Rob Hahn is a thought leader in the property management industry and he joins Brad Larsen to discuss predictions and outlooks for 2022. Rob spoke at the 2021 Property Management Mastermind Conference, and as the 2022 conference approaches, many are curious to learn about what Rob Hahn sees for the future of property management in this year and beyond.
Rob Hahn is the founder of 7DSassociates, based out of Las Vegas, NV.
Learn more about Rob and his work at their website here!
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Brad Larsen: Welcome everybody to another edition of the Property Manager Mastermind podcast. I'm your host, Brad Larsen and today's guest. This is going to be a second iteration of Mr. Rob Haan coming at us, and he has just been a fascinating guy, and I really am going to enjoy this conversation that we're going to have here. And it's just what it is. It's going to be a conversation. This is this is us talking about outlandish things that could have happened or didn't happen or might happen. And I've got to give tribute to Scott Brady. He's the one who introduced me to him. I did have Rob speak at the property manager on Mastermind Conference in Twenty Twenty One there in Grapevine. We got the lineup set for twenty twenty two. Rob, I'm thinking I'm going to have to sneak you in the following year to see what other cool stuff you can get in. But I wanted to keep as you speak English today, I wanted to pick up the conversation about your predictions because that was the coolest thing I thought. I saw some things that I'm still talking about in there, just as some of my peers. It's like, Oh, Rob made these seven predictions for twenty twenty two because this ties into me every year doing a goals podcast prediction. I do written goals for myself every year like a nerd, and I get on this podcast and I talk about my wins and losses from the previous year and my goals for twenty twenty two. And it just started to talk through that because we hear we are in late December of twenty one. It'll be New Year's next week and I think it's a good time to have this conversation. So I want to give you a few minutes, Rob, to introduce yourself a little bit and then just jump right into this conversation and have some fun with
Rob Hahn: It, right? Thank you, Brad. And it's wonderful to be back because I really enjoyed our first time and definitely agree with you on the shout out to Scott Brady, who I named as one of my seven most interesting people in real estate as well. So and I really do appreciate Scott for connecting us because the conversation we had last time was really, really fun. And I got to tell you, I mean, I know I went and spoke at PM Khan about some of the big trends, but I feel like I took away a lot as well. And my only regret is, if you remember, I was really sick that day, you know, I thought I had COVID that whole thing, so I couldn't spend as much time with you and the other people. Hopefully that's something we can address. We can correct in twenty twenty two and you'll be in my hometown of Las Vegas.
Brad Larsen: Yeah, you definitely have to come by. Definitely by the conference. A little bit. Yeah, we'll have you as an honorary guest if you want to again.
Rob Hahn: Sure. If you want to sneak me into a prison, take that would be easy. It'll be a lot easier than me having to fly anywhere. So that would be something we take offline. And also, you know what? I got to tell you, man, what you just told me is probably the best thing I've heard all year, but somebody actually reads my dumb predictions and then, you know, it actually does what it's meant to do, which is, you know, it's like, I make these predictions and we talk about it before the show a little bit. I'm not trying to be correct anymore. I did that earlier. You know, when I first started, I want to be right now. I realized the real purpose behind these things is to stimulate thought. So the fact that you're you're actually telling me that this is informing your, your real life business plans that made my day. So thank you for that welcome.
Brad Larsen: So I'm going to try to paraphrase what you've been doing and correct me if I'm wrong. But you've been making predictions for a number of years, correct? And on the funny side of that, you'd keep the actual batting. That's right. You know, you're batting three, eighty five or whatever. You know, you make eight or 10 predictions and you know, only so many of them come come true. But historically, they'd gone down each year because I think you are trying to really put out some interesting thought process. And so how long have you been doing these predictions now?
Rob Hahn: I want to say 11 years. You know, I'm actually going to try and pull up. The grading I think I've been doing at 11 years and some years, I went, oh, four over seven. And like last year, I think I went three and a half for seven, which is, you know, Hall of Fame type numbers, right?
Brad Larsen: So yeah, a lot of those are pretty interesting. I was reading through last year's yeah. So just to give folks some perspective of what we're going to talk about for the twenty two predictions. Give me one or two that you are really proud of in twenty twenty one. So it kind of sets the stage what we want to chat on.
Rob Hahn: All right. So by the way, twenty twenty I went over seven, twenty nineteen. I went to four seven last year. I went three and a half for seven, like I'd say, you know, in terms of proud of. So this is what I mean. So for example, one of the things I talked about last year was how the multiple listing service systems will run away from any air that was wrong. It was incorrect. But the reason why I'm proud of it is, is that I was starting to talk about how, you know, sort of the disruptions coming from the Department of Justice or the FTC are going to make local MLS leadership rightfully. Look at the relationship with NPR and say, Do we want to be within the blast radius when this when the government drops the bomb? Again, it didn't happen. But I do know for a fact because I do consulting in that space is there talking about it? You know, they're thinking about it, local leaders, MLS CEOs, or at least having conversations about, do we want to be so closely linked to any? Given that the federal government is coming after them is that's an example of one where when I did the prediction, it was just to stimulate thought as to what happens when, when something like this is coming down the pike.
Rob Hahn: People are rational, people are self-interested. They're going to look at, you know, what's what's the best course of action for me? So that's an example of twenty twenty one. Another one that I think I'm a little bit proud of and I don't know. I won't know until sometime next year whether I was correct or not. I said I was correct, which was the first time homebuyer. Numbers were collapse, but the housing market would boom, right? So I wrote that at the end of twenty twenty. And I think what we've seen as the housing market has in fact boomed in twenty twenty one, I think based on anecdotal evidence from friends of mine who are actually, you know, real estate brokers and agents on the ground, the first time homebuyers has collapsed, you know that they're just not able to afford it anymore. Now we won't know for the full year until we see data come out sometime early next year. But that's another example of getting people to think about why it's not about whether the prediction is correct or not. But why would we think the first time homebuyer numbers will collapse? But the housing market will still be strong, and it has to do with inflation and money printing?
