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Episode #10: Underwater with Ryan Dezember

Ryan Dezember’s new book, Underwater, tells the story of the last foreclosure crisis, and his own personal journey as a homeowner. The book uses a particular location, the Gulf Coast of Alabama as a microcosm to explore what happened during the 2008 housing crash. 

In this episode, Millionacres Editor, Deidre Woollard, Interviews Ryan about the book and what the previous foreclosure can tell us about our current situation. 


Ryan Dezember: Yeah. Mass unemployment, home prices are rising, millions of people are not making the mortgage payments. It's a very weird time. The thing that we have this time that is different is these big institutional buyers, and just regular investors who are looking to get yield anywhere they can. You had individual investors before but you didn't have that institutional buyer. Whether it's the Invitation Homes or American Homes 4 Rent or other private equity firms buying homes by the thousands or these firms known as iBuyers. They use computers to find, to identify mispriced homes and try to flip them. Now there is this interesting thing were there is a floor on prices in a lot of markets. As soon as they hit a certain point, that bid comes in and buys whatever it can. There is potentially a little downside protection this time that we probably didn't have before. The price is going up in a pandemic, it's a little bewildering. Interest rates are so low. I think a lot of people are thinking, "Let's act on that now." The COVID thing is probably spurring people who thought about moving to the suburbs and out of cities to do it now instead of wait. [MUSIC]

Deidre Woollard: [MUSIC] You are listening to The Millionacres Podcast. Our mission at Millionacres is to educate and empower investors to make great decisions and achieve real estate investing success. We provide regular content and perspective for everyone from those just starting out to season pros with decades of experience. At Millionacres, we work every day to help demystify real estate investing and build real wealth. [MUSIC] Hello, I'm Deidre Woollard, an editor of Millionacres and today, I'm talking with Ryan Dezember who recently came out with the book, Underwater, that talks about the last foreclosure crisis and his own personal journey as a homeowner. I really love this book because it used a particular location, the Gulf Coast of Alabama, as a microcosm to explore what happened during the last foreclosure crisis. In the book, Ryan weaves together a lot of different stories to tell the story of what happened then, and I feel like right now is a really good time to be discussing this because we are in this odd space of market exuberance. So Ryan, thank you for agreeing to chat with me.

Ryan Dezember: Thanks for having me.

Deidre Woollard: This book is your story and the story of its particular market. I'm just wondering if you could share with us a little bit about how the book came together, both on a personal level for you and also a professional level because I know you are a reporter at the Wall Street Journal.

Ryan Dezember: Yeah, so I started my full time journalism career in a newspaper in Alabama, the daily paper Automobile, then called the Mobile Register, and they assigned me to the beach. I was this guy from Cleveland, Ohio. I barely was aware that they had a beach, but I said yes because it was cold where I was and it was warm there, and they have a beach. So I moved down there and I was like, "What am I going to write about in this place?" I got there and I saw the beach. Miami was like sprawling up to Alabama. I'm like, "What are these towers doing here? Why are they building so many? Who are these people buying these condominiums?" It didn't seem like there were enough people there to support that development. So I started digging into that. What was going on was just fascinating. People were basically buying condominiums or the rights to own future condominiums that didn't exist yet and trading them like they were stocks and bonds, everybody buying higher than the previous person had paid. Sometimes these things would sell six or seven times before they were done and it was ready to move into and I thought that was fascinating. My mom and my grandparents had sold real estate in suburban Cleveland. It was a tremendous feat to sell a million dollars worth of homes for them. Here, realtors were selling $30 million of homes that didn't exist yet in an hour on the phone, and it was just mind-boggling what was going on. I said, "I'm going to stay here, I'm going write about this. This is really a rich story going on here."

There was all this attendant ecological debates about this development, and there was the attendant corruption with developers paying off the mayor to get the zoning, all that wild west stuff you get in an asset bubble. So I did what a lot of Americans do when they settle into a job after college and they get comfortable. I bought a house. I bought a modest house. One of the cheapest around that wasn't like a trailer or some dilapidated thing. I always thought I'm writing about this thing, you can see the trouble coming on the beach, and then off the beach it's that exuberance towards real estate investing took hold, and I never realized that I was involved just by buying a house. Even if I bought a house for shelter, that I too was in this game that was being played. Of course, you can imagine what happened, the market crashed severely. I ended up moving on from my career from Mobile to join the Wall Street Journal. I could move because my house was worth 60, $70,000 less than what I paid, basically half of what I paid. So I became a reluctant landlord.

