The housing market has continued to vex us in recent years. Prices have been surging. Renters are staying put with fewer options to relocate as rents climb. And on top of that, mortgage rates remain high. What should you consider if you’re trying to invest in real estate?
Bill Pulte, from the famed PulteGroup, the third largest builder in the country, joins Eric Chemi to give his advice on what to look out for when investing in housing, his personal & family investments and his relationship with the company now.
Eric Chemi 0:04
Hi and welcome to Wealthion America Chemi. The housing market has continued to vexes for the last few years, prices are going sky high, renters continue to stay put, there are so few options of where to go is prices surge on top of that mortgage rates, not helping anybody right now, our guest today is the perfect one to talk about all of this Bill Pulte. He’s from the famed Pulte family, the pultegroup, the major home builders, if you haven’t heard of them before, they are the third largest builder in the country, we’re going to talk to him about the company’s investments, his relationship with the company now, and his personal and family investments as well. He’s also got advice for people who might want to get into real estate investing or land speculation. He’s got advice on what you should look out for, and some mistakes to avoid, so you don’t lose your shirt. So Bill, thanks for joining me on the show today. Really appreciate it.
Bill Pulte 0:53
Thank you. Thank you for having me. Really appreciate it Eric.
Eric Chemi 0:55
What is in your opinion, the biggest problem right now in the housing market,
Bill Pulte 1:00
It is really the zoning issue that we have all across the country, you know, zoning is really creating the inventory issue that you hear about all the time, you know, you hear all the time that you can’t buy homes these days, except for at astronomical prices. Eric, that’s really because of the zoning regulations at the local level, you know, it, it’s one of those things where people do not want new developments being made, there’s an environmental push more than ever. That’s the biggest issue that’s keeping home prices up.
Eric Chemi 1:30
So walk walk me through this, because we know that population isn’t growing that much, right? Everyone talks about in America, people are having fewer kids, right? Or, you know, back in the day, what do they say like, there’d be a family of two parents and five kids living in a 1600 square foot house. Now it’s two parents in one kid living in a, you know, 3500 square foot house. So we were fewer people, you know, per family and growth is not that big. So why, why then is there not enough housing to go around?
Bill Pulte 2:01
I think, you know, we do have a little bit of population growth that we’ve had in the United States. I think that, you know, also the immigration issue has made it so I actually think that there’s been quite a bit of immigration, just my own opinion in the last five years or so. And I say that because we own a lot of kind of lower, you know, more affordable housing projects that we own as a family. And a lot of them tend to be immigrants, believe it or not, and we’re seeing just a huge push in immigrants. So I do think actually there is some tailwinds with regard to population. But you raise a good point, you know, where Who are all these people buying all these homes? And I think for some crazy reason, people are able to qualify for mortgages these days, and blows me away. But Eric, if there’s a disruption in the labor or jobs market, I think you could see potentially people not be able to get these homes that they’ve been able to get.
Eric Chemi 2:51
There’s there’s so much there’s so much here. So the local zoning rules and I get it because I’m you know, I’m at home, I’m looking out the window right now. And there’s a lot of old houses, right, my house is 60 years old, the rest of the blocks 100 years old. And the idea that even gets floated around that, oh, this might turn into a multifamily zone. You could build,
Bill Pulte 3:13
everybody will freak out, and there’s no shot in hell, that thing will get built.
Eric Chemi 3:17
Exactly. Everyone will freak out. No one wants to get that built, people have lost their minds just in this town because they built an apartment building that has 75 people in it right and it was sitting on effectively an empty parking lot. And everyone’s losing their mind. Like you know, our town of 25,000 can have another 75 people living here because it’s going to cause so much traffic right so they they were able to get those through. But I think about it from the Single Family Housing point of view, the idea that you would do this multifamily zoning. Hey, you can do what are they called? Like the inlaw. Like in the backyard, you can build almost like a theater Charles. Yeah, the
Bill Pulte 3:55
accessory adu is accessory dwelling units,
Eric Chemi 3:57
you know, at us. Exactly.