Brad Larsen: Interesting conversation there because to give people the cliff notes version of what's going on with this lawsuit type stuff against National Association of Realtors NCR is they're basically claiming some antitrust is going on. That's right, they're attacking the six seven percent error quote standard in quote commission, and they're really trying to make that go away because honestly, we're seeing the numbers of these commissions are just just crazy high anymore. And you made a very good article about why these commissions are outlandish because of technology that's not used to what used to take. You mentioned in your article where somebody would fly to a commercial client in a jet to get one signature and wet ink. Now they do it electronically from their mobile phone in 10 seconds. So technology has changed the way people are doing business to to include buying and selling homes, which is much easier. So it brings into the the realm of OK, why is everybody still paying this outlandish high commission for something people are doing in a fraction of the time and effort? And so that's that's the Cliff Notes version. I probably left out a bunch of things. No, you're exactly right. But we do want I want to hear your spin on that as, OK, what does all that mean if a government comes down and says, OK, we're stopping all this? What does that mean for the for the real estate market? Go ahead?
Rob Hahn: Yeah, yeah. So that's actually one of my predictions, right, is that I actually think the prediction is that the FTC will hand down a major ruling next year again guaranteed to be wrong or your money back. But unless you're an actual subscriber, in which case no money back. But you know, my thought on that was the Department of Justice moved on, and it's now in the Federal Trade Commission. The policymakers fact is, it's very clear over the last few years that they think commissions are just too high. So they will come in and do something about that. I don't think they're going to do anything about that next year. I'm actually thinking that's more like twenty twenty three, maybe twenty twenty four time time frame. But from a business standpoint means you've got to start preparing for it, right? What's underlying it? And that's kind of what we are addressing. Some of the things I've been really investigating and thinking about is the impact of technology and. There is a guy so I can't really claim originality to this, but there's a there's a guy out there named Jeff Booth, who wrote a book called Price of Tomorrow, one of the most important books I think I read in Twenty Twenty One. So I highly encourage everyone to go pick up a copy, or at least at least Google his name and, you know, find some YouTube videos where he talks about it.
Rob Hahn: His point is very simple which the technology is deflationary, meaning technology tends to make everything cheaper, which is true. I mean, it's just true. You know, back when I was right, using typewriters, you know, because I actually am old enough where I remember using typewriters. You have to use paper and use, you know, the ribbons and you know, those types of things that cost money versus using a word processor where you don't have those costs. It's the signature thing is another good example, but across the board, if you just look at our lives, everything is cheaper, right? And the point that he likes to make is, you know, there was a time and again I'm Gen X, so I was alive. I was very much like a grown up looking at, I have to go buy a radio, I have to go buy a phone, I have to go buy a, you know, a phone message recorder. I mean, there are all these devices out to buy that are all consolidated now in this thing, and it's for free. Right? Like, excuse me, I think the fact that I'm Gen X, I can still show that by saying I still have one of these. Right?
Brad Larsen: One of your articles you had list a picture from a RadioShack. Yeah, and there was what there was six or eight or 10 different devices. And a total of that in today's dollars was like five thousand or today's dollars. That's right, all that is now in our mobile phone. That's for free, for free and even free, right?
Rob Hahn: You buy the phone and then you get you get all this stuff for free. And then when you think about it, if I were going to go down to Walmart right now and get one of those, you know, pay minute prepaid phone plans, they give me a phone like the phone itself is free. So. So the point that Jeff makes is is just profound, which is a technology is deflationary. The second point that he makes is technology is growing at an exponential rate. And the problem that we all have because we're all human beings is the human mind is very, very we are not real able to grasp exponential growth, right? And it's illustrated by that classic chessboard story. So the real quick the story is whoever invented chess, the king is really pleased that, OK, I'll give you whatever you want, he says. Give me one grain of rice, the first square and then two grains and double it every square. Right? King looks a chessboard. I said, Sure, no problem until his minister comes and says by like the 15th square, that's more rice than we have in the entire kingdom. Right, and it's one of those things that we find it very hard to even grasp or imagine, right? And yet that is what's happening with technology. And, you know, when we think about kind of our daily lives, you know, the pace of change that people talk about, you know, yeah, it's just faster and faster. You know, I remember like, OK to go from again, say, typewriter to word processor. It took a few years, and I feel like I had a time to adjust to that whole thing. Recently, I realized, you know what, I just gotten used to using Facebook and Twitter when everything moved to Instagram. So I started dabbling Instagram, and all of sudden, everyone's on Tik Tok. So I feel like by the time I get used to any of these things, it'll be the next whatever thing the metaverse, you know, so the pace of change is just exponential. And I think it's called change.
Brad Larsen: Let's change. Let's relate this to kind of what we do in our industry and how it relates to real estate and property management is. Ok, so let's say the FTC comes down and makes a big ruling and then all of a sudden wipe out buyer's agency because the commissions that needed to be paid, because the all of the different factors you have, the MLRS you have, you can't you can't put homes on a multiple listing service unless you advertise a certain rate. Otherwise you get blackballed. Yeah. I mean, just all these outside peer pressures that are going on to keep this facade of an industry propped up when this does collapse, what does that mean for property management? What does that mean for property managers? What do you think?
