Making Money in the Red-Hot Housing Market (Episode 19)

Sure. Okay, great. Thanks so much for having me today. You know, this is a very unique story. What we're in with the housing market here currently in 2022, in that most homeowners can't buy a house right now. And so we decided to take an approach of what sectors benefit when many people can't achieve that home ownership dream. And so for us, we were able to break that out into five sectors and that covers multi-family, which are the apartments, single family rentals, manufactured housing, student housing, and senior housing. And we'll go into, in depth on all of these sectors over the time of the podcast here. But what we tried to approach was since so many people are being shut out of the housing market based on corporate relocations, uh, property taxes, all these, you know, various factors, what cities have benefited from the relocation and what property types have benefited within those cities. And so we actively have been able to position the portfolio playing these five, sub-sectors using that information in our pocket.

Yeah, that's exactly what it is. It doesn't matter if it's Santa Fe, Albuquerque Dallas, Austin, Raleigh, Nashville, Charlotte Tampa, all of these markets are seeing huge demand for homes. If you think about some certain cities, like, uh, let's say California as an example, where there was a community that had less than 10 homes for sale several weeks ago in a weekend, and they had 1500 showings for those 10 properties. Well, what happens to those 1,490 folks that are not able to buy those properties? And so, you know, you mentioned the apartments, you know, that plays into our thesis as we're looking at Sunbelt apartments. So, so names that, you know, potentially resonate there, like Mider apartment communities, AA Camden, property trust C P T United dominion based off at Denver UDR. You know, these are perfect examples of companies that have basically taken those Zillow and Redfin top 50 lists of were people moving.

And that's where they're really planning their flags. And a granted camp's been Sunbelt exposed for many, many years, but as we learned during COVID with so many people leaving the coastal markets and moving into the Sunbelt, you know, can those really in the driver's seat for all of those relocations, another example is the single family rentals, you know, people wanting to move out their parents' basements for the first time because they were suck. You know, they hated being cooped up during COVID there's three publicly traded companies that are out there that cover the single family rentals. Chances are, most people have heard of a company called invitation homes. That's owned by Blackstone. What used to be owned by Blackstone that ticker there's, I N VH there's American homes for rent a M H and then the newest cent is from Canada, but they have a us portfolio dual listed and that's tri residential TCN.

There was a great 60 minutes interview. That was about, I wanna say now three weeks ago. And the lead story was on single family rentals and they interviewed Tricon CEO. And he said, look, we have about two to 300 homes available for rental per week. We're getting over 10,000 inquiries per week for these homes. So again, back at the envelope, that's like 500 to one, 500 inquiries per house available. Again, many people are gonna be left out of the cold. And so how do you play this? When all of these guys, whether it's apartments, single family rentals, manufactured housing, how do these guys basically bring enough supply online to satisfy that demand? It's no secret that there we are more, according to Redfin, we are more than 4 million homes in the whole of a shortage to satisfy that demand. And if you look at places like, again, here based in Dallas or Raleigh or Tampa, you know, there is no end in sight for when that demand is gonna be satiated. And so therefore who benefits from that? Well, the apartments, the single family rentals and the manufactured housing guys.

I mean we're hearing reports potentially five to 10 years out for this number to be, uh, fixed. Now, does that mean that the Sunbelts are gonna stay on fire for the next five to 10 years? If I knew the answer to that, I'd be flying out to Santa Fe to pick you up on my G five and we'd be going out to Fiji this weekend. Great. But in all seriousness, what we do know is that let's take a place like New York or San Francisco. There's only one New York city and there's one only one San Francisco. We can't just replicate that here in Dallas, Texas. And so as a result, you know, I've always been a big believer of if you built it, they will come. And there was a reason why there's, you know, they use that expression. They aren't building more land in New York city.

And so yeah, they may have seen that hiccup during COVID of people leaving from the coast and moving in. But what we started to see now on the other side of COVID hopefully is that we are seeing that come back towards the coast. People are going back to New York in San Francisco. And so does that mean that that's, everything is back hunky door back to usual, back to pre 19 pre COVID levels, not necessarily, but in the same breath, we know that when you have companies like apple and Google and Tesla and name, this company and state farm and whomever relocating across the country to Texas or to Raleigh or to Charlotte or Nashville or one of these places that demand isn't gonna be letting up anytime soon, because let's be honest, California. Isn't about to end its state income tax. Anytime soon, the gas prices in California are not about to come down anytime soon. And so, you know, companies are trying to do what's best in the interest of their employees as well. Do we want to go to a more tax favorable state where our company, you know, our employees can basically keep more money in their pocket. And that's why you have very tax friendly states like Texas and Florida, which have attracted so much talent into their backyards.