Bill Pulte 3:59
So, looks like a Shani, you know, I mean, we’ve really kind of reverted as a society in some ways. Go into that, tell
Eric Chemi 4:07
me tell me about that. Well, you know, you know,
Bill Pulte 4:09
we had for 2000 years or whatever, right? We had open space, people would make teepees, they’d make tents and these type of things these days, you have to get crazy amounts of approvals just to put something in your backyard. And, you know, I think I admire that they’re trying to get these at us and stuff like that. But those are even difficult to get done. And then you got to be worried about whether this regulator or somebody will allow you to even do it. It’s a really big problem, Eric, I don’t see it being solved anytime soon. And I think this is why, you know, we’re here to talk about also wealth, I assume you tell me, and I know we’re getting into that. But I’m saying if you want to talk about how to make wealth off of this, if if one were to ask that which I’m sure is where you’re headed, is you know, these big builders and obviously the sounds bias, but you know, they’re taking market share, and they’re able to get zoning that many of the other builders aren’t able to get and they’re able to take down these big pieces of property, and they’re able to get around these zones. And then these other regulations. And so I think that’s actually why everybody is so surprised, Eric, about how these builders have done so good is because they almost have a monopoly in some ways in some of these markets. And they’ve gone from, you know, 10% market share years ago to now almost 40%. I think they’re gonna go the top builders, Eric, I think you’re gonna go to 50% of the entire housing market in the United States. I mean, that’s insane.
Eric Chemi 5:24
When you referenced the top builders, what are the names that you’re considering in that group,
Bill Pulte 5:29
you know, the top 10, I would say in that in that in that group. So you know, you’d look at Linaro Dr. Horton NVR. Unfortunately, Pulte these days is at number four, but we’ll see if that’ll get back to number one, Taylor Morrison would be in there, KB homes would be another one in there. I mean, even with those names alone, you’re north of 30% market share. And Eric, in the Great Recession, you know, everybody thought that the big builders would keep getting bigger. But that kind of went downhill, and they kind of lost market share. And then in recent years, they’ve, as I said, have gotten back north of that 30%, up to 40%. And I think they’re headed to 50%. And that’s going to be enormously beneficial. And I think you’ve already seen that in the earnings of the big builders.
Eric Chemi 6:08
So you mentioned a couple of things, obviously, local zoning rules, you can’t fix on a federal level, right? Every towns got their own rules. So that’s the problem. But the problem is making 1000s of towns across the country, you can’t go town by town and fix these rules and say, Hey, you all need to start easing up on the zoning. Right? So that’s number one. But
Bill Pulte 6:30
And real quick, just on that if I can, yeah. In Japan, I don’t know if you know this, Eric, but in Japan, they have boom, one code, and all you have to do country code in the whole country. Okay, wow. Just go boom, boom, boom, boom, boom. And so everybody says, Well, why can’t we be like Japan? Why can’t we make this product everywhere? Well, first of all, they have lower lesser landmass, so they can transport product, but they also have the zoning issue figured out because they have one national building code. And unless we do something like that, which I don’t think is going to happen. I don’t see all these municipalities getting on the same page anytime soon.
Eric Chemi 7:04
It’s hard to imagine in Japan, because you’ve got these mountains, and then you’ve got Tokyo, the idea that they have one code in such a diverse type of ecosystem is impressive, because here, the United States, you know, New Jersey is very different than Texas than Alaska, then Wyoming that West Virginia, right, in California, it would be impossible, no one wants to give up their power, you know, cities, counties, states, no one’s gonna give up their power to say, Okay, someone else can dictate code to me.