Rob Hahn: So this is one of the reasons why I said I named Scott Brady as my one of my seven most interesting because this is one of the things I really took away from TMZ.com. Basically, fundamentally, I think property managers becomes far more important. That is today far more important. And the reason why I named him is I don't know if real estate brokerages, as we understand them today, could survive without having whether it's an alliance with a property management company or a property management division, there has to be much more of a horizontal linkage. And it's something I talked about at JPMorgan. The interesting thing is that the two sub industries have dramatically different skill sets like property managers, as I've learned as well. Y'all are far more like operationally focused. You guys are really good at like getting things done. Detail oriented, right? As Scott likes to call it, it's all about turning nickels and dimes, whereas real estate is much more relationship driven. You know, it's six seven years of doing sphere of influence marketing until that big payday for thirty thousand dollars or what have you. And it's a real difficult thing if you can bridge those two things is where I think the sort of next generation next future is. But it's not just that the FTC is going to come in and smash the commissions that's going to make property managers more important. The other part, quite frankly, is the fact that I don't I don't know that we're going to be home ownership society going into the next decade, which then people have to live somewhere.
Rob Hahn: And if you just look at some of the home buying, you know, home purchase trends, and I know a lot of folks are going to hear that and go, You're crazy, Rob, you're you know, you're being a chicken little that's never going to happen. American Dream is alive and well. Yes, that's true, right? I mean, we're not talking about 60 70 percent of buyers becoming all investors. But last year, we saw that buyers were maybe twenty five percent of all buyers in certain markets. It was way higher than that, right? And again, there's lots of reasons and we can get into a lot of those. But when I look at those things, I'm saying, OK at some point because nobody wants to answer a phone at three o'clock in the morning, maybe again referring to our mutual friend Scott. I love his phrasing. He's he's just so clever. It's that property is all about what is toilet tenants in trouble, right? Nobody wants to deal with that. It's not like real estate where it's glamour and it's, you know, photoshoots with the house and it's driving, you know, showing people their potential dream home. It's not. It's none of those things. It's the three o'clock in the morning call.
Rob Hahn: I think property management is going to be a much more valuable as as things go forward. The challenge for the industry, for property management, I think, is and this again, this is something I talked about. You guys are so used to. It's almost like you like the name of the industry, right? Influence your business model. It's property management. So you guys are all very property focused. It's all this unit. You know, how many doors do you have? And I think obviously that's the way it works. The thing that I'm thinking about going forward is there has to be a bridge to sort of tenant management, people management, right? And you know, we talked about that whole lifecycle. We started out as a renter. At some point you're going to buy at some point you might become an investor and then you become a landlord that whole lifecycle and the end. She typically doesn't think about the people as much as real estate does, right? So some of the changes that I think would be really cool to see. I think it's going to happen because of people like Scott who are doing both who are kind of trying to bridge that world is bringing some of the sphere of influence type concepts into property management and bringing some of those property management discipline into real estate. He to certainly like that hybrid structure.
Brad Larsen: What I think we're going to see a little bit of is is if does that commission structure does sort of collapse in a certain way? We're going to see a lot of those agents shift and want to get into property management. Sure, no one along the same lines, you're going to see a lot of the big agencies do that and you talk about one of your predictions of several big organizations, such as Opendoor getting into the management world. Right. So kind of talk to me about that because that's pretty fascinating. If we start thinking like a big, big company saying, OK, well, we can't make money in buyer's agency any longer because the commissions have gone all electronic. Sure. This transaction based
Rob Hahn: The specific prediction I made was that Realogy would get into property management and, you know, I could use any company, right, quite frankly, any brokerage. But I thought, really, if you only because number one, I started my career there and number two, for people who might be familiar or maybe not, be familiar religieux entire business models premise upon this notion of the value circle like it's on their website, they talk about it and the way they built it is say, OK, we have brokerage, which then leads to franchise right, which then leads to mortgage, which then leads to title, which generates leads. And it's this virtuous value circle. So I thought property management fits right in there, right?
Brad Larsen: And it should be almost in the epicenter. Think about it.
Rob Hahn: It really should be. So I just thought, you know, Realogy stock price has been kind of wallowing. They've not been overperforming the market, shall we say. And a lot of it is because investors look at biology and they see a company that's not growing that fast. There is enormous commission pressure and has profitability issues. So bringing something like property management into that mix, I think, really improves their their narrative, their story. Again, because one of the problems is, yeah, a lot of agents might want to switch to property management, but you know, and I know most of them can't do property management. It's like the personality is not suited to that. They're much more about, you know, client development and sphere of influence. And, you know, making sure that they're the people they run into know that they, you know, I mean, it's not. I'm going to sit at my my desk and answer phone calls, do you? I'm saying it's not that. So I think most of them will want to transition. I think most of them will fail to transition because it's just not the same business,
Brad Larsen: The political side. We have to bring up a little bit on some of this because almost everything that we talk about in what we do has a political slant or influence at some point. And so politically, on the side of OK, if the agents are going to flood into the property management market, we're going to want some sort of like property management license, some sort of like more more of a funnel filter to keep out the weak agents because they're just hurting consumers. Consumers are being the owners in the tenant. So there's a political slant there in certain states is going to be very difficult and others is going to be like they're going to stroke laws quicker than anything. Yeah, it takes me down to your your last prediction, which I thought was fast number seven. Yeah, on your prediction front was we had a I had a whole big conversation about AI buyers in a previous podcast, and I kind of gotten somewhat familiar with them. But your take on that was that certain municipalities and or even the federal government are going to crack down on these institutional buyers because of them locking out the first time homebuyers to have a voting voice with certain parties. Right. It does. I mean, the tail does not wag a dog in this situation. It does make total sense when you think about it, I want you to elaborate on it because I think it's fascinating.
