The REAL Reason Why We Are Having Housing SHORTAGE!

Many inhabitants have spoken of the housing shortage that is going on in the U.S.

In this video, I am going to be going over the real reason why we are having a housing shortage.

Transcripts:

Richard Drake  00:00

You sell a house, you create ordinary income. If you hold a house and you rent it, you lose money, right on piper. And if you can sell just enough to survive and do this while you’re young or younger, because that’s not me, you know, heck, you look up and you got generational wealth.

Jamie Bounds  00:16

Hi, Richard.

Richard Drake  00:17

What’s up, guys?

Jamie Bounds  00:18

Thanks for joining us. Those of you on our audience who don’t know who Richard Drake is, let me just give a little background. Richard is a former naval officer and the CEO of Renter’s Warehouse Houston, which is the most successful renters warehouse franchise in the nation. He is also owner of the oldest home investors franchise and has flipped over 1500 houses. Thank you so much for joining us.

Chris Bounds  00:43

I was reading your bio. You know, I knew your investors guy. Definitely know your success with renter’s warehouse, y’all kind of came out of nowhere, at least from my observation. And then now you’re like this behemoth, one of the best ones the entire nation, right?  Like you, you’ve said, you’ve set a lot of new records.

Richard Drake  01:02

Yeah, we’re doing a lot of business.

Chris Bounds  01:05

So, from both an investor standpoint, and also the services standpoint, with your property management company, you definitely have a very strong pulse on the market, active and then just operationally, what are you seeing the real estate market looking like in 2022?

Richard Drake  01:23

Well, I’ll echo what Ray just got through saying I don’t think there’s much of a chance in the next decade or longer, that we can catch up with a supply shortage. The regulatory environment right now, it’s so tough and it’s not gonna get any better, right? It’s just gonna get your more strict, more over reaching, right?

Chris Bounds  01:44

You think we may have a decade of that?

Richard Drake  01:47

Well, here’s what I’ll say. I’m not necessarily saying that we’re gonna see 20% appreciation every year, right? That’s not normal and goes crazy.

Chris Bounds  01:56

And eventually you start, you hit that affordability problem.

Richard Drake  02:00

Correct. So, what happened- Exactly. However, the demand for housing is outpacing the delivery of new properties every year and has for years and decades already. The fact that development is more difficult, more regulations, you know, environmental this, drainage that, cost here, costs there, no one wants to build, for instance, no one wants to build a C Class apartment.

They’re not gonna do it. It’s not affordable. It’s not you can’t build a C Class apartment from the ground up and make money. You have to build a class, right? There’s a huge opportunity I think in there, where people are buying and holding these new older apartments that, you know, they can, they can make a significant return. Because that inventory is in higher and higher demand, because of the affordability of single families even more, more demand for the apartment, right?

Higher and higher demand and the inventory is going down because they’re eventually getting demolished or converted to something else, or what have you. And it’s a perfect storm for that little niche. The second part is the same, you know, 250 and below houses. I don’t see any scenario where they don’t appreciate significantly for 10 years plus.

Chris Bounds  03:27

That’s why I is…- I had an eviction before the show. And this is one where we’ve already done an eviction on that house before. It’s in the path of progress. But when you look at the Math, no sound Jamie was like every year just from our single family rentals, excluding the multifamily. We gain a 100 grand in equity a year based on a normal scenario, not COVID-crazy appreciation scenarios. It just makes it so hard for landlords to wanna give that up because what’s my opportunity cost? I’m like…

Richard Drake  04:00

Yeah, it’s an interesting time. You know, I did an interview for for investors corporate because they have their 25th anniversary, right? And one of the things I said was, “If you could go back and be yourself on day one of being an investor, what would you do?” It was the easiest answer I’ve ever had hold as much as I could. Because if I look back at all those houses that are flipped, right? Hundreds and hundreds of houses that I sold for 150 that are six or $700,000 houses

Chris Bounds  04:31

$50 a square foot six houses.

Richard Drake  04:34

And I was in I thought I was killing it. For instance, you know, everybody knows South Park, right? I would buy houses over there for 7000, 10,000, 12,000 and sell them for 59 nine and people thought we were ripping people off at 59 nine, that’s too high. I can’t believe you’re selling for that much. 59 nine, you can buy wholesale deal for 75, 80 grand anymore over there.

Chris Bounds  04:58

Yeah, right. Yeah, that’s it. Yeah, that’s that’s what that’s what the lights go for now.

Richard Drake  05:02

And I still hold a lot of property over there because they do great. But if I’ll looked at, you know, when you sell a house you create, in current income, ordinary income, there’s a lot of people say, “Well, selling real estate is capital gains”. Not if it’s your business. If it’s your business, that’s your business for your real estate professional. It’s ordinary income to you. You can sell a house, you create ordinary income, if you hold a house and you’re in it, you lose money, right on piper. And if you can sell just enough to survive, and do this while you’re young or younger, because that’s not me. You know, heck, you look up and you got generational wealth that you’ve built.

