the best outcomes they can.” We’ve made that turn. We’re coming back home again. I belong in the small business entrepreneurial space. We’re really excited to be back in that world again.
Awesome. That’s great. I’ve seen you a number of times on Fox News. Here we are at the beginning of 2017, we are less than 20 days away from Donald Trump taking over as President of the United States. There’s been a lot of buzz, a lot of talk, chatter, excitement, frustration. People are so polarized. This is not a political show so it’s not about who’s better, who’s worse. But there are going to be changes. Trump’s presidency can and probably will impact our economy, our political landscape and ultimately, us. Us, real estate investors are going to feel those changes and the impact of it. I think the best place to start is just an overall question for you. That is this, with the Trump presidency, how do you feel that’s going to affect us as real estate investors? Is it going to be positive, negative? What do you think is going to unfold?
I think it’s going to positive. I’m pretty excited about what’s happening right now. I live in the Carolinas now, but I’m a New York real estate guy who grew up in the 80s. Donald Trump is a New York real estate guy that began his prominence in the 80s. I’ve watched his career the whole time. I’ve gotten a sense of the way that he operates. I’m enthusiastic. I’ll put it to you this way, if you pay close attention to the real estate market, the housing market in particular over a long period of time, you know that the housing market thrives on optimism. Just like the other way around, when there’s a lot of pessimists, it takes a beating. It thrives on optimism. People, whether they’re investors or home owners, when they have faith in the continued prosperity of the country, when they have faith in prosperity of other people, one of the tangible ways to play that market is to invest in the housing market.
What I’ve seen in just the last couple of weeks prior to him even taking office is this. It started with the announcement of Carrier, the air conditioning company who said they were going to keep a thousand jobs in Indiana. Then today, Ford Motor Company announced they were not going to move and build a big factory they had planned in Mexico, they were going to do it in Michigan. A several hundred billion dollar investment to expand the factory in Michigan. There’s been several announcements in between.
What it tells me is that, the way that you grease this politician is not by giving money to his campaign. Whether you like him or don’t like him, this is a very objective point of view, you don’t get on his good side, you don’t butter him up by making a donation to the campaign. You butter him up by giving him a press announcement to make. You butter him up by allowing him to get on Twitter like he did today and say, “Ford is bringing X number of jobs and they’re doing it because of me.” If you don’t like him, you might say he’s taking credit for something. If you do like him, you might say he’s getting credit for something. Either way, something just happened.
That Drumby, that device that I think he’s created here, that companies are going to create jobs and credit his policies, they’re going to create, they’re going to save jobs, they’re going to bring jobs back. Big corporations across this country, they have divisions, departments called government affairs. Government affairs usually is around lobbying and influence and trying to get close to the right people and getting your point of view represented in Congress, in the White House, etc. They’re now realizing the way to cozy up to the federal government is to create jobs, save jobs, etc. I think that if we see this continue to happen, you’ve already seen the impact on consumer confidence, it’s way higher right now. I saw some stories over the weekend when I was catching up about consumer confidence being the highest in twelve or fifteen years.
All of that stuff accrues to people’s personal confidence and it accrues to their decision to want to invest in anything, particularly real estate because it is so … We name the company Own America, Marco. I believe that owning single family real estate is the closest to way to own this country as you can get. Because you’re sheltering families, family growth, population growth. The course of the fundamentals of this country’s economy is that, family creation, household creation and shelter. I like it for that reason because I think all boats rise. I think it’s clear already the tide is rising, it is not by accident. The reasons why people are feeling good right now are tangible and are likely to continue.
Real estate is a very significant component of the overall productivity or GDP of this country. You have to almost protect and preserve the housing market in order to keep the economy of this country intact. One thing about Trump, which is interesting, and I’m politically agnostic, I don’t consider myself Republican or Democrat. What you were saying before is he’s not been paid for and bought off by corpotocracy. He is not a career politician, he’s an entrepreneur and he’s a real estate mogul. That’s refreshing for my perspective, to have someone who’s got a marketing and entrepreneurial and sales and marketing mentally in the White House.