Bill Pulte 7:33
Yes, yeah. I mean, the power of democracy and the downfalls of democracy at the same time,
Eric Chemi 7:40
then. So we know it’s going to the zoning is not going to change on a mass scale, because it’s town by town, that’s not going to change. But then you’re saying, if I understand, right, somehow, the big builders have cracked this code, like despite these issues, because I see a lot of developments. So I look around, I think there’s a lot of developers wherever you go different states different areas, somebody’s paying off the right guy, or somebody knows how to get around the zoning or something someone’s getting approval is that you’re saying the big companies have an advantage in this in this way? Well, they have
Bill Pulte 8:11
an advantage in the sense that they can last longer than the smaller builders, you know, the smaller builders, they can’t sit there in some cases and wait two, three years for approval, right? They have a cost of capital that is materially higher than the big builders, the big builders, they have Eric, as you know, very well, they have the public float that they can borrow upon. And so they can get really competitive interest rates. They have enormous liquidity at pultegroup which, as you mentioned, I’m not involved with it anymore, but I’m very active from the outside, in my opinion, is you know, there’s almost $2 billion worth of cash, that’s a lot of cash, there’s no way that the smaller builders have $2 billion worth of cash to basically go and bankroll projects prospective projects you know, with these different zoning and carrying you know, carrying this thing year after year after year and fighting with these local municipality so that’s just my opinion, Eric $2
Eric Chemi 9:03
billion, obviously a lot of cash right, let’s say let’s say a really nice house maybe you’re spending 500,000 on that bill like a high end house, maybe they they sell it for a million dollars something like that of a high end it’s the sum of the things I see here outside the new york city suburbs area, smaller buildings, your definition of them is what someone who’s got you know, are you measuring on dollars you measured on volume activity, is it took a mom and pop small build
Bill Pulte 9:28
volume, you know, five to 20 homes a year something like that. I mean, you know, we haven’t even gotten into the whole labor and building materials side of things, but when you can, building materials side of things, one of the big things that the builders have had to Eric is in addition to zoning and being able to carry this stuff is they have not experienced inflation like a lot of the small builders a lot of these big builders had remember when lumber shot up a couple of years ago and stuff like that, and people said, Wow, this is gonna be terrible for the big builders. Well, a lot of the big builders were hedge literally hedge on their lumber exposure. So you You know, a small builder, you say hedge that in some cases, they wouldn’t even know what you’re talking about.
Eric Chemi 10:05
How are they hedge? Because I don’t think I heard a lot of people talking about the hedge. I heard a lot of people say, hey, lumbers up, that means you’re going to spend more. And it’s going to cost more along the way, who has hedged and how did they get those hedges on,
Bill Pulte 10:17
when the big builders are hedged, can be hedged in two different ways. Number one, they can be hedged with futures contracts, which is, you know, just basic futures contracts, they can say, Okay, this is what we’re going to do, this is how much we’re going to do, we’re gonna buy exposure to make sure if it goes up by this, we’re protected. The other way, which is also perhaps more common is working with the suppliers, and basically saying to the suppliers, who traffic in the lumber, hedging business and saying to them, Hey, look, can you fix enterprise for this amount of time, and if it goes up by X, Y, or Z, you know, this is how you’re protected. And remember, you know, these big lumber guys not to get too into the weeds here, but the lumber guys, they’re going to protect the bigger builders, they’re not going to protect necessarily the smaller builders, you know, the big builders, Dr. Horton, winnaar, NVR mean, these guys are moving significant volume, they’re going to make sure that those guys are taken care of, in my opinion, from a hedging perspective, from a pricing perspective, rather.
Eric Chemi 11:16
So where does that leave us? Because I want to get a little bit into sort of the problems and layout everything that profit and then get into the opportunities, right, so So we talked about inflation, rental prices, people can’t afford a house and you hear this idea of every it’s going to be a nation of renter’s right, big corporates buying up all the houses so they can rent them out, and No normal person will be afford to live in a house, they’re going to rent, they’re going to rent forever, in terms of crazy
Bill Pulte 11:44
thing. You know, we’ve gone from this environment where, you know, the whole market blew up, everybody was trying to get, you know, all these builders were trying to get rid of these things. And now, they’re like these hot commodities. And then you got these rental prices, which frankly, have started to finally calm down. But Eric, I think over the next 234 years, you’re gonna see real acceleration in rent, and I don’t see these high home prices, I don’t see these things crashing anytime soon.
Eric Chemi 12:07
So So you think rents gonna go up even faster? And the housing prices are gonna go up? I
Bill Pulte 12:14
don’t know, on a per cent basis? That’s a great question. I don’t know, on a per cent basis, if rate will be as fast as it was because, as you know, when we dipped with COVID, kind of reached, right. So but yes, I mean, on a compound interest perspective, is going to be considerable. I think, Eric, in the coming years, I mean, this is why I think, you know, people who’ve owned a home have generally done good is because year over year, over a year, you just get inflation eating away at this stuff. And, you know, these renters they’re passing on the price increases pretty strong, as anybody who knows rents. I
Eric Chemi 12:46
saw something on Twitter the other day, I forget who was one of these combative, Twitter type, so trying to you know, make a name for themselves and they say, you should be renting, right, then you should not be buying a house because you could use that money, and you could invest it in other areas and done it and die and rent gives you more flexibility, no maintenance, no property taxes, no, this you just get up and move. And I sent it to my wife. And I said, Oh, maybe you know, we made a mistake by or we should be renting. And she just said, do you wish you had been renting for the last six years? Tell me do you wish? Aren’t you happier that you own a house? And and you’re not renting? So I bring that back to you? Is that? Is that nonsense, crazy talk on Twitter, or is that? Does that have some merit somewhere?