Chris Bounds  05:44

Yeah, that’s a very, very good point there. Jamie, and I started realizing that like, “Hey, we’re making 20, 30, 40 on these flips. But these are the rentals that we held for five years?” Like, every time we sold one, we made a 100, 120. We- And in tax situations difference, not ordinary income, it’s long term capital gains, which there are ways to even defer that. But we call it a slow flip strategy.

If you want to flip houses, flip houses. Just do it over a 3, 5, 7 year timeline. And then if you can get enough in that Hopper, to feed yourself, you got to feed yourself in the meantime, whether it’s a W two job or you’re doing, you know, you’re flipping a couple holding one flipping a couple of homes, then in five years, you just want to sell off the worst one the biggest headache.

You got $100, you got 100 grand payday, 120 grand payday, 150 grand payday, and then you if you really want to accelerate it, you take that 150 grand, and you don’t use it to go buy a Range Rover and go out and buy three more properties.

Richard Drake  06:48

Well, that’s all pretty neat deal is this guy was talking about. Let’s think 15 and 15. Have you heard that phrase?

Chris Bounds  06:54

No, no.

Richard Drake  06:56

What you do is you bought 15 houses over 15 years. And you could do one a year, you could do 10 a year. But does this use the example of one a year. You buy a house every year, you rent it out, put it on a 15 year end, at the end of the 15th year, now you have 15 houses, right? And one house pays off, right? Now, you’re not gonna make any money off of these things with a 15 year end, right?

You’re just not make a whole lot of cash flow. Because the accelerated pay back. But if you look at that, if you can do that in some multiple of this, let’s say they’re $150,000 houses. Well, in 15 years, how much is that $150,000 house worth? Let’s call it 300. Now, at the end of 15 years, you don’t sell that house, you refi it. You get $240,000 out, or 200,000 let’s say, let’s just be conservative, you only get 60% LTV, you get 200 out per house.

Let’s say you did five years so that’d be a million, right? If you did five and that’s not income, that’s debt. Now every year you get a million dollars if you did five a year for 15 years you get ish million dollars a year and new debt but not income every year tax free time maybe maybe you did five a year and now you’re gonna refi three of them or four of them and you just cash flow the other kid, right?

But the other part of that over these years all you’ve done is depreciate them and lose money on piper so you’ve never paid income tax on all this all these years and 15 years down the road you have all of these houses where you can either let them all pay off if you don’t need the money and then just keep the rent you may be bringing in $30,000 a month for all you know by that, right? Or you can write you know go get a new loan and cash out and buy rent. You’re not- you don’t wanna do? 

Chris Bounds  09:01

I love it. Yeah, I’ve been this is kind of a trick question but maybe not especially not for you. Like how many properties does it really take to be a real estate millionaire? And then I’ll let ya I was like in most markets you can do it in like two or three. But five everywhere will do it. You just have to let your tenants pay off the mortgage. $200 a month, $100 a month, five even $500 a month you know you’re not gonna retire off of that but you will retire of mortgage paid off, you got a few of these, now you got a million plus in addition to whatever else you had in your 401k Roth and all this other stuff.

Richard Drake  09:42

Sitting there watching all my tech stocks go up and down and up and down and up and down.

Chris Bounds  09:49

Probably your Bitcoin. I don’t know if you’re in crypto, but…

Richard Drake  09:52

Yeah, bitcoin is doing all right. I have more theorem than bitcoins done, dude.

Chris Bounds  09:56

Yeah, I really I really like eath. Real state market back to that in 2022. For investors who are looking to get in, you know that there has been that. Well, we talked on the frustrate, you know, the whole, “Hey, I should wait”. Let’s go a different direction. There are those who they’re getting frustrated because of the unique circumstances of this market, highly competitive due to low supply. What advice do you have for those, those investors that do wanna get in? They don’t believe the markets gonna crash tomorrow. They’re just getting a little fresh.

Richard Drake  10:35

Yeah, and you got to remember, you know, 20, some odd years ago, when we started buying houses, there was no competition. So we could buy 20 houses a month easily, I say easily. It’s a lot of work, right? But we could, we could source 20 deals a month, without a whole heck of a lot of advertising or effort. Nowadays is not a thing. It’s highly competitive, very sophisticated players out there, you’ve got private equity competing, and overpaying, which is fine, they’ll fail.

So, but what you can do and do very successfully, and we’ve done this 50 times in the last few years, just buy from wholesalers. I mean, there’s still some meat on the bone, you don’t have to steal a house, to rent it out and make decent money. And in the long run, build a whole heck of a lot of wealth and not have to build this whole advertising and buying machine, right?