Rob Hahn: Sure. Again, keep in mind, my predictions are are not meant to be correct. My predictions are meant to stimulate thought and get people thinking about them. So the prediction essentially is that there will be a federal ban on institutional investment into single family residential, specifically spheres. Why? Because that's the political hot potato, right? And you know, the thinking behind it is all of this has to do with inflation. All of this has to affect, you know, and I think I made this point at the conference. I don't believe that housing prices have gone up. I believe that the dollar has been devalued, which is a totally different thing. So because it's about dollar devaluation rather than home prices going up because of supply and demand, which is what most mainstream economists believe. The fact that we haven't seen wage growth at the same rate of inflation growth means that fewer and fewer people are going to be able to buy homes. Ok, that's fine and dandy. The issue is that the millennial, the millennial generation, which is, by the way, they're not kids anymore, right? The oldest millennials are 40. They have families. I think the last time I saw millennial homeownership rate was something like forty six percent, whereas Gen X and boomers like sixty five percent plus. So they're lagging way behind. Why they don't, they don't have the money, you know, they came into the job market during the global financial crisis.
Rob Hahn: It just sucks for them, right? And then after COVID, we've just printed trillions of dollars. So now we have asset prices. It's what we use, such as an asset price bubble, OK? The problem for a politician is I want to get re-elected. Housing will absolutely be a major issue. We know already because if you listen to any sort of news, any sort of coverage, inflation is a huge, huge issue for the Biden administration, for local politicians, for everybody. It just is a giant problem. It's a really difficult problem to solve. An easier problem to solve if I'm running for office like, say, next year because we are talking about congressional midterms is to come out and say, I'm doing something for you. What are you going to do? And there are only certain things that you can do. I fully expect that we're going to see rent control being proposed. I fully expect that maybe at the federal level, certainly at the state and local levels. I don't know if we're going to see it real strong in a state like Texas, but California, New York, New Jersey. You know, any of the blue states. I absolutely expect that we're going to see rent control legislation being proposed as serious, debated and potentially passed at the federal level.
Rob Hahn: It's much harder at the federal level. I think the easier thing to do is to go after the big institution, the Wall Street landlords. Right? Because my thinking on it is there are millions of landlords, you know, individuals, families who just like I'm a landlord, right? I have vacation property that I rent out through short term rentals because when I'm not there, why not? Right? There are tons of millennials who are sort of in their upper 10 percent who have realized like, I need to invest in property. You know, they're like if you go to bigger pockets, for example, some of the specific advice for if you're 23 is save as much money as you can. Eat ramen, don't buy nice cars and buy a duplex, right, so that you can live in one and then rent out the other and then lever yourself up in the property. It's really important, so you can't really go after investors. Right, that's that's difficult politically. But going after BlackRock, going after Blackstone, going after invitation homes, going after Tricon, that's easy. You just, you know, they're Wall Street. They're big, they're they're billionaires, right? And I think that's we're going to see. I think that's probably the least painful of the regulatory legislative options, because like I said, what I really expect is twenty twenty two, we're going to see bank control.
Brad Larsen: You know, that's a political thing that they can do because it's I mean, you think about it if you're just you're your only goal as a politician is to get elected or really. Right? That's all they want. That's also what they're doing is they're going after the low hanging fruit. And so they they pander to their base and they say, we're going to fix rent. We're going to stop the big guy from coming in and buying homes to lock you out of your own American dream. And people will buy that and vote for them. And then they'll pass some abstract law and the big billionaire guys, they'll just work around it. They'll form one these shell companies instead of one big giant. That's right. So it's just it's just political. Gobble goo. Kabuki theater. But that's kind of what we're going to start seeing. But the fact of, you know, I want you to talk about this a little bit further and make sure the point hammers home is that the prices of homes aren't necessarily actually going up. It's a value of the dollar going down because it ties into wages, and I think that point shouldn't be over. It shouldn't be skipped over because that kind of does justify it. If you look at it, go ahead.
Rob Hahn: Yeah. So I think and again, this is not something that I can take some originality on because I'm just listening to and reading people who are way smarter about the monetary system and the and the central bank policies and all of that. But the fact of the matter is since the start of COVID, by some estimates, we printed 40 percent of all U.S. dollars in existence since the start of COVID since 2020. And if you look at the Fed balance sheet, it looks like this. Well, that's going to have an impact, right? I mean, you know, it's just going to have an impact. At the same time, it's not like wages have done this. In fact, if anything, we've you know, I mean, because of the lockdowns, you know, unemployment went through the roof and we shut down all sorts of companies. Something like a third of small business have completely closed permanently. You know, it's it's been an economic disaster. All right. The way that they've compensated for that, obviously, is the money printing and then sending out checks to people, the stimulus checks, the PPP loans, and maybe those are things that they had to do. I mean, I'm not sitting here trying to blame, you know, or that's not the point. The point is that they they've done this. The impact of it is asset prices across the board have gone through the roof. Why? Because it's not about consumer price. It's not about food. It's not about those things. Yet that's coming. It's really been about, I've all this money. What am I to do with it? Well, I have to go buy assets that's going to sort of perform and pay me for owning it. Real estate is number one as a category, and we've seen that twenty twenty and twenty twenty one. I think we've seen roughly on average somewhere between seventeen and twenty five percent year over year home price appreciation, depending on the market.