I think it’ll be positive for real estate and for real estate investors. Time will tell. Politicians say one thing and often do something else. I think if he’s staying true to what he said, he just does 1/3 of the things that he’s talked about, I think we’ll see some significant boosts to our economy. Having said that, we’ve been looking at the economy short term and long term. He’s been talking about tax cuts and controlling government spending in the form of upgrading the nation’s infrastructure and cutting back on other things. What do you think this will lead to in terms of economic stimulus short term? Do you think it’ll boost things short term? I think it already has and he hasn’t even taken office. Where do you see the next twelve months?
That’s a great question. I’ll go back to that announcement by Ford’s CEO today. I thought it was really interesting that he made a very short statement. The key sentence that made it into most of the reports that I read was that the economic policies that they’re putting in place are making it a better environment to do business. In other words, he didn’t say, and this could just be a spin, but he didn’t say he’s bringing these or he’s canceling his plan to open a factory in Mexico because he doesn’t want to get tariffed to death. He doesn’t want to get bullied. He said that that lowering corporate taxes, investing in infrastructure, creating jobs, it’s going to become a better place to do business. Therefore, the reasons why they were leaving have been diminished.
I’m a big believer in encouraging people to take risk, encouraging, creating an environment where people feel safe enough to go out there and put their money and their sweat equity in play to try to create wealth for themselves and for their families. I haven’t loved the idea that creating wealth for yourself is actually something that people were starting to talk about as being shameful of late. I never got that. I think that people going after the brass ring, being excited and feeling like the future is bright again, is going to pay dividends. Also, you mentioned something important. This is a real estate guy. I am in the technology business. If a high tech CEO took over, I would assume, without knowing anything else, that it’s going to be good for the technology and innovation industry. This is a guy that understands the physical asset.
As an industry of investors, we still get talked about like landlords. Landlords are villains. These poor tenants didn’t pay their rent, they got evicted by the evil landlord. They didn’t pay the rent. There is a stigma associated with real estate investing that some people still think of it as something that you’re always capitalizing on somebody else’s pain. You’re buying a foreclosure so therefore there’s big karma associated with it. You’re the evil landlord pushing the rents up and all that kind of stuff. We are always concerned, I have been concerned that regulators would look to make a name for themselves by making it hard.
I’ve heard a lot of stories at the conference where you and I last saw each other. I was talking to several people that said in places in Missouri, in Chicago, there are really harsh local regulations sticking it to landlords, requiring inspections in between tenant turns, fining them, charging them fees for the inspection, just getting in their way. You think about what could be done in the federal level to make it harder to borrow, put limitations on investors. It just seems to me that it’s very unlikely that a guy like Donald Trump is going to see landlords as a blight on society.
No, not at all. Not at all.
I think he’s going to see them as people, what I believe they are. I believe that if you own rental property and people live there and they have a good experience and they’re able to stay a long time and you take good care of them, take good care of the property, you’re a hero. You’re doing the right thing. Whatever regulations we might have seen are so much less likely to ever come about with a guy like him in the front.
A large percentage of the housing stock in the US are rental properties owned by landlords and businesses and institutions. In fact is, is our philosophy is to provide safe, clean, functional housing for people. When we talk about a tenant, we think of that tenant as a customer, not just a tenant, they’re a customer. We’re providing them a service, a safe, clean, functional home to live in. In return, they’re paying us, as a customer, what is effectively rent. Most people are that way. It’s those few “slumlords” that really become that bad apple. It’s what people end up talking about. They don’t talk about the 99% of the other landlords out there that are providing good quality housing, affordable housing for people.
Greg, you mentioned two things. You mentioned tariffs and you mentioned Mexico. This is actually something that has me concerned because increased tariffs would lead to a decline in US imports and exports. Historically, that has led to recessions and job losses. When I hear job losses, I get concerned because when you look at job losses within a local economy, that is the number one red flag that indicates a potentially declining market where property values go down, the market softens. Do you foresee an increase in trade tariffs? Trump has been talking about that. Do you see an increase in trade tariff? Will he actually do that? What would the fallout be on that with real estate?
That’s a good question. I read something some time ago that struck me, somebody who was trying to explain Trump and his supporters and his detractors. She wrote that, “Trump’s detractors take him literally but not seriously. Trump’s supporters take him seriously but not literally.” Does he need to apply a 35% tariff on a factory, on a business trying to get things back in the country again, or is the threat of that already paying dividends? We’re seeing it paying dividends already with the thing we already talked about with Ford. I think that he knows or his advisors know and will make sure that he knows that you could cut your nose to spite your face here. That if you create a trade situation like that, there’s enough meat on the bone with the trade deficit, which I by the way knew nothing about until he start talking about them. There’s lots of read on the subject. It looks like we’ve been getting the royal end of the deal in a pretty big way.