You don’t need all that infrastructure. If you just pay the wholesaler, a couple bucks to find the deals, let them make a couple bucks, you may pay a little bit more than you would have. But by the time you figure out all your overhead for having a buying machine, and it might not be that far off.

Chris Bounds  11:45

Yet at the end of the day, the wholesaler you’re outsourcing operations, specifically marketing and sales, like do you want to go out and if you have a full time job, it’s going to be very difficult in this market. I mean, it’s difficult in general, in this markets can be extra difficult. So,you’re saying, “Hey, go out and find those really reputable wholesalers in your market and get to know them. Get on their list, talk to them”. And it’s just a good way to do it without having to do all the monkey business.

Richard Drake  12:13

Honestly. And honestly, if you perform for a wholesaler a couple times, they’ll put you at the top of the list. I mean, they are very Yeah, they’re very short sighted a lot of times where they’ll take less from us sure deal then try to put it out and get more because they’re not sure that deal is gonna happen.

And you know, as a short sighted and and also may be just a little risk averse, because maybe they’ve got a contract that if they don’t close or they may lose that deal, where they’re gonna go for the sure 5000 bucks that try to make 15 and not get anything.

Chris Bounds  12:45

Absolutely, absolutely. And I guess word of caution for the investors want to work with wholesalers vet the wholesaler to like they’re definitely gonna vet you. But you need to vet them to, get references. Don’t just go handing out cash to people you don’t know.

Richard Drake  13:01

I’ve always loved the whole $3,000 non refundable saying I sound well, “Hey, I’m not doing that”. If you wanna, if you wanna make a deal we can, I’ll put some money at the title company right handed you $3,000. And I don’t even know if you have clear title. I’ve never understood that whole model. Now, here’s a guy I’ve done 30 deals with, whatever, but for the most part, it’s gonna the title company that is money.  No this non refundable. This you know, I promise if we don’t get clear title, I’ll just give it back.

Chris Bounds  13:25

Yeah, absolutely.  Yeah, man, we were those contracts that have automatic extensions. Alright, how can folks reach out to you?

Richard Drake  13:40

rich@renter’s warehouse.com We’re @renter’swarehouse.com. Check us out on the web, we got plenty of plenty of data there to check out. One of the things we do that I think is pretty cool is we can analyze rental property for you. We have a, we have a marketplace. So if you go to investor, investor resources or investor marketplace on our website, we have portfolios for sale, we can help you sell portfolios, we help you buy portfolios, but it’s a pretty neat little deal where you can kinda’,  it’s industrial level analytics for free and then you can go in there and look at you know, yield overtime you can look at all. All you could put in all the variables you want and analyze a property they’re all.

Chris Bounds  14:27

When I recommend property management companies there’s totally, look they’re gonna be able to let you know all this little all the stuff that you don’t know about rent rates and areas and all that stuff like that’s for your property management company comes in place and…

Richard Drake  14:41

Yeah, and honestly, our agents you know, we have realtors workforce and they’ve been trained to be kind of you know, investor friendly, right? They don’t- they’re not your typical in the no offense to Keller Williams or whoever, but those realtors wanna talk to a mom and pop that have $800,000 house for sale.

They want to be the listing agent. They don’t know what cash on-cash return is. They don’t understand, you know, capital reserved for rentals or maintenance reserves, they don’t understand how much it’s gonna be ours talk that language and they can really look at it and say, “Well, this looks like a great deal”.

And they go, don’t forget, look at the HOA on this house is $800 a year. The tax rate, it’s a mud, it’s too high. And you got to put some money aside for the AC and the roof because the roofs eight years old and they seem 12 years old, right? So, our guys will talk you out of a deal if that’s the right thing to do, right?

Jamie Bounds  15:34

That’s a great, great tool to have, because that’s really the number one question we get, like, how do you analyze if this is a good rental or not? And that’s an awesome tool that go, y’all provide…

Richard Drake  15:45

Go ahead, Jamie. Sorry.

Jamie Bounds  15:46

Oh, it’s sent.

Richard Drake  15:46

No, you also like to look at, like I said, tax,right? You got to look at is it Galveston County? Is it windstorm area? Or now you got extra insurance? Or do you have flood insurance, right? So, all those things add up to an effect on your yield and our realtors know how to look at that versus the realtor that knows- Well that’s a you know, so and so backsplash and this Thermador refrigerator, don’t you let it? Where you want to sign out? That’s all they know, right?

Jamie Bounds  16:15

Right. Well, yeah, that is a great tool to have and everything you said a lot of the things you stated really resonated with Chris and I especially the part about hold more properties. So, if you’re listening and you’re getting anything out of this today, hold more properties. Because that is one thing should have, coulda, woulda, which we did. We’re doing it now, you know, with all those flips that we’ve done. Thank you so much for joining us. It was great having you on.