Correct. You know, and again, like you still use other examples. Like I was just in Chicago a couple of weeks ago and I don't consider Chicago one of these on fire markets like Dallas Raleigh and everything else. But yet in every meeting I had, I heard some housing story about trying to buy a house. Can't buy a house, we've got 25 offers to sell our house. You know, really doesn't matter right now where this story is happening. You know, people then get, bring up this concern of, oh my gosh, they're raising interest rates. Isn't that bad for housing. Isn't that bad from where you sit. And frankly, we're excited about that. And I know that comes across as crass, but from where we sit, we're thinking about the end consumer, the end tenant. So the 24 year old graduate of college, who's working his first job living in an apartment either with a buddy or a boyfriend or a girlfriend doesn't care that the fed raise interest rates 25 basis points a couple of weeks ago, or is raising at 50 basis points a few weeks from now or whatever that number is gonna be.

All that tenant cares about is I'm paying X per month for my apartment. Now I'm gonna be paying Y per month next year. The difference of Y minus X equals some amount. And then, you know, the concern is I'm paying a thousand dollars a month. And my landlord says, instead that being $1,100 next year, it's gonna be $2,000 next year. Is that a problem? Well, it's kind of a double edge sword to the renter. Yeah. It's probably a problem because your rent just went up double, but on the same breath, think about from the landlord's perspective, why is he charging basically double and granted? That's a very extreme example that we're using here, but follow my logic. Why is that landlord charging double chances are there's new inventory. That's in the neighborhood. That's commanding that price tag or something even higher, or number two, that guys already lined up a tenant ready to fill that space.

Who's already willing to pay potentially that $2,000 price tag. So remember the landlords know the markets better than anybody because they've got all the tenants. They know how much they're getting paid in rent every single month, historically the Reed sector in general, residential and everything else in times of rising inflation and interest rates, the Reed sector has tended to outperform. And so regardless of rising interest rates, which we really need to figure out is who does this impact more from where we sit, the rising interest rates really affects more of the developer, the construction loan, the guy that's gonna be planning the shovel on the ground. And by the time that construction is completed, well guess who's gonna be paying that loan back. It's gonna be the tenants. And so therefore that's already gonna be, you know, called baked in the cake or priced into that rent. And so they're basically gonna, you know, call it, pass that off to the end tenant when it's all said and done. So for the single family rental guys, it's the same situation. You're a tenant you're renting. You don't care. What interest rates are that only affects you. If you're trying to go out and get a mortgage on a house right now.

That's correct.

We're the only active, pure play residential re ETF. And I'm glad you asked that question because there are some other residential real estate products on the market, and I will encourage every investor. Every person that's listening to this, and we may not be the story that resonates with you, but for anybody that's looking at ETFs, what we wanna try to educate all investors is, and I quote Todd Rosen blue. Who's now with a firm called ETF trend. He used to be at C research, but Todd has always been very pump up your chest pound down your chest about know what's under the hood. You need to know what's driving the engine of your car. And so for some of these residential real estate props that are out there, there could be, and I'm just throwing a variety of examples out there, self storage rates, home builders, mortgage lending, and financing, home Depot, lows, restoration, hardware, home improvement, type stories, hotels, you know, the answer is it depends on what is defined as residential. So we took a different approach of, is it residential? Is it a REIT? Okay. It's probably in the portfolio and that's very specific because again, we're the only active product that's out there. And we're trying to avoid what I call the noise. That is like self storage reach, which are a great compliment to residential, but it is not residential or, um, home Depot and lows, home builders, mortgage, which again is a very good compliment to the residential space, but you're not living at a home Depot or lows anytime soon.

Sense real quick. Before we go onto the company by company, I just wanna emphasize why we're trying to get this message across is that we feel that real estate is personal. You know, it doesn't matter if you're, you know, you may not care about Tesla. You may not care about Bitcoin, but Lord knows you care about the roof. That's over your head when you go to sleep every single night . And so that's why we, we feel that this is a very personal connection because every investor has to pay the mortgage payment, pay the rent payment. You know, that check is due on the first of the month. And the landlord doesn't care that rising the gas prices are going up of the tank. He cares about where's my rent that you owe me today.