Bill Pulte 13:30
Well, I think it’s almost like trading a stock in a certain way. It’s a good question. But you know, you’re almost gambling with that type of logic. And I think your wife was right to point it out. It’s kind of like, okay, well, let’s step back and look it over a long enough timescale? Sure, on a day to day, week to week, month to month, even year to year perspective, you could be down on a house. But you know, will home prices be higher in five or 10 or 15 or 20 years? And I think, you know, I would I would bet that, you know, housing prices are going to be higher. So I think it’s kind of gambling to you know, try to speculate on well, you know, we should be renting now and buying later.
Eric Chemi 14:08
So, the opportunity, that is the opportunity that however, you can get a house with whatever downpayment you have, and whatever you have to borrow, should you be buying the house regardless, even if you don’t want to live there should it be if you have extra money, and you already have a house, don’t put it in the stock market, just go buy land, go buy real estate, if this is such a no brainer. Not everyone is trying to be buying the house as much as they can. Not
Bill Pulte 14:33
necessarily. Eric, when you’re buying a house, you’re buying an illiquid, leveraged security. Right, that’s not quickly disposed of. And I think a lot of people don’t think about it that way. Because we think about a home as you know, something where we raise our family and where we want to protect our family. And that’s all fine and dandy, but we do as financial people, I think have to look at it and say, this is an illiquid, levered investment that is not easily disposed of. So I would caution people Both in buying a home. I’m just trying to point out that, you know, one needs to look at the compounding effects of rent before one does that. Now, Eric, your point is your question is a great one. And I think the way to answer it is, if you buy in the right location, in my opinion, nine out of 10 times you can do right. And we’ve looked at all kinds of data over the last, whatever, 40 5060 years, I have my family as anyway. And, you know, nine times out of 10, as I said, if you bite in the right location, you’re going to be in a good spot. Now, if you go out to let’s say, some of the suburbs of Las Vegas in the desert, or you go into some of the suburbs of Phoenix in the desert, you know, you’re not going to get that type of high probability that you’re going to be able to retain the value. So what I would say to people is location, location, location, it really is as simple as that. And they do need to look at the math because they need to make sure that they can be in a levered illiquid security for a long, long period of time.
Eric Chemi 16:04
You mentioned Phoenix and Vegas, those were such the hot areas, right, going back a few years, everybody was moving there, people were making tons of money. Is that true? Just totally over did that just go just way was way too much. And now we’re seeing the correction because I know someone that lives nearby, and they live in the suburbs of Vegas, they live in a development on the last street of the development in north north Las Vegas. And you wonder, did she buy top tech? Right? Did he make a very dicey decision, and other people who are looking to flip houses in those areas?
Bill Pulte 16:37
Well, it sounds like your friend kind of did it in a pretty good location. I’m more talking about like, in the US, you know, 3040 miles away from Las Vegas, I was actually I was actually looking at one of the area’s recently, he’s about 20 miles away from Vegas, and you’re just thinking man, and it was one particular couple communities of not not not a polti builder, but a different builder. And I was thinking, man, if the economy were to get hit, these would be the first ones to just be decimated in terms of price. And so that’s really what I’m saying. If you’re gonna buy an illiquid, leveraged security, make sure it retains its asset value in the event of a downturn. I mean, that’s a good location, a lot of people would save a lot of money, if they just listen to that simple piece of advice.
Eric Chemi 17:22
Say it again. So we can all hear it, make sure we heard it,
Bill Pulte 17:25
make sure you buy in a local market. Because when you are buying a home, you are buying an illiquid, leveraged security that is not easily disposed of. So you want to buy that home in a very, very good location. It’s a very easy thing that you would think but it actually will save you potentially hundreds of 1000s or millions of dollars.
Eric Chemi 17:45
When you define location, though, what are you looking at? Are you looking at? When are you looking at like house on a block? Are you looking at? Neighborhood? Are you looking like you said, Hey, you don’t want to be 30 miles outside of this major desert city? Is it be within five miles? How how do you consider location? And in that framework? Great question.