There’s enough to do that doesn’t involve punishing American companies who have gone overseas. He’s not going to be punitive, I’m hoping. I don’t know. I’m hoping there’s enough good that’s going on and it’s not going to be a, it’s got to be 100%, “I have to get everybody back. I have to get every employee back from overseas.” I don’t think he can possibly have that goal in mind, but just changing the tide. I’ll give you an example. Imagine you run a company or I run a company that is not huge, 100 employees, 1000 employees. I have government contract or this government contract that I want. I have no employees that I moved overseas so there’s nobody that I can bring back. I have no plans to move them so there’s nobody I can keep in town. I could always find a company to buy and save. I could. I could find vendors. Of the five vendors that I buy this material from, this is the one that’s having the most trouble. I’m going to buy them and give them more business. I’m going to save 35 jobs. I’m going to then give that press release out there and give him credit for it.
Again, that’s this way of butter up the federal government. Companies here have lots of ways of getting in good favor. Any company, a company who’s got a factory in China or Mexico or both doesn’t have to move those people back to be able to still do things that are going to get them some leverage and some appreciation. “Don’t kill me with these tariffs, I’m going to open up a factory. I’m going to open up a line of business. I’m going to buy a competitor and save them, whatever.” There are ways to creating jobs. It’s like American workers have become a special interest group that if you do something good for American workers, that’s a chip that you can cash in to maybe get yourself out of hot water for having a factory in China. Are you following me on that?
I’m hoping there’s enough that’ll keep it so they don’t do anything stupid and actually harm the economy as they’re trying to help it.
Time will tell. I think they’re smart enough to realize the impact of putting trade tariffs in place. What was interesting to me is I watched the election on TV that night. It was slow going and dragged on and on and on. I fully anticipated the stock market, like the DOW to drop the next day. What’s interesting is it actually dropped considerable overnight, almost 900 points. I thought, “I was right.” The next morning to my shock and horror, the market was up almost 200 points or something like that. We’re seeing these amazing stock market gyrations. It’s been going on for a long time. It’s not just recently. Wall Street is cheering because they feel that there’s going to be less government regulation. At least that’s the anticipation. At the same time, they’re frowning because there’s going to be restrictive international trade policies.
My concern here is that if this all comes into play, there’s going to be even larger and more frequent market gyrations. That could do one or two things. It could take capital out of the stock market and funnel into real estate, which is what I expect it to do and what I hope it will do. Maybe the opposite is true, maybe there’s so much positive expectation and optimism in the stock market that people are still going to, like Lennings, follow along and keep pumping more and more and more capital into the stock market. What do you think will happen and what will the implications be for real estate?
I think there’s definitely potential that volatility in the stock market will cause a flight to real estate. I think this time in history right now, it is easier for people who are already committed, like your audience, to the sector to be able to do more, better lending products, more ways to buy, more ways to buy in more locations that are property management in several states away. There’s a lot of innovation that’s come about in just the last few years that’s going to enable maybe a pent up demand to flow into the asset class more. I know that there are more vehicles for people to buy into real estate now. For example, there’s a half a dozen publicly traded REITs that’s exclusively on single family homes now. You could spend 20 bucks to buy a share of a single family home portfolio. There are more ways to grease the skids to get more people to do it.
Just a few years ago, the numbers of people in surveys that believed in investing in real estate but didn’t do it were pretty enormous. The reasons why they didn’t do it is they were like, “How do I do it? Where do I get the money? I don’t know who’s going to help me.” The answers weren’t all that great. Your audience has figured this out with help of each other and people like you but not a national real estate company with offices in every town. That should’ve been. All these years it should’ve been that you’d walk into a real estate company, prominent, reputable real estate company and talk to an expert and be able to get all the help that you need but you never could.