Lo and behold I'm at the Wall Street Journal, and the Wall Street financiers, the Blackstone's of the world and all these boldface-name investors were buying up foreclosed homes to turn into rentals and I'm sitting here thinking, "I have one house, a thousand miles away, and it's a nightmare to deal with." Very expensive to manage a rental property so far away. You have to pay somebody to do it. How are these financiers going to think they can do it on a grand scale like tens of thousands. But they did it. They did it very profitably and those companies have just become very interesting. Really I would argue a big force in today's housing market. They don't buy every house. They don't buy houses everywhere. But when they want a house and they want an area, they'll get that house over a regular home buyer. So I thought it would be nice to quit the whole arc of that story, almost the whole markets cycle together from the small town in Alabama where you see the bubble inflating and bursting and then this new powerful industry that emerged from it.

Deidre Woollard: Well, I thought that was really interesting in the book too. You explained basically what happened to your neighborhood and the changes that it went through and I thought one of the things that was really little bit heartbreaking was what happened to your neighborhood, the overgrown lots, the homelessness, the way that it changed. Do you feel like it's possible for neighborhoods to come back from that? Does it ever make sense if you're an individual investor and you see a house in a neighborhood like that. Does that make sense to invest in that in the hopes that it's going to come back?

Ryan Dezember: Yeah. Because I didn't live there, it's hard to say, but I do think that the neighborhood came back. Certainly property values came back. Being the cheapest homes around that were an established neighborhood, they were in high demand as soon as there was demand for houses. It took a long time there. The Wall Street guys didn't go to that area. There's not enough density, it doesn't have the growth profile that they look for. It's not Phoenix, it's not Houston, it's not Denver, It's a small town on the coast of Alabama. Prices fell beyond what they did in some of those more active markets. It took a lot longer.

It took me from the time I first tried to sell the house in 2007 where I figured out, "Well, there's a problem here, I'm not going to be able to sell this thing," until 2017 when I sold it. It's 10 years, and I still sold it for a loss. But values had risen, the foreclosure inventory had rolled off. People in that neighborhood in particular, a lot of retirees came down and bought homes very cheaply even if they weren't ready to live in them and retire. People in Michigan, Wisconsin, Ohio, that we called snowbirds that come in the summer, or stay in the winter and they are counter-cyclical to the tourists, a lot of them end up retiring in that area. There were people that bought homes really cheap and fixed them up and had moved in. The last couple of times I was down there, the neighborhood did seem a lot better than when I left it at, what I knew about it when I was a landlord and I had renters in there. It's hard to say what's going on inside the houses, but they did look okay. As far as investors, this has been happening, it's been a huge boom since the crash, better than one of every 10 homes sold in the US since 2010.

Basically the last decade has been bought by an investor, whether it's a big company on Wall Street, or an individual like you or I, even somebody's self-directed retirement account. People buy rental homes with them. One of the interesting things that we've noticed that the journal in the last years is, while the Sunbelt markets are hot with big companies, the individual investors really make a good margin and are really attracted to what we call fixer-uppers. Cleveland, Ohio, Pittsburgh, Akron, Toledo, cities in Michigan and Wisconsin, are some of the most profitable places to buy a house. It's like a fix and flip but often you're not flipping it to sell it, often you're renting it out as an income producing asset. Everyone is looking for something to put their money to where the rates are low. I wouldn't think that those neighborhoods now you don't want to buy into a neighborhood in serious decline but I do think that there is an appeal to investors in the yield is there on those houses. They take work and they're risky. You have to fix them up. You have to convince somebody like this house that was a disaster five months ago is a great place to live, and to move in and pay a high rent. I do think there's probably that those, as much as everybody thinks like, "Oh, it's terrible to live in a neighborhood where investors are buying the houses and fixing them up and raising the prices." Sure it can raise your property taxes and values and stuff, but at the same time, that's how things turn around.