Bill Pulte 18:05
Every city is different, every location is different. Literally, you could have something that is one block away, Eric, and that can be a bad location. So I use the example five or 20 miles in the case of Vegas, or Phoenix, because that’s just more generally understood. But as you know, you know, you can have one good block, and then you can have another bad block. And so you really, you know, you kind of have to have the nose for the deal. And you have to try to find a good deal. And you know, obviously people go on Zillow, and they search things and, and all that before you get paranoid with that I would look at, you know, where are the new builders building. I’m a big fan of the new builders for obvious reasons to be full self disclosing. But one of the good things about buying a new home this is probably more than you wanted to know. But I think it needs to be said is new homes have not only do they have some aspects of warranty and labor warranty, but Eric they’re also being built with technology that is better than it’s ever been, in my opinion, specifically, specifically around the building envelope, specifically around the durability on floor flooring for example, roofing, even air conditioning in some cases has shown you know better resiliency in in, in prior years. So, I think all these things are a consideration. When I talk about location. It’s also about you know, what is the product that’s on that location, and that can change from block to block and subdivision to subdivision. There’s
Eric Chemi 19:33
so much there’s so much to get into you mentioned the new builds. And I hear so many people saying oh these new builds. It’s like plastic it’s cheap stuff. It’s it’s almost like they’re using the technology to make it as as thinly as possible or they say you know old houses. thick wall super durable. Yes, it’s a myth, or it’s a statement you hear I don’t know if it’s myth or not because I’m not a I’m not a builder. I’m not a contractor. What do you you say to that, because I’m sure you’ve heard that same type of thought process, right? Like, oh, new builds, they still have to settle, you’re gonna get cracks that they’re trying to make them as quickly and cheaply as possible. You can’t trust these materials.
Bill Pulte 20:13
I mean, there’s definitely some merit to that. But I would say, generally speaking, the benefit is that, you know, some of these plastic technologies, just factually speaking, you know, they don’t rot, like some type of wood does, or some other type of metal does. So, you know, even though you might have cracking, or you may have something like that they may be durable, more durable, longer lasting in many cases. The other thing is that many of these homes, for example, in Florida, where I’m at currently, you know, a lot of these homes are being built with concrete. So structurally speaking, you know, there’s not too much difference between a new building and an old build. I’m more talking about, you know, what is the flooring, for example, if you’re in a 40, or 50 year old home, your flooring, chances are, it’s probably going to be in worse shape than even if there are some maybe imperfections in some of your new flooring, or your roof, for example, you know, a 40, or 50 year old roof is gonna be very different. I don’t care what the quality is, it’s gonna be very different quality than a new build roof should be anyway. I mean, if it’s not, then we got big problems with the builder. So again, this is just one of those things, you know, let’s call it eight times out of 10, you know, a new build is going to be last longer for you, in my opinion, than something that’s 30 or 40 years old.
Eric Chemi 21:32
What are other investment strategies, then, let’s say on the residential side, if like you say, renting is going to keep getting more expensive, home prices aren’t coming down anytime soon. But someone says, Okay, I don’t want to have something levered and illiquid, and hard to dispose of, I don’t really know the locations, but I know I need to own housing. And I know I need to either own land or housing or something, I don’t care if it’s new or old, I need to have something because I think that’s a better investment than just stocks or whatever, then you know, bonds, that kind of thing.
Bill Pulte 22:04
I would say that, you know, invitation homes and American homes for rent. Those are two interesting ways to play this in addition to multifamily rental companies. The problem is Eric, is the evaluations on these companies, they trade like bonds. And so, you know, if I were an investor, one of the things that I would be concerned about is, okay, well, what what are some other up and coming names, I think one of the companies that’s doing a pretty good job on the rental side, as well as in the new home building side is a company like Dr. Horton. Frankly, when I was on the board of polti group, one of the things that I tried to point out was, you know, how great of a business, Dr. Horton was, for example, I think Dr. Horton team has done an excellent job of, you know, not just with their option based strategy, but also with the rental based business, in creating, in my opinion, multiple expansion over the last number of years. And I think that that could be a stock, for example, where you can make a lot of money again, that’s not financial advice. I’m just saying that, that is a company that I think really has the program lined up now, one of the disadvantages is that they build so many homes, that if there was some kind of labor issue or whatever, you know, they’re going to build I think something like 80,000 homes this year. That’s a lot of homes. So you do have to really be careful, but I think, you know, long term you probably can’t go wrong with, you know, the, you know, the Dr. Horton’s of the world.