Sure. So we did talk about MidAmerica, MAA and Camden property trust CPT. It seems like, you know, for these guys that have been announcing earnings and we're about to come up on first quarter earning season here in the next couple of weeks, but for a lot of these guys, you know, they're like call it anywhere from 97 and 99% occupied. They're basically charging double digit rent increases on renewals or on new leases. So what's happening is you're basically fully occupied. You're pushing double digit rent increases. And yet you've gotta line out the door of people that are ready to sign up. And that's really encouraging that again. There's no let up in for that demand came to got a lot of good press during COVID, as they were very hands on with their tenants. If you think about how many, you know, there was a lot of tenant rent relief programs, tarp that was put into place and Camden was at the forefront. One of the first guys that basically put in this tenant relief program for their tenants because of COVID and they carried a lot of favor with their tenants and the investment community because they, they weren't necessarily focused on the bottom line. They were focused more on their tenants bottom line, if that makes sense.

You make it a great point. You know what, Hey, they stood by me while I was at, you know, going through the problems a couple years ago. I'm not gonna go find another landlord. These guys are for me. They took care of me. They're like family. And that's, you're absolutely right. It's building that brand, that recognition and their management team has been in place a long time. Their CEO, Rick Campo is very well respected across the Reed industry. And so it's no surprise that that's, you know, hearing what you're telling me.

And I wanna emphasize that for a lot of these companies and it doesn't necessarily be residential. It could be any of these re sectors we're talking about here, but when most of these guys are announcing the results right now, they're comparing it to 2019, they're basically ignoring the 2020 ever happen. So they're saying we're back to our 2019 pre pandemic levels. We've surpassed our pre pandemic levels like American campus communities. There's only one student housing rate that's out there, but that's a good example. American campus who's talking about their enrollment has surpassed where they were pre pandemic. Their rent increases are getting back to where they were pre pandemic, basically, meaning students are going back to college, you know, we're not sitting back, you know? Yeah. Granted the work from home situation might be here in some form or fashion, but students are not gonna have to be learning virtual from a college classroom anymore.

They're encouraging students to go back in. What's great about American campus as an example. And I know they're not a top 10 holding, but what's a great story about American campus. They're, you know, picture your top power five conference schools and everything, the big schools that are out there if campus incorporates this square, they're the first property right across the street from campus. So it's technically off campus housing, but it's so close to campus that you could almost like throw a football from the dorm into the campus and it's luxury type dorms, you know, the dorms that you and I probably grew up in when we went to school look like nothing like what we're seeing today.

Go look at some of these properties today. And it's like some of the nicest apartment communities that are out there. So it's just a very unique story as another example of, you know, where is this trend going?

The only one that you, I mean, again, I'm just speaking off of the back of my head here, but the only ones that you're really gonna see that big pop in 2020 were those two in, uh, single family, rental res like invitation homes and American homes for rent. I bet you're gonna see a strong 20, 20, another one are the two man. There's three manufactured housing rates. They're dominated by two in the industry though. And it's equity lifestyles, ELs and sun communities S U I, these guys have been doing so well for a variety of reasons. Number one, retirees, living in Palm Springs. And some of these places, you know, a typical manufactured housing property does not look like anything. Like what you used to think. It looked like, you know, trailer park trash that doesn't exist anymore. Right. Uh, my father lives in one in Huntington beach, California, and it's a very, very nice home.

Yeah. There's a lot of these they're very prevalent in Southern California. And so if you use again, COVID as the example, well, what happened during COVID, nobody was getting on a plane and flying. That was the year of the road trip. So many people were going out and renting RVs or getting in the family van and driving across the country and staying at some of these manufactured housing parks. What's really interesting with some of these guys is they've developed well, it's not developed. They've kind of had the aha light bulb moment where sun communities is a good example, merged with a company that focuses on marina. So think about it. You have your RV, you're driving across the country. Chances are, you may have a boat tied to the back of your RV. And so why not go stay at a property that has a marina right next door?

And I could drop off my boat for a few days. We can go fishing and all that stuff. So basically they're kind of combining the RV and marina business into one brand. Let's say to try to encourage folks of, Hey, just, you're not just like plugging in here and hanging up for a couple days. You're actually gonna spend time here and live, work, play fish, take the family, boating, water, skiing, whatever. And you'll notice that a lot of these, especially in the Floridas and the Californias and the coasts mm-hmm, where they have this big presence.