Volatility, I’m not sure there’s going to be volatility. Maybe it’s going to be a nice steady climb. We did see, if you recall back in 2001, we were a couple years after the tax cut bubble, which freaked everybody about the stampede in nature of Wall Street and the stupidity of Wall Street sometimes to just buy into stories and then make stupid bets. Also, we had 9/11. I was running a real estate company in the suburbs of New York, pretty good size real estate company in the New York metro area when that happens. We had to double whammy, we had all these Wall Street jobs that were going away and then we had the terrorist attacks. After a couple of months of a deep freeze where nobody was moving, nobody was doing anything, the real estate boom of the early 2000s kicked off. We immediately felt that it was a flight to tangible. Get me away from Wall Street. It had the added benefit, it was home ownership that was surging at that time. That’s the way people understood how you put your money in real estate. It was a flight to family, a flight to backyard barbecues and the things that are important in life, but also a flight away from putting your money in somebody else’s hands.
What the beauty of this asset class is the duality of it. If the economy booms, your prices are going to go up, your values are going to go up, your rents, if you buy early in this trend, your rents will grow also. If you’re buying later in the trends, your rents may not have capped up and so your yields might get compressed. But you win. You win on the value of the property. If we’re all wrong and everything goes the wrong direction and Trump puts 50% tariffs on every product coming into the US and the economy hits the skids, then rental household creation’s going to through the roof. We win again. The dual nature of a house, is it an owner occupied home thereby driven by equity growth or is it a rental that may otherwise be driven by rental growth? We get it on both sides. I think people are going to see that the more transparency and the more professional our industry gets at sharing the truth of how the housing market performs, the more it’s going to make sense to more people. They will move capital into it.
I think we stand to gain regardless of what happens because there’s been such a shortage of supply for many years now that the demand for it has pent up. We’re starting to see, especially in the tier one cities, a lot of construction. Hopefully, it’s not over construction. I think builders need to catch up to the delayed and growing demand that has been going over the years. Everything you said was correct. I will add one more thing to it. In the 2000s, a lot of the so called “investors” we’re really nothing more than speculators because interest rates and credit was free flowing. A lot of people were actually buying property with the intention of flipping it or selling it in a very short period of time, that was like in one to two years and then just taking a capital gain. They didn’t really want to keep it for the sake of cash flow.
They weren’t improving any of it, they were just riding the wave up. People remember the housing bubble. It’s important to know that in 2002 and 3 and 4 and 5, there was genuine housing boom driven by optimism and inflamed by crazy lending practices. It ended up flaming out. But it started out as something real. That realness was people’s desire to own more housing in the US.
That’s good point. Before we got started recording here, we just briefly mentioned the Dodd-Frank Bill. The issue I have with Dodd-Frank is the regulatory burden that it brings on. If we take some of that away, we give smaller banks the opportunity to put out more loans and boost building activity, which is still somewhat tight today. Credit is flowing but it’s not like it used to be. What is your feeling about Dodd-Frank? What do you think will happen with it? How’s that going to affect us going forward?
It sounds like there are already bills that the Congress has passed and put in front of the White House over the last several years. They’ve been very active in the Republican Congress passing bills that went nowhere. What I’ve been seeing and again reading is that their backlogs, and they’re not going back to the drawing board, they’ve already vetted these things, they’ve already crunched the numbers and they’re going to put them … They’re jostling now to figure out which ones of these literally I think hundreds of bills that have been passed throughout that stack of bills is pulling elements out of Dodd-Frank. There’s also repealing it all together. Pulling elements out of Dodd-Frank that are getting in the way. I know people in the mortgage business, a lot of them. The amount of energy and cost they had to incur. You don’t see any discernible benefit.
When the borrower’s paperwork goes from a quarter inch thick to two inches thick, I don’t see who benefits from that. They’re not reading it. I do think that Ben Carson in charge HUD is going to be interesting. He has no experience in housing, he has experience in inter cities and in education and of course in medical. I’m hoping that the FHA is going to go back to what it used to be. The original subprime, low down payment, questionable credit. The original subprime was FHA and then subprime became part of the for profit mortgage industry. I’m hoping that, I’m seeing signs that the FHA is going to be active and aggressive again. I guess that’s good because it is government insured.
As long as it’s not regular mortgage banking entities and Fannie Mae Freddie Mac that are doing it, it’s a government insured entity that’s doing it so it’s got a place. What I hope they don’t do, what I pray they don’t do is say, “We need to get home ownership up again. The only we can think of is to make lending easier, make borrower easier.” Hopefully, they won’t do that. That’s where the dotted line back to Trump as a real estate guy, you have to believe he understands that that’s a stupid idea.