Deidre Woollard: Yeah. I think one of the things that we see with investors is the BRRRR strategy where you buy, rehab, then refinance and do it all again. I think that's become much more popular among investors.

Ryan Dezember: There's not much place to get a yield, where you're going to get a return. If you can get a house for 100,000, put 20,000 fixing it up and then run it for 1,300. The landlords magic number is to get one percent of the purchase price in investment in monthly rent, and that's hard to do if you buy a really nice house in a great subdivision and a great school district, but you can do it more off-the-beaten-path places or homes that need a lot more work.

Ryan Dezember: Well, you ended up being a little bit of an accidental landlord because you had your house in Alabama and then you had to move to Houston, and you had some misadventures there with tenants taking things. What advice would you give someone if they ended up in a similar situation?

Ryan Dezember: Well, I thought about that a lot and I studied it after the fact, like should I have just walked away and taken a chance with fighting with the bank or whatever wasn't covered? If you walk away from a mortgage in most states, Alabama included, if you owe $100,000 and then they put the house, they auction in the court house steps and they only get 50,000, you will have earned 50,000 and most likely they're going to try to get it from you and make your life difficult until you pay it. I chose to stick it out. Now, of course, I didn't know how long it would last and if I did, I might have made a different decision. But I would say l was very nervous about leaving the home alone, empty. I felt like as soon as somebody was in it that gave me comfort. It was a false comfort because there was turnover, there were problems with tenants.

Some tenants would steal everything, some tenants would stop paying and not respond to you for months until you threaten to evict them, and then they disappear in the night. There was all kinds of stuff like that, and I have to be honest, that was hard to deal with the uncertainty of it. Even though I have a reputable property manager, it cost a lot. It ate into my not even profits. It made it more expensive for me and deepened my losses. But a lot of people are doing it now and it's by choice. I think having your mindset different, if you go in by choice, "I live in New York, but I really think that the national market is great, real estate markets, so I'm going to buy some houses there, pay somebody to look after them." I think you go in with a different mindset where you're more comfortable thinking about it that way than if it's your house that you live in, and your home, and you walk away and you don't know what's going to happen, but you know other people are going to be living there.

But I think that's a different psychological thing where, if I was going to do it again, I would want to go into it not reluctantly and fully planned. I would consider who, if it was at a distance, I would want to know who is going to be looking after it rather than just hiring whoever it was in town at this property management. I would want to have some trust or almost like a business partner, a relative or a friend. Somebody really on board unless I was a big enough landlord to buy enough houses to really pay somebody to do it full time for me. I think that's the key to me would be getting that comfort of, if you can't be there, have somebody else that can. We hear about a lot of people investing in properties far from where they live in. If you do it through a retirement account, often the tax rules mean you and anyone related to you can't have anything to do with the house. You can't send your nephew over to cut the lawn, it wipes out the tax benefit. In those cases, you have to fly blind and do it and the system is set up for that to happen. In a way, it might not be that different than if you're investing in anything else. If you buy a big chunk of shares in some company, you don't know what the executives are going to do really. You don't know what's going to happen to your money either. I think having it be some place that if it had been your home and if you ever have that emotional attachment to the place, that if it's purely an investment decision and you're looking for yield, you're thinking about yield, you're not worried about what's happening to the yard, or the floors, or whatever.

Deidre Woollard: Yeah, it does let you be a little more dispassionate, I think. I want to switch the talk a little bit about the speculation side of the book and what happened in that condo market. I thought one of the things that was really fascinating was the role that zoning and planning commissions play in real estate speculation. You mentioned earlier what happened to the mayor. Did towns just get greedy or what forces do you think are at work when all of a sudden you see where there were single-family homes now there are these giant condo towers?

