Heroic Investing
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The US Housing Market – Macro to Micro

Former Speaker of the House, Tip O’Neill, political adversary to President Reagan in the 1980s, is often credited with the uttering the phrase, “All politics is local.” While not a fan of the man’s political point of view, Jason Hartman realized the idea of applying micro thinking to a macro concept was brilliant, and that’s exactly what this real estate educator and founder of Heroic Investing did.

For convenience, the national media has always referred to the US housing market as a single monolithic entity which can be encapsulated in quick sound bites, but for real estate investors looking to invest in history’s most profitable asset – income property – the reality is not quite so simple.

Need an example? If you followed national stories on the “housing market” the past few years, you’d probably decide to bury your cash in a mason jar in the back yard rather than buy a piece of property with it. The bubble had burst and the fallout was – still is – traumatic. Investing was out of the question until the economy recovered. Or was it?
Here’s the basic problem with thinking our nation has a single housing market. The United States is comprised of 48 different states (we’re tossing out Alaska and Hawaii for simplicity; sorry) stretching over 3,000 miles, and including between 25,000 to 50,000 cities and towns, depending upon how you want to count them.

Would anyone in their right mind be silly enough to think that real estate conditions on the ground over this vast empire of freedom is one clump of non-unique behavior? The truth is it isn’t. Five years ago, while places like California and Florida were busy destroying wealth and lives with plummeting prices, Jason Hartman and those who followed his philosophy on income property investing were reaping nice returns in places like Texas, Indiana, and Missouri. More importantly, Jason targeted specific cities and even neighborhoods within these areas.

Don’t look down or you might get dizzy. We’re in micro land now. Conditions on the ground in certain neighborhoods in Austin, Texas, are about as similar to Orange County, California, as they are to Mars. You simply can’t make the comparison with any sort of accuracy. Buying southern California real estate in recent years would give new meaning to the phrase “negative returns.” At the same time, many new Austin landlords were banking returns that exceeded what Wall Street does in any given year.
When it comes to creating wealth in real estate investing, looking at the big picture isn’t always the best thing to do.

Most importantly, an investor should never let him or herself to become emotionally attached to any area. We call this idea Area Agnostic™. Read more about it here. (Top image: Flickr | davidrossharris)

The Heroic Investing Team


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