Brad Larsen: Let's not forget that. Yeah, that's that's crazy, right?
Rob Hahn: I mean, you're in San Antonio, I believe, and you and I were talking about how, you know, earlier or like earlier this year, last year, you're just seeing these prices that are just, you know, home that was worth $200000 two years ago. Somebody goes in and says, OK, I'll offer three hundred cash and they lose because somebody else came in with four hundred. I mean, it's, you know, it's ridiculous.
Brad Larsen: Yeah, that's the market locally has always been a turtle, like, very slow and steady. But all of a sudden they've been taking Jack Rabbit leaps, right? Which to make a point. For example, why is the first time homebuyer having such a hard time? Well, the first time homebuyer there used in VA and FHA loans. That's right. And so they're competing against conventional and or cash buyers. That's right. And as a listing agent, you know, helping one of my big investors sell 12 or 13 of his homes because the big sell off right, even one of my biggest investors sold. Everything is in doing that. I was helping him list these homes and sell them. We would get four or five six offers in a couple of days and then it's just a spreadsheet. Ok, we're not going to even look at the FHA offer. Right, right. And we're going to go straight to the conventional Oh, but here's a cash one. That's more cash is king. That's right. So that's why these first-time homebuyers are losing because the type of loan products that they're forced to sort of get, I think someone's going to come along someday and give them an A. They're going to do lending in a different way. Yeah, they're going to write somebody a check in the background for three hundred and a hundred thousand. All of a sudden, now they're going to turn into a cash buyer. Yep. They're going to swear off. They're going to they're going to swear their first born children. They're going to mortgage their kidneys. I mean, they're going to they're going to do whatever they can to to buy a home and they're going to be doing it and they're want to be doing it either as a straight conventional or a cash buyer. And they're going to require 40 or 50 or $100000 in cash to do that, which most people under 30 are never going to have that.
Rob Hahn: Yeah, no. And we're already seeing that right. So the phenomenon of power buyers. I've been following the eBay or space since twenty fourteen when Opendoor launched and I wrote a giant paper about them in twenty nineteen, one of the things I pointed. That was one of the most interesting models was at the time I called it the knock model because knock out of Atlanta was sort of the pioneer. One of the pioneers behind it. It's also fly homes ribbon. You know, there are a bunch of companies that are now being called power buyers, and it's exactly that model where you go to them and say, Look, I want to buy this house over here and they do a credit check. They say, OK, you have to get a mortgage through us. Once you do, we're going to pay cash for that house. And they immediately transferred to you. Right. So every buyer turns into a cash buyer at that point. No, that is absolutely going to take off in twenty twenty two for all the reasons you mentioned. The challenge is the down payment, the challenge, the down payment, because if you're 30 years old today, newlywed, you know, maybe and maybe a good job, right? You know, like maybe you have good stable salary jobs like your corp and your wife's a teacher. Municipal jobs, you know, real solid. Coming up with one hundred thousand dollars down payment is going to be.
Rob Hahn: That's the challenge. So what I suspect we're going to find companies that are kind of come forth is the will somehow help you finance the down payment as well, right? We'll see. But you're right, I think. I really think this is one of the biggest trends, and I don't see it stopping like there are a number of, yeah, there are a number of people who think 20 20 to home prices will moderate. There are a bunch of people are predicting housing bubbles. I just don't see it because I don't think what we have is a housing bubble. I think what we have is a currency devaluation and the fact that first time homebuyers, an average regular working folks, you know that they don't they didn't see their currency. You know, I mean, they they just didn't see it. Whereas if I'm an investor, I saw my assets go up. Twenty twenty five, 30 percent. Yeah. So of course, I'm going to have to cash to do whatever the hell I want. You know, my buying power went up. If I'm a working family, my buying power didn't. So when it comes to buying houses, it's just going to be out of reach for, I think, a lot of folks which then turns the political issue and so on.
Brad Larsen: Having said, all the thing is is pretty interesting. So the power buyer stuff? We should talk through that because we want to explain to the audience a little bit more of what that is. I'll try to give you my cliff notes. Understand. Yeah. But it's essentially where third party is going to give you whatever cash you need to make a cash offer on a property. Then they turn around and mortgage it straight to you, which I think is genius because it is solving the problem. Now, how does that apply in real person? Well, it's great for first time homebuyers. It's really good for people that need to sell and then buy another property because think of this. So let's say you and I rob, we want to move up, right? Whatever move up definition you is, that is. Well, you have to sell your current home, find another home to live in and then buy or build your next home, which is a huge giant pain in the butt when most people will just be like, heck with it, I'm not going to challenge this market and do that. I'm just going to sit here. So that's less than the sales pipeline that is creating an opportunities for the real estate agents and the mortgage lenders. So they're creating these, these solving problems and packaged loans in a different way. I mean, you've heard of the Old Bridge loan. Well, this is just a different type of a bridge loan, so it's actually missing out one hundred points on these big power buyers. Tell me more about what you understand.