That roof over your head. Exactly. And we haven't even started talking about senior housing and that's a whole separate beast in itself, you know, from a very high level. There's a lot of good senior housing operators that are out there. Vetos VTR. Well tower w E L L they're the two largest players that are out there. They are in our portfolio, but they've also got exposure to like hospitals and medical office and stuff that may not necessarily be considered residential, but they are the largest single family, excuse me, senior housing operators by leaps and bounds. But let's high level. This think about the senior housing property that mom or dad, grandma and grandpa live in today. Don't know when the last time was that you had to step step foot in one of those properties, but chances are if and when you did, you walked in and you said, I don't want to be in this place.

Yeah. Sorry if you're lost, but again, you'll understand where I'm coming from. Chances are that property has not changed in the 15, 16 years that she's passed yep. To today. So why I use this example is think about, well, let's just throw it out there. Think about the 30 year old young adult these days. Okay. What is that young adult accustomed to high speed internet flat screen televisions, hardwood, floors, monitored amenities, upscale, luxury living USB port. Yes, no seriously. So think about that property that grandma lived in 15 years ago to what that 30 year old consumer is going to need down the road. They're not the same. So we're talking about an industry and my, and this is why I feel like this story. Our fund is really a 25 to 50 year story because this is a sector that is going to be turned upside down. As far as revitalization, recapitalization, renovation, you know, the property that you see today is going to look like a modern apartment community tomorrow, a modern residential neighborhood community, like a living community. It's gonna be something different than just your typical two story nursing home. I don't know when that trigger gets pulled, but I do know that, you know, I almost play like the captain obvious logic of there's no way that what we see today is what people are going to

So there's a great, I'm not trying to cut you off. There was a fantastic story that got published today. Do you know what the villages is?

The villages is the largest retirement community in the country by leaps and bounds. But what they've been talking about is the villages is now considered one of the most dynamic cities in the country because baby boomers and younger are relocating to the villages. And many companies are trying to plant their flag down there because the workforce is actually tended to go younger. So it may not be the 65 year old that's first moving out there. It could be the 50 year old, the young kid who is getting his foot in the door closer to retirement, but still wants to keep his foot in the corporate world. And so why don't we start working our way to Florida? Let's go move. We can go work day to day. And when you know, when we get old, then we can go across the street. My wife and I like to joke.

There's a, an active senior living community. That's like the largest in Dallas. That's like on the other side of our neighborhood here, it's my wife and I have this running joke of, oh, when we're done, we'll just go across the street. It's right here. We can just walk our stuff right over. It's great. Yeah. But like, that's a perfect example here where if you think like again, where senior housing is going and knowing that 50 year olds are wanting to go to where the blue hairs are living at not to be rude, but you know, like that sends a message to a lot of corporate America that, wow. It's not just, Florida's not just for old people on you. Oh yeah. So yeah. You know, one other point that I want to emphasize, and again, this is we're, we're also doing this fun because we want to educate folks.

Residential res may not be it for you, but we want to educate folks about the res in general, because you can't go from point a to point B without interacting with the re every single day of your life in that. Did you go to Starbucks and get a cup of coffee today? Did you go to the drug store and go grab a, a fill a prescription? What about going to the grocery store? Did the grocery store in the past couple of days, chances are those properties are all owned by re and so we are just trying to take this approach of embrace it. You can't run away from it. And when you think about how the REITs are structured themselves, remember REITs are investment vehicles that produce revenue from the properties that they own, and they turn around and pay 90 plus percent of that taxable income to shareholders in the form of dividends.

I mean, again, it doesn't matter how old you are, but when the company is basically paying you the money that they earn and the management teams themselves own so much stock of these companies, again, because of the dividend structure, everybody benefits from this, when the company does well, earnings goes up dividends, go up. Guess what? Management got a nice bonus because of the shares that they own and the shareholders are doing well because the company is doing what they're going, what they're supposed to be doing. Meaning look at COVID. As the example, net lease res these are the properties that own the drug stores, the fast food restaurants, the Starbucks, the dunking donuts, those guys were on fire during COVID think about curbside pickup and how great that was doing. Those companies were getting literally like a hundred percent, their monthly rent. They weren't having any issues because again, people were driving through, you know, go to drive through the Starbucks every day. So we're just trying to educate folks that REITs are here to stay. The industry is going to continue to grow. And so as a result, embrace it.

Sure. That'd be great. Please check out Armada, etfs.com. We have all sorts of information. If you wanna learn more about the re in general, I recommend you go to the, uh, the websites, reit.com R E i.com. That's the national association of real estate investment trust, great education materials there, but we're always around a chat. So feel free to contact me. My contact info is on the, uh, Armada ETF website.

Thank you so much, Kate. I really appreciate it.