Ryan Dezember: The debate was always like, there were people that live there and they didn't want it to change. They moved there for a reason and that was the place that they expected to live in. Then there were people who are maybe sensitive to ecological issues. But then in a town like that where that was a tourism town, if you weren't making money serving tourists, you're probably making money building something that they could stay in, or otherwise spend their money in a condo or restaurants or shopping. You have this other part of the town and the populace that really wanted the economic development and that was their livelihoods. In that context, those were the two forces and of course the money went out. It was basically came down to seven people in a small town. If you could get four of them to agree with you to turn that lot that was zone for beach houses into something call it a 30-storey tower, then you could do it. There was tremendous pressure on these individuals who were, in these small towns there are not pure politicians. The city council people are making like 10 or $15,000 a year for part-time job. The mayor is getting $20,000 a year for what was definitely a lot more a full time job. The temptation there was, "We can not only make the people happy that have voted for us and be this hero that's bringing economic developments to the town," but get a piece of it for themselves as well. That's what happened in that case with city officials. They just couldn't put themselves in the mindset that they couldn't play the game because they were refereeing the game. You got all kinds of wild stuff.

The mayor was taking trips and staying in developer's condos in New Orleans, and getting huge cash infusions like big city politics in a town where there's 5,000 voters and pax contributing. Really wild stuff for a small town where a few years ago the big issue was, "Do we resod the ball field?" That's like the town it was. "Do we renovate the library?" All of a sudden we're making decisions that hundreds of millions of dollars are being made or lost depending on one person's vote going one way or the other. Just desire for people. Once a few people started flipping condos and making money, and you heard they would make hundreds of thousands or tens of thousands on a flip, with basically no money down, no risk to their own aside from a hit on their credit quarterly. Those stories get out, and all of a sudden, everybody wants a piece of that. Then all of a sudden, you have people who can never afford to close on a handful of $800,000 waterfront condos on the gulf, yet they've got contracts to do so if they can't sell them to somebody else. You've got a lot of people that just got swept up in the frenzy, and it was just a ball rolling down the hill that couldn't really be stopped until it really just hit bottom and exploded.

Deidre Woollard: That's really true. I always find that one of the things that mystifies me is when you see people flipping things that haven't even been built yet. That always seems particularly crazy to me. But it absolutely happened because people got so wrapped up and they got so exuberant, they saw other people making money, they didn't want to miss out. I think that's part of what happens. One of the things I saw in your book, you did a really great job of talking about the auctions, and what happened when everything went the other way. It seemed like it really took a long time for people to align their perception of what their condo was worth now versus what they had thought it was going to be worth.

Ryan Dezember: Right. You get into it, and everybody around, all your neighbors, "Oh, I made 100,000 flipping this," and it took a month, and you get into it. You're like, "No one's coming for it now that I have it." That happened on a huge scale. Then, of course, the domino effect is, "I can't close on the unit developer, so I'm out." He's going to sue you and go after you. The bank that said that they vouched for you and said they would finance, they walk away, they get entangled in the lawsuit. The developer doesn't sell the units, he thought he did, so then he can't pay his bank loans and his contractors, and there's all those lawsuits. Then in Alabama, there was a bank that was financing a lot of this stuff, and it all snowballed up to them that they sold to another bigger bank, and it blew up inside of their bank. Some bank in Central Ohio that really had no business being in my construction finance on the gulf, just like regular people, couldn't resist the temptation of that sort of money.

When I first got to Alabama, it was either early 2003 or early 2004, there was a realtor down there named Bob Shallow, and I read a little blurb in the paper just before I started out, so researching the boldface names in town. There's this little thing. He sold 30-some condo units that didn't exist yet. It was something like 26 million worth of condos, and basically, just opened up his Rolodex. It's open for sale and sold all of them in an hour. What do you do in an hour? I couldn't do that in an hour. It was just totally impressive to people. The thing with real estate, you can get an idea of what people are making because the fees are standard. You take a six, seven percent fee on that sort of transactions, and it starts adding up, and then you find as soon as those people's spoke for those condos, that realtor was able to then sell it for a little bit more to somebody else and then somebody else. People could do the math in their heads and realize, these people who are doing real estate are making money like professional athletes and actors, this is crazy high money.