Rob Hahn: No, I think you nailed it exactly right. And when that came out in my paper that I discussed, I literally called. There are two models of I buyers, and there's the Zillow open door model, which I call the market maker model, where the company goes in. They will buy the home from the seller and then they'll fix it up, and then they'll try and find a buyer to buy it right? To me, that's a market maker. You buy at one price, you sell at a different price. The other one was exactly the knock fly homes driven model, which is the power buyer, which is exactly it's the bridge loan. And I called it that. I called it the bridge loan model. So really, and again, I bet different companies to have different processes at a high level. It's very simple say I own a home, and typically it's it's somebody who already owns. It's typically not available to first time homebuyers, typically, although I know they're changing that. But the idea is, OK, I'm going to go, I want to buy this house first. I'm going to pre qualify for that mortgage, not just pre-qualified, like pre-approved, you know, go to the full underwriting process so that the company knows, OK, you are absolutely qualified. And the minute you sign on the dotted line, you're going to get five hundred thousand. Right? Ok, we're going to front you that five hundred thousand. We'll go buy that house in cash or whatever the amount is, and then you're going to immediately flip and get the mortgage. The challenge is again, the down payment. You still have to qualify for that traditional mortgage, right? And all that the company, the power buyers are doing is bridging that that period 30, 60, 90 days right in between the the contract for sale and for purchase and the loan closing. It's a pretty straightforward model.
Brad Larsen: It makes you wonder if it's not a housing supply if it's not a capital supply issue. Right. So this is these these big power buyers are sort of solving the capital allocation problem more than the home front because we know there's plenty of homes potentially for for for purchase and for sale. I mean, there isn't a housing shortage, necessarily. I mean, you could argue that. But yeah, I mean, if you pull up the MLS, there's a thousand homes available right now that you could go buy any one of those. Sure. So it's not necessarily a housing shortage, it's a capital shortage.
Rob Hahn: What do you think? It's a capital shortage, but again, it's all related, and this is what makes it so hard to figure out, right? And the big the big disruption that happened was we printed 40 percent of like four trillion dollars, OK? That's the big disruption we had COVID happened and all the lockdowns. That's the big disruption thing is, even before any of that, so in twenty nineteen, it's not like we were sitting around saying, wow, it's a buyer's market in twenty nineteen, right? It was still a very competitive, heavy seller's market. All of those things, as far as you know, is there a supply shortage? Probably in some in some sense, right? Because I'm not entirely sold on it. But again, nah, you know, mainstream economists say we haven't built enough housing for 10 years. I don't know if that's true. I mean, I just don't. It's possible that in certain localities we have. Real shortages, like if I wanted to live in San Francisco, yeah, I'm sure there's a housing shortage. If I were to live in New York City, I'm sure there's a housing shortage because there is, you know, the demand for wanting to live there relative to the supply of housing is is high. But it evens up because, you know, home prices in those markets are in, say, one and a half million dollars average, why it's those types of things. So it's all interconnected, right? If I want if even if you're a 30 year old, you know, first time home buyer and you didn't care where you lived and you don't really care about the quality of the home, the actual property. You could go buy something for two hundred fifty thousand dollars right now. I mean, you're in the middle of, I don't know, you know, nowhere with very few services and three and a half hours away from the nearest airport. But you could buy a home if that's really all you wanted to do.
Brad Larsen: That's an interesting tidbit because I think the availability of high speed internet is making that more possible. Of course, I mean, you talk about people moving to Montana, for example. You know, I just went golfing with a guy who's moving here from Montana to South Texas, and his whole thing was Montana is ruined. I mean, it's basically ruined by everybody from the West Coast moving there and inflicting that state with everything that they're doing to it to include overpopulation, to whatever else. That's a whole nother
Rob Hahn: Whole other topic.
Brad Larsen: Yeah. But I want to switch gears and play a fundamental game. So I'm going to give you one word. And I want to drop that word. I want you to tell me everything you know about that, that interesting concept that's going on and what's going on in the news with that particular one word. And here we go. Are you ready?
Rob Hahn: Yeah. Ready.
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Announcer: Zillow. Oh, boy.
Rob Hahn: Zillow was much in the news last year. Let's just put it that way. I think I've written about them and I've been following Zillow for real long time. I know a lot of the people there. You know, my wife used to work for Zillow for for all that matter. She's no longer with them as of May of last year, so it could be a little bit freer about she especially can feel free about talking about them. They're still really important. You know, I mean, there's still what are the dominant, most important technology companies. But the fact that they got out of the iBuying business or the market making business, I think, is a profound pivot. It's a giant shift. And the thing that I'm trying to figure out is, what are they going to do next? Right? So the the shortest Reader's Digest version is Zillow was founded as an online auction website to something that most people don't know, like Rich Barton Lloyd Frank, the two founders. When they first started Zillow, their idea was Let's use the power of the internet so that people can go and buy houses like they would on eBay. You know, it's an open auction, right? They quickly realized I wasn't going to work, so they changed and pivoted to what is going to be a big portal, aggregate all the buyer traffic and then sell leads to real estate agents.
Rob Hahn: And they've built a billion dollar business, you know, multibillion dollar business. Out of that, Opendoor comes out. Does the market making iBuying thing rich? Barton looks at and goes, Oh my God, this change in the world, I want to build on this. So he came back as CEO and really took Zillow down that road for two or three years. And then last year, as it turns out, there's there were some real operational problems over there, so they lost something like seven hundred and fifty million dollars. All right. And just said, OK. Too much risk, we're out, right? I think there's a lot more to that story than just, oh, it's too risky and, you know. But that's a whole long, hour long debate and conversation on that. So long story short, they're out of the iBuying game. They still have a billion dollar a year portal advertising business. And the question becomes, what do they do next? What are they doing next? Because Wall Street punish them. You know, when they when they drop that, I mean, they lost something like two thirds of their value. Right? Obviously, they're not going to be happy with it. They're going to try and come back. What could they possibly do? Right? What are the areas? What are they going to do? So this is relevant for us.
Brad Larsen: Ok. What does it mean when they bail out? I mean, is that is that something we should all be like digging a bunker in our backyard? No, I don't think so.