I think everybody agrees with that. That’s actually one of the things I wanted to ask you. Depending on what kind of credit, but credit has been still relatively tight for mortgages. Do you see that loosening up? You can only loosen it up so much until you get back to levels of stupidity.
You know what, I was a loan officer in the early 1990s. That was my first job. I look at the underwriting standards now and even when they were tighter just a couple of years ago. It is like it was back then. You have to have a job and prove it. You have to make enough income that a third of your income goes towards your debts and no more than that. You have to have a down payment and demonstrate that you can save up a down payment. You have to have been paying your bills on time. If any of those three things are weak, the other two have to be strong. That’s the way it always used to be.
They put all this emphasis on credit scoring but the way it used to be when underwriters manually underwrote files, if your job is good and your income qualifies you well but you have a lousy little tiny down payment, we got a program for you if your credit’s okay. If your credit’s not so good, put down 30%. If you can’t prove your income, put down 30%. That’s where we are right now. The 90s were a reasonably healthy real estate market. I don’t feel like it needs to get a lot looser. I think if people’s job situation improve, if their income grows and if their confidence grows, if they take an extra two years to get mortgageable under today’s guidelines, I’m personally okay with that.
It comes down to affordability and qualification. Can you afford or do you have the income to afford it? Credit, you can have a very high credit score and have no income. If you’re getting a mortgage, that’s a mistake. We can’t have those ninja loans anymore. Ninja, for those people who don’t know what it is, it’s no income, no asset, no job. Back in 2006, 2005, we were giving out tons of ninja loans. Not us, but mortgage brokers. That doesn’t work. You talked about government sponsored entities. Fannie Mae Freddie Mac. They made so many bad decisions in the past, buying up subprime mortgages. They just became a floating a time bomb. I don’t know what the future is of these government sponsored entities, but do you think they’ll survive?
Again, I hate to want to go back to the past but if they operate the way they did back in the 90s and in the very, very early 2000s, they were good. What they did is they gave rise to the mortgage banking industry. They allowed an entire industry of lenders to go out there with this pretty standardized product and compete for the borrowers and make money easily accessible. But they were the gatekeepers. There was always this knowledge that there’s a loan officer in the front who wants to sell the loan, there’s a realtor who wants to sell the house, there’s a borrower who wants to buy the house and get the money, but there’s a guy in the back office who doesn’t care about any of that. He’s the underwriter, he’s the nerd who controls, or she, who controls the purse strings and he or she is not corruptible.
I was in the mortgage business in the 2000s also when all these lending standards were getting thinned out. I remember saying out loud, “Wow, this credit scoring thing is amazing that they can basically throw everything else away. As long as you hit a certain number …” I was going on the false belief that they knew what the heck they were doing, but they had actually done all this, that it wasn’t just a drive to put as much capital out as humanly possible. I like that those entities exist so that there can be a robust … It isn’t just community banks figuring out what they want to loan and when. There’s pretty much an endless supply of mortgage money so long as the people responsible know that they have to make loans, that the appropriate percentage of them are going to get paid back on time.
There’s too much faith in the FICO score. That creates problems. Last Trump presidency question I’m going to ask you here and then we’ll wrap up with you is about tax reform. There always has been a lot of talk about simplifying the tax code. You could trim mortgage interest deductions and reduce property tax deductions or cut exemptions on capital gains from the sale of a property or your principal residence. I don’t know if that’s good or bad. Do you expect tax reform? Will that be a positive thing for us as real estate investors?
I think so. I do expect it. He’s saying he’s going to do it. They’re all saying they’re going to do it. Simplification is good, reducing them across the board has been shown to be good. I know there’s a lot of people out there who say that they look at it as if you’re cutting taxes, you’re somehow spending money without the realization. There is so much pent up entrepreneurship. There’s so much pent up growth in businesses who have been keeping their powder dry. Some of the same people who lament the tax breaks are just gifts for the rich are the same people who then get mad when the rich hoard their money. It’s like they’re doing that because of the uncertainty and you’ve got crosshairs on their back and they’re basically, they have the ability to hoard the money. The corporations do, the people do. The combination of deregulation and tax cuts, we’ve seen it in the past, it’s worked in the past. I’ll give you another example of that.