That inspired people to go into real estate, that inspired people to invest in real estate, often with no money, of course. It was just like infectious disease that just spread around and no one, even very educated, otherwise, very savvy people even got caught up in it. Then a lot of people who really shouldn't have been, and somebody along the way should've said, "You know what? You can't vouch for you. You make 40,000 a year, we're not going to give you a contract to buy pre-construction units that cost 800,000." But no one said, no one did. Of course, it all went sideways. The knock-on effect of that was once all those people walked away, the banks were hurting, construction stops, businesses come to a halt. Then the regular people in town, the people that lived in my neighborhood, suddenly didn't have the same paycheck, their earning paycheck. Then they get foreclosed, and that's when it really cascaded. That's when you think, that's the financial crisis, the housing crashed. But it was almost a little aftershock of the initial thing where speculators just walk away and left this mess of unpaid for real estate.

Deidre Woollard: That's a great place to take a quick break. [MUSIC] We hope you're enjoying this and every episode of the Millionacres Podcast. If you have a moment, we'd love to hear from you. Please visit, and tell us what you think of the podcast so far, what kind of content and guests you'd like to hear, and what else we can do to help you go smarter, happier, and richer through real estate. [MUSIC]

We're talking today with Ryan Dezember about his book Underwater, that talked about the last foreclosure crisis, and his personal journey as a homeowner. You've just mentioned Bob Shallow, and I thought he was one of the most interesting characters in the book because he got out. It reminded me of the story that famous investor story of Joe Kennedy left the stock market because the shoeshine boys were giving out stock tips. I feel like Bob Shallow was a little like that, in seeing the crash before it was coming. What can we learn? Do you think from people like Bob Shallow, who were able to see like okay, everybody is being a little too excited about this.

Ryan Dezember: The main thing that stuck out to me is that if you were working with him and you listen to him, you would have done really well. If you didn't, and you thought maybe, "My buddy just became a real estate agent. He used to work at the outlet mall, managing the store, but now, he's a real estate agent, I'll do this with him. I think that's when people got in trouble. Bob Shallow had clients who he was saying, "We're going to stop, this money party's over. This is getting too hot, too toppy, the numbers don't work anymore. It's played out. We got to go to the sidelines, they'll be an opportunity later when the market crashes." People couldn't listen to it, they couldn't stop. That's like the gambler who can't stop. But a lot of other people, I think, just got bad advice. I would say like Bob Shallow, some people will say, "Well, look what he did. He started this whole thing. He was the guy that got the ball rolling. He brought people with money to town to invest in these condos, which enabled the development and spurred more development."

But he was the number 1 grossing realtor for RE/MAX worldwide for three years in a row, and he may still be in the top five. He's still very successful. You're like, "Well, there's people like that who just knew and had been through cycles before and understood what to look for." I think the thing you can learn from them is to work with them or imitate people like that. A lot of people try to imitate the result without imitating everything that came before, all the research, the knowledge, basically, the experience. He had started out in the savings and loan crash, so he knew what it was like to see a building get built have no one move in after they signed contracts saying they would. He saw the conditions and knew what was coming. A lot of people, myself included, I've never seen something like that. I was a child during those times, so it wouldn't have occurred to me. All I knew was real estate goes up. If you want some, you better get some now, because it will be more later. Which even though that conservative way of thinking about it, it's still like a speculator's mentality if things only go up. It's just another way of acting on it.

But yeah, Bob is a real fish out of water, for sure down there. A fast-talking new Englander in a small fishing town, resort area, and unlikely person in those towns, that's usually somebody who grew up there, who's got family name or whatever. He was a very interesting character because he'd come there and conquered it, doing it his way, which I thought was very interesting, and made him such a good character. Besides the fact, like you said, you think, "He's the guy leading the charge if he's going to blow up, and he certainly knew to step back. I think that's the thing that we always forget to look in the past, we have very short memories. Don't remember that these things can happen. I would say the thing you can learn is just to find somebody like that and listen to them when they dispense advice.

Deidre Woollard: Well, I think that's one of the things that is happening right now that has me a little concerned is we've seen the real estate market this spring and the summer has gone crazy post pandemic. We're seeing prices go up. National Association of REALTORS, existing home sales, they keep going up and up. Prices are now up double-digits year-over-year, it seems really, really speculative again.