Rob Hahn: I don't think that. But one thing I would think about this really relevant to you and your audience is there's no question that Zillow is smart enough to know they're renting, and property management is going to be a really, really important thing going forward. Because again, I'm not the only one who thinks renter nation is on its way. Everyone thinks that unless, you know, absent major legislation absent something that's going to make create even more problems, right? So I expect that they're going, we're going to see a big push from them, say, next year into maybe twenty twenty three as to they need to do something more on the property management side. They do something on the rental side. And here's the thing that brings them directly to conflict with all of you guys, as well as Costar, which is their main rival right now.
Brad Larsen: And you know what, every single real estate agent out there for the last 20 years finally said when that happened, right with Zillow said a few words choice with a couple of equities. I told you f. And so yeah, right? Yeah, that's exactly what we're all saying. Yeah, because we're so sick of the Zestimates shaking our butt. And so that aside, that's all fun and games. But the reality of what that's going on is a little off putting. It's a little concerning because now they're going to look at, hey, what other industries can we invade that really could affect property managers. So I bring it up because, you know, part of it's funny because, hey, we told you so. Ha ha ha. But the other part is like, Oh shit, now they're going to shift and look at what other industries that can basically take over, like they took over a lot of what they did in the past. So what you mentioned there is is a little scary and the inside is interesting. Yeah.
Rob Hahn: And the only thing I'll mention about that, though, is I think this is one of real estate industry on the sales side of things. I think this is one of their one of the big mistakes that they made, which is that they were trying to defend what they had instead of seeing the opportunity, you know, on the other side, in other words, there's a little too much fear, a little not enough greed when it comes to things like Zillow, because when Zillow came out 10 years ago. So just this quick story. I remember when Zillow first came out, I was working a real issue at the time, and I remember going to my boss and I was on the commercial side. So, you know, I didn't have that much influence, but I won't go to my boss. I remember telling her, Hey, you know, we should probably go tell Richard Smith, who was, you know, the CEO at the time. We should probably buy these guys. Because we're really at the time and Zillow was a startup like this and come out of out of commercial. Well, we only had that and co-star, I'm seeing Zillow and Trulia and these guys go on that right? There is going to be a major thing we should like invest in them.
Rob Hahn: We should give them all our data and just say, give us 30 percent of your company or just buy them out. I remember saying that nobody took me seriously. I'm twenty nine year old, you know, junior, like, I'm a nobody. But I think about that a lot. If we had been a little bit grittier and a little less fearful, right? Because one of the things that it's done is it's made the the sales side of the industry kind of retrench and talk a lot about how do we defend ourselves against Zillow without thinking about what makes Zillow so dangerous? What makes Zillow such a threat, right? And it's not simply because they have a bunch of smart tech guys. It's because they're delivering something that the consumer wanted that we, the industry were not providing. So I feel the same way on the property management side. If it's a threat, what's the threat, right? Is this simply that consumers go there to find the rental property? Ok? Why is that game over? You could almost argue that to build a giant website with, you know, hundreds of millions of unique visitors, the time might be to pass that what's the next thing? All right. What's the next thing they're going to go after?
Brad Larsen: What do you think? I mean, do you have any predictions there?
Rob Hahn: I don't have any predictions yet, but so let's reference back to what we kind of started this conversation with which the technology is deflationary.
Brad Larsen: Sure. So they're going to influence somehow some way just by providing a good technological platform.
Rob Hahn: Right. And I think it's just it's just and again, if it's not them, then it'll be constructive psychotherapy. Some startup, if that's, you know, I mean, it'll be somebody that's coming along and saying, Look, we have this technology. What that allows us to do is offer whatever services at lower cost and somebody is going to see that and jump on it as an example. So let's try and relate this directly to property management. One of the biggest issues, as I understand it, because you're the expert, is you have to have people actually manage the property like you have to have a call centre, right? Like Scott talks about his, you know, call centre in Mexico or the Philippines, you have these vas. First of all, the point that I would make there is why are they in the Philippines or Mexico? Because they're cheaper? Right? But technology enabled that without voiceover IP now, could you imagine if you have to make international phone calls and pay for that from back in the nineties, it would never happen. But because we have things like voice over IP, you have communication that's essentially free, but you pay 30 bucks a month or whatever to zoom and unlimited phone calls.
Rob Hahn: Unlimited VIDEO Right? That's what makes it possible. Ok. The next step might be if we just continue down that road, maybe you have some technology comes out, so it's OK. One remote VA can now handle twice as many properties. But what does that do to your fees? What does that do to your right? And again, it's not Zillow or co-star coming in and squeezing you. It's some entrepreneurs, some other property managers. You know what, if I use the system, I can offer the same level of service at half the cost, which means I can grow market share or I can offer a much better service at the same cost, which lets me grow market share, which means that the rest of you all have to jump in and say, OK, we've got to do the same thing, right? Because it's competitive. Imagine something like A.I.. So now you don't even have call centers in the Philippines. It's just a, you know, something that sounds like Siri coming off of Amazon that you paid nineteen ninety nine for, and it handles all of your phone calls, like what does that do to a price structure? It's things like that we have to think
Brad Larsen: About, right? It does change a price structure because we've been talking about this for years and years. Ok, so now if you can execute the service at a lot less expensive cost, why would you not want to reduce your rates to gain more market share? Right? You know, if you can make for fun, let's say, 50 dollars a unit in profit per month. Well, why wouldn't you want to manage one hundred billion units, right? If you can figure out how to take it to scale? And how do you do that? You potentially lower your management fees to become the most attractive property management company in the region by having really cheap fees. And they talk about this for years in real estate like they said, you know, if you great example, is actual title companies. I mean, the title companies for a long time, they were, you know, charge whatever they want. They can get away with whatever they want. They were bribing people they were paying people in and then they would charge. These outrageous fees are closing and people would pay it. Then they have the title policy, which is mandated by the state. So now what I'm trying to make a point is we're seeing those fees from the title companies just decrease decrease decrease because what they really want is the title policy which is mandated by the state on a certain pricing level. So I think we're going to see some of that inflict its way into the management world, and I hate to use the term, but commission compression could be a real thing for management companies.