People remember the bust of 2008. I remember the fear of 2001 and 2. We didn’t know what was going to happen after 9/11. Again, shortly after tax cut. We didn’t know it was going to happen. I think that the government doesn’t get enough credit, the policies of the early 2000s don’t get enough credit for helping us pull out of that. There’s an amazing thing that we had, an economic boom three years after or two years after 9/11, we had an economic boom and nobody knew if anyone was going to leave their house again in 2001. They let it go too far. They fanned it and fanned it and fanned it until it bubbled up, until everything went sour. That you could say also happened in the 1980s. Reagan came in, large tax cuts, deregulation, economic boom, but then everybody gets addicted to the economic boom, they don’t put the brakes on when they should. We had a correction in the late 80s and we had a little stagnation there at the turn of the decade. I’d like to see us remember that second part of the lesson. Let’s do the tax cuts, let’s do the deregulation, let’s let things get really hot, but then let’s cool them down, let’s do whatever has to be done to make sure that we don’t flame out again and go through one of these ten year cycles where it booms and then busts again. I’m optimistic about that as well.
I think we need to have more of a free market where we’re not jimmying the market up and down with all these different levers, because the market is self-healing and self-correcting but we’re not allowing it to do that. That’s my belief. I don’t know where you stand on that.
We’re on the same page with that.
I’m optimistic about what’s to come this year with a Trump administration. I guess, maybe we’ll get back together here in a year from now and see what predictions have come true. Let’s wrap up here. We started talking about it before but just to wrap up with you, you had changed your business model from working with the institutional investors, what you call the big ten, to more of the larger entrepreneurial single family residential type of investors. Why did you do that? Where’s that going to take you?
Thanks for asking. We were hip deep in that institutional trend and we had nine of those ten companies had been clients of ours throughout this process. We had to create some things for them and with them and with other partners and other vendors in the space that are good for everybody who’s investing in real estate. They’re really good. Its clarity, its data, its professional management techniques, its technology, professional management systems. These things have been invented on the fly. Many of us, we’re definitely one of them, there’s another dozen companies I can name that have taken their institutional product set and skillset and repackaged it for every investor in the space.
Our product OwnAmerica.com is investment management technology. We allow owners of a portfolio of one rental home to as many as they have to open a free account, enter that property address in or upload a spreadsheet. We take in all that data on price appreciation and the yields calculators and projections and maps and pictures and employment growth and population growth and migration growth and all those things and packaged it in what we call the portfolio visualizer, which allows you to, for free, track the value and test assumptions and change the calculators and see the way the future projections change based on those assumptions.
Periodically, we send you updates on the valuation changes that our data suggests and we give you the opportunity to then to say, “Hey, I want to sell some of this or I want to buy more like this.” We’re matching up owners. Owners of portfolios have the opportunity to be introduced to each other to create a private marketplace so that if you did want to sell your portfolio, you’d be able to do it without advertising it on Zillow so your tenants won’t find out until you’re actually in contract and making the sale. It’s a way to make smarter decisions, to see your portfolio in a more clear way than maybe you had before, with the benefit of some institutional quality data and technology and then a marketplace to buy and sell property.
Cool. I didn’t know you had that. You told me about it today and I went to your website and I think I need to play around with it. If anybody listening wants to go check it out, it’s OwnAmerica.com.
Great. Greg, I appreciate you coming on. You’re a wealth of information. Is there anything else that I should’ve asked you that I didn’t?
No. This was great. I really appreciate it, Marco. I think that what you do by putting your effort into trying to bring content to the audience, these are people that I have a big heart for. I consider real estate investors to be neglected by the industries of real estate. If it weren’t for people like you, they’d be really alone in the universe. I’m really happy that you do what you do and I’m really happy that I know you protect this audience very closely. It’s a compliment that you let me come on board and talk with them.
Thank you. I appreciate that. As far as people reaching out to you, is your website the best way to get a hold of you or your team?
Yeah, you can email me at [email protected] or go to the website. We’re right there.
We’ll put that in the show notes as well. Greg, thank you for being on the show. As a reminder to our audience, his book is Crash Boom. It’s a great book on Amazon. If you can pick it up, grab it, read it, it’s a good read. Thanks for being on the show, Greg.
Thanks. It was a lot of fun.
All right. Thanks.
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