Ryan Dezember: Yeah, mass unemployment, home prices are rising, millions of people are not making the mortgage payments. It's a very weird time. The thing that we have this time that's different is these big institutional buyers, and just regular investors who are looking to get yield anyway they can. You had individual investors before but you didn't have that institutional buyer that whether it's the Invitation Homes or American Homes 4 Rent or other private equity firms buying homes by the thousands, or these firms known as iBuyers. They use computers to find and to identify most priced homes and try to flip them. Now, there's this interesting thing where there's flooring of prices in a lot of markets. As soon as they hit a certain point, that bid comes in and buys whatever it can. There is potentially a little downside protection this time that we probably didn't have before. But the price is going up in a pandemic. It's a little bewildering. Interest rates are so low. I think a lot of people are thinking, "Let's act on that now."

The COVID thing is probably spurring people who thought about moving to the suburbs and out of cities to do it now instead of wait. There's [inaudible 00:29:19] , bunch of people who realized their apartments are great to sleep in during the weekends, but not a great place to have home office or children running around being home schooled. I think there's probably some point in the not-too-distant future where the qualified buyers start to run out of their houses. Then more and more of the homes that are in the market will probably be bought by investors, who may just buy them at the current prices, may wait for prices to come down a bit. One of the really interesting things now is companies are raising hundreds of millions of dollars to build houses just to rent, which like really said something about their profitability and their outlook toward this permanent suburban rental class that they would buy or build a brand-new home expressly to rent out.

Deidre Woollard: Yeah, we're seeing more and more of that. I think that's partly because the homeownership is just out of reach for so many people at this point. They still want to have the experience of living in a home so that becomes part of it. Certainly with, you mentioned before Invitation Homes and Blackstone investing in them and then Blackstone got out again. Now I'm wondering too, if we're going to see another big round of capital getting ready for what potentially could be a foreclosure crisis. Not this year, but potentially a year or two down the road.

Ryan Dezember: Well, we're already seeing it since the pandemic began or at least the economic lockdown in the US, like mid-March. Since then, I don't know off the top of my head, it would be something similar between seven and 10 billion dollars have been raised by those companies. Since we knew that tens of millions of people lost their jobs, investors have looked at that sector and said, "Let's go into single-family rentals." Invitation and American also run the two biggest public companies with about 130,000 houses between them. Both done hugely oversubscribed in successful stock offerings.

Big private investors, Blackstone, sold out of Invitation Homes which they created a decade ago. Now it's turn around, another arm of Blackstone has invested I think 207 million in arrival of Blackstone that's got expansion on their mind. Koch Industries has invested. Brookfield, serves as Canadian answer to Blackstone, big property investor, has bought a single-family landlord raised 300 million for them to expand. The capital, a lot of the large private equity-owned landlords have been selling these rent back bond. Investors just love it because there's some yield and there haven't been any default yet. Those bonds are looking mortgage-backed security, except when you pay rent, instead when you pay a mortgage just close up to investors. Since everyone shutdown and the world went sideways, there has been this huge influx of capital into that sector.

You're right. It's hard to say whether there'll be a foreclosure crisis because the government regulators have their finger in the deck right now holding everything back with the moratorium, it gets difficult forbearance period that government insured mortgages, government act mortgages. Eventually those protections will have to be let go. Something will happen. What's really interesting is last time that we had a big foreclosure crisis, prices were plummeting and people couldn't sell homes. Now there's a historically low number of homes available for sale relative to US households. There's a lot of people coming of age, like a big demographic wave of people. You might heard of them, they call them millenials. That's the time to buy in their life. You have these conditions set up between investors, regular on house hunters and the shortage of homes. Yet home prices are rising. You could conceivably have people who are forced to sell because they can't make payments anymore because they've lost work. But they have so much equity in their homes because prices have gone up so much in recent years. It's almost like you can get booted and then handed a check for $100,000 or something. It's inconceivable what's going on. But I guess it really just shows that this current crisis we're in has redefined the class lines. I think a lot of people who probably thought themselves in middle-class are reevaluating that now. Depending on what industries they we're in and what their employment situation is. I think there's going to be sadly, a lot of people who are homeowners now who won't be in a year or two. It could take years to play out. In our meetings at the Journal we're always reminding ourselves that which call into 2008 foreclosure crisis, but home prices didn't hit rock bottom until the end of 2011, early 2012. It could be a long time before we see how it all play out, but certainly there's trouble looming.