Rob Hahn: It absolutely could, and I think it's already happening. It's just going to accelerate more and more. So the question then becomes this from my standpoint, and because I've been telling this to real estate sales side forever, which is what is the value that you're bringing to the table because it's not I'm not a Duma, actually, you know, I'm not black pilled. I'm not sitting here like, you know what? At some point, the AI and robots are all going to take over and we're all going to be, you know, batteries plugged in for for our machine overlords. You know, that's not that's not what I'm saying. What I'm saying is we're fallible. Human beings have value like we have certain things that we're bringing that is of real value. And the question is what is that value for a real estate agent? I can say this opening the door is not value, do you don't mean like it used to be the buyer agent's like, Oh, you know, I have the lockbox, I have the key. So therefore you have to call me and pay me so I could open the door and do home tours for you. Like, I don't think that's the value. Like, No, but that's not where it's at. However, providing advice to somebody like, say, I'm moving to San Antonio, you know, I don't know anything about the city. I know Riverwalk. That's it. Somebody be able to sit me down. Ok, look, here are the areas you want to live giving your. That's the sort of thing that I think machines have a much harder time doing so in a similar way. I don't think anybody's going to like self-manage better or more just because technology is available because it's still annoying to get that phone call. Like, that's probably something where human beings have a real edge over even Google Voice or whatever because there's judgment, right?
Brad Larsen: Right. It's just it's it's an insulated industry by the mom and pop super hyper local service. It's a service based thing. So I do want to switch gears a little bit. And this has really gotten me talking here in the last couple of days by reading This is your number two prediction saying, and this is a political rant. This is a political, you know, aside tangent. And I'm not going to let you guys figure out where I am on this one being a Texan. But your prediction was that it made a ton of sense, an explicitly conservative real estate brand. And you talk about this in parallel to what Black Rifle Coffee has done. And so and we were talking about this, about dinner last night. Yeah, you were talking about this and all these different things like, OK, if you're just if you're selling a commodity, here I am. I have a bottle of water in my hand, Aquafina. That's if you're selling a commodity, why not call this super hyper conservative water source or super hyper liberal water or whatever term you want to? You're tying a political spin to that commodity and real estate brand. I hate to use the term commodity, but it's sort of kind of in that realm. You could argue that it's a service base. It's kind of the same service throughout the board. But putting a political spin on that and picking a side like Black Rifle Coffee did and watching that take off. Interesting prediction. Yeah.
Rob Hahn: Elaborate on that for me. Sure. I mean, this is what's one of the like. Unfortunate predictions. It's one of the things I hate having to make, but we've got to talk about it, which is we are going through probably the most divided that the country has ever been right? Ok. The problem is that within the midst of division, what we're what we've seen over the last few years is that the corporations are very much clearly on one side of that right. And in our industry, I think we're seeing it. There is a big lawsuit happening right now up in Montana, in Missoula, because there's a pastor who's being brought up on ethics charges because he pulled his church out of a food bank program because it turned out that the food bank program was including materials from the gay and lesbian movements in their free lunches. And so we don't we don't want any part of it. So he's being brought up on ethics charges. Different people could disagree. Different people could whatever, but fact is his company, Windermere, came out and essentially condemned him for this donated money to the food bank, donated money to the National LGBTQ Plus Real Estate Alliance. I think and said this, we we believe differently than this guy does. And when I started looking at it, OK, look, it's black rifle, coffee, altered state. You know, there are a bunch of these smaller startups now that are coming out saying, You know what? We think that that some of the seventy five million people that voted for Trump are probably going to want to take a look at our our products simply because we take this political stance, right? We've seen it be successful, like you say, with black coffee five 11 tactical, you know, front style.
Rob Hahn: I mean, what? I look at these things, they're selling T-shirts, they're selling jeans. There's nothing political about T-shirts and jeans. And yet there is why? Because Levi has taken a stance because Nike has taken a stance, and a lot of folks have just said, Wait a minute, I don't want to support these woke companies with my money. I just felt like when I looked around in real estate, I didn't see a explicitly conservative brand, but I could easily see one popping up in Texas, in Alabama, in the SEC states, I could easily see what popped up in Tennessee and go to agents and saying, Listen, why are you with such a twenty one? Why are you with Coldwell Banker? Why are you with these sort of either kind of left leaning or neutral brands when it could be downward? I don't know the Freedom Realtor party or, you know, I mean, like, you could easily see some of these brands come up right,
Brad Larsen: Even the land you mentioned, I mean, you specifically cited examples of them giving money or donating certain situations to basically political affiliations. You can pick a left or right of that. I don't want to talk about that junk here, but they're donating to a certain political affiliation. Well, that's taking a stance politically. It is when you give a certain organization that's on the fringe left or right, you decide right there on the fringe and you're giving the money. So you're basically supporting that, right? Right. And so what you're saying is people are going to say, all right, we're going to embrace the other side of that. And that could be MSNBC on the left. Or that can correct, right? Correct me on the right. Correct? It could be either or. And people are going to find a way to create more of a real estate franchise brand that embraces that again, those that a certain left or