Deidre Woollard: Well, that's a really good point that I always think about too, is that we don't know sometimes and certainly someone always ends up holding the bag. But going back to iBuying because I think that's a really good point that you made that it's different now because there weren't iBuyers in 2008-2011, that just wasn't a factor. We saw recently Opendoor, which was a startup, is now going to hit the public market. We're seeing Zillow, Redfin ramping up again after stopping during the heart of the pandemic. Do you think that is going to be a larger part of the market or is it still going to be just one option?

Ryan Dezember: I think it's going to be a big part. It's hard to say. I always looked at it skeptically and thought, is this one of those things where once the VC money is spent, it'll go away. It will be a niche piece of the market. But one of the things they have going for them, is if they get stock with the house, the big iBuyers, they basically fall around the big rental companies and they look for the same house. A big reason for that is, if they buy a house, say in a Phoenix suburbs somewhere in subdivision and they can't sell it to the open market where they think they can get a higher-price, they can turn around to Invitation Homes, one of Opendoor's, early investors, by the way, or American Homes around the progress residential. One of these that we just talked about, these companies that have billions of dollars on the books, ready to buy houses.

They have a waiting buyer there. They're probably not get a great price, but at least they can get it off the books. Those companies are so desperate for freshly painted homes that they can put people in. One of the really interesting things about the pandemic was, we were worried about, how are people going to pay their rent? These big companies, they have had record occupancy, records showings for any home that hits the market, they've raised rents, they've been raising, they never stop raising rents on new leases. Now that began to raise rents again on renewals. If people are having problems paying, they wouldn't be at this record occupancy. I think that's a reflection of the biggest companies targeted a certain type of resident. They wanted someone with children, so they went around and bought in good school districts and bought the houses that you'd want if you had a child or two. The thinking, is that those people are going to be less likely to move out over rent increase. You're not going to want to move your kids to different school or take them away from the neighborhood friends. They might just not move a house full of stuff, which somebody in an apartment might be no problem. They targeted those people early on. Now, the American Homes 4 Rent and Invitation Homes, both, their typical tenant is a household earning $100,000 or more. They're like late 30s, early 40s, they've a child or two, they almost always have a dog or a cat. These are people that stay in these homes and by all concepts, basically treat the places like they're their own. As if like they're not going through like a college kid, like whatever, I'm leaving in a few months, trash the place. No. They're living there, and they're in these homes, and that means they're probably going to want to stay there for a long time. Those folks didn't see the economic damage to those people that you see maybe in apartments where you have maybe more service workers or lower wage earners, and there are people who "First-in, first-out" situations and companies, and they are having problems. But these home rental companies, the big ones, they're having the best financial results of their existence, which is another sort of very goodwill or anything, amidst the job loss and all that economic woes that we have today.

Deidre Woollard: Yeah, I think so too, because you've got this situation now where Zillow, and Offerpad, and some of the others are partnering with homebuilders. You've got them moving those move-up buyers into new homes and then you've got those older homes being processed either to other buyers or to the rental markets. It's a weird cycle that seems to be building, all the pieces didn't connect before and it kind of do now.

Ryan Dezember: Yeah. It's very strange. It's really interesting. US single-family homes, depending on how you count them, most days, they're the biggest asset class in the world. But they never really, until 10 years ago and really more recently than that with the iBuyers emerging, they never had big players. They were all owned. There might be a landlord in a town that own a thousand, maybe a few hundred, [inaudible 00:39:37] 20,000. No limit with flipping thousands of houses per market a year. It speaks to this entire shift to real estate. When you buy a home today, chances are, basically, the process is going to be the same way your parents bought a house. Probably, the same way your grandparents bought a house. It's a very old fashion transaction, signing a lot of papers, being in-person, waiting for things to clear from person to person, and there's a lot of capital and brainpower going for changing that to modernizing that so that we can buy houses where we do stocks and bonds on these things. It now ties with who the buyers are. Those are the companies that will be able to force that shift.

You see all these VC companies coming up with their new annual on something, like when you guys just reinvented reverse mortgages and put a cute new name on it, you can't really see how that could catch on really, that it's a niche. But then other things like the iBuyer, effectively, a buyer of last resort. If you have an emergency or you have a job change, and you don't have time to fix up your house, and list it, and have open houses, then call Opendoor, they'll take care of it. You're not going to get as much as you would the other way, but a lot of people don't care. Those businesses, it will be interesting to see how they work in a down market because if you bought equity in their homes, they're not going to equivalent over the last 5,000 or 10,000. But times get tough and prices start falling, that becomes a bigger issue. Or people who buy now at the top, and you don't see that appreciation. It's already expensive enough to sell a house with just the regular system. Are you going to take another like five or 10 grand off because they're going to paint your kitchen and put in some new carpet? It'll be interesting to see how that goes, but all those companies, they all have a different angle, but the true changes just really changed that transaction from buying a house now the same way you would in 1980 and making it like a 2020 transaction. It will be interesting to see if they succeed, there's things like an appraisal and valuation you can see a computer doing. There's other things like inspections and just having a broker, a knowledgeable real estate person by your side, or weighing whether it for most people the biggest money decision you'll ever make. It's hard to see some of that going away, but then other things, you're like, "Well, yes, sure, a computer can do that." If a computer can tell me how much GE stock is, why can't it tell me how much that house is worth.

Deidre Woollard: Exactly. Well, thank you for your time. I want to wrap up with one question about the role of climate change, because I think it's something we're all thinking about right now, this year with wildfires, we've seen more hurricanes in the Gulf than ever before. It played a role in your book as well, the impact of hurricanes. Do you feel that that is going to be a factor, not necessarily foreclosures, but in terms of the value of homes going forward?

Ryan Dezember: We've already seen in some places in coastal, like waterfront real estate has been harder to sell. That's true. It's hard to say whether it's because of the cost, and the insurance, and things like the risk. We also see that homes on golf courses don't sell like they used to. I don't know if there's risk there. It's very interesting though because when you talk to somebody in finance, they'll say, "Okay, what's the hedge on climate change?" Property around the Great Lakes, or property in Canada, these things where we see the chart that show, "Okay, by this year, this is where we humans will be able to live." These very scary things. Americans are just still migrating to the Sunbelt, migrating to the coast. Phoenix add something like the equivalent of Kansas City every 10 years or so. It's like they are out on the desert, no water. They don't have hurricanes, earthquakes, but they lack a lot of other things that humans usually need to survive. It's hard to square with the way we talk about this and the way that we think about this, and then when it comes to buying a house, you're like "Yeah, let's go to the beach." But yeah, they came to mind when Sally hit gulf shores, Alabama. When was it? Last week. That was, I think 16 years to the day when I've been hit, and really destroyed the place, and set what was essentially a blank palette for developers. It'll be interesting to see, do they have to go out and spend $50 million to go out, and scoop sand out of the water, and rebuild the beach. Because if they're not, gone all the dunes to build towers. As we've seen it happen, it will be interesting to see if people go back to areas where they were. People really are stubborn and have a tendency to go back, even these towns that get burned down, and people are moving back in. It's a strange thing that we don't really always act on our beliefs in that regard. But yes, so far, we haven't seen any slowdown. If people were in mass thinking about that, places like Cleveland, and Milwaukee, and Detroit would be like Phoenix, and Las Vegas, and Miami. But for some reason, they're not.

Deidre Woollard: That's a really good point. Well, thank you. This has been great. People can find your book in bookstores, is that correct? It's called Underwater, right?

Ryan Dezember: Yeah, Underwater. Wherever books are sold or lent, libraries should have it too.

Deidre Woollard: Excellent. They can catch up with your writing at The Wall Street Journal, correct?

Ryan Dezember: Yes. Of course, always.

Deidre Woollard: Great. Thank you very much.

Ryan Dezember: Thank you. [MUSIC]

Deidre Woollard: Thank you for tuning in to the Millionacres podcast. I hope you liked today's show. If you enjoyed this episode, please consider subscribing through your favorite podcast provider. If you have any questions, please feel free to drop us a line at Stay well and stay invested. [MUSIC] People on this program may have an interest in the deals, offerings, or services they discussed. At Millionacres or the Motley Fool may have a formal recommendation for or against. Always consult to certified tax professional before acting on tax advice and do not buy or sell assets based solely on what you hear. [MUSIC]