Eric Chemi 23:24
What is the the secret knowledge that the big builders have, that a normal person doesn’t have? Right? When you see they, they take out a development, and they’re gonna build 100 homes and then sell them one by one. But a normal person doesn’t have all the insights, they don’t have all the data? What are some of the things that the big guys know that a small person, an individual investor, even a mom and pop, or someone who’s doing four houses a year, that kind of thing? What do they not have access to that limits their investment opportunity? Great question.
Bill Pulte 23:53
Big builders have access to a balance sheet. So they can, you know, have low cost of capital that is flexible, that they can have over a long period of time that allows them to get through the regulatory aspects of the zoning aspects in a way in addition to their domain expertise in dealing with regulation that allows them to be nimble. And then I would say thirdly, the execution and specifically around the cost management side, the cost engineering side of things, when they can buy the land for a set amount of price run volume over that land. And then in addition to running volume over that land, can have a low cost house compared to the builder reduced the cost of goods sold, they can achieve gross margins that many of these smaller builders can never even dream of getting to so it really is a good setup for the big builders The only problem is with the big builders is if you do have a problem with you know if new housing market if new housing inventory comes on new sale, you know old there’s old inventory, which has been kept off market because rates have locked people in if that were to come on market or if the job market were to have a problem. builders would have a problem. But barring that the builders are in extremely, extremely good shape.
Eric Chemi 25:05
Oh, wait a minute. So you’re saying the builders do well, because in the existing homes, no one’s selling those homes because they have a job. So they don’t need to go anywhere. And mortgage rates are high. So if they go somewhere else, their mortgage would be worse than now. So they’re stuck. So what are we the builders competition is almost like someone like me, I own a house, I want an old house. But there’s no reason for me to go anywhere. So now all of a sudden, Horton or polti, or whoever can sell the house across the street, because there’s no one else selling is that’s the market dynamic right now. That’s
Bill Pulte 25:37
correct. Yeah, the biggest the biggest competitor to new home sales is old home sales. And the basically, the old home sale market is totally locked in now, by virtue of these rates having gone up so much. So it really is a feast time for the builders. And I don’t see that changing anytime soon, barring rates changing or the labor market changing. It’s
Eric Chemi 26:00
as if rates change, also, the rates go lower, then okay, maybe people are willing to move again, and they can go get a reasonable mortgage. And if the job market changes, then it’s like, I have no choice but to sell, I lost my job, I need to go, yes, the Fed might be able to control both of those right, or all of a sudden, it’s if if they’re going to raise rates, they’re going to force people to lose their jobs. And then they’re going to have to sell and then they’re going to eventually have to cut rates from the Fed. And then that’s going to be mortgage rates down. So at some point, you might see a double whammy here. That really, that really hits the the new home builders.
Bill Pulte 26:36
You could I think it would have to be material, though, from a mortgage rate perspective. But yes, that’s exactly correct.
Eric Chemi 26:44
We see the people who say, Okay, I’m just gonna buy land, and then maybe one day I’ll sell that land to new home builder, is that a good strategy? Are there just a lot of rookie mistakes there?
Bill Pulte 26:53
Yes, it is a good strategy. But again, it depends on the location. And it depends on whether that land is entitled, what the cost is to get that land and title, which is a fancy word for saying, you know, through the regulations, so yes, land speculation can be good, it can be very profitable. The unfortunate part about land speculation, at least from a risk standpoint is unless you really know what you’re doing, it can almost turn into a gambling game. And Eric, people have lost a ton of money in the land speculation business. So before you do that, before you commit a significant amount of capital, you really want to make sure that it’s indeed a deal you want to do, this is not something where, you know, you want to bet the farm. And, you know, at worst case, you get your money back. That’s not how the land business in my opinion goes.
Eric Chemi 27:41
The other strategy I’ve heard about is, hey, this is an up and coming area, right? It’s a bad area. But I think there’s going to be enough stretch from let’s say, urban environment, I think of the Washington Navy yards as a good example, where the National Stadium is now and I know people that live there, and I know somebody who said, I wanted to buy here 1015 years ago, but my investor, my co investor didn’t want to put in the money. If we had done it, we would have made 10 times our money by doing nothing. But at the time, it was considered a bad area. Now it’s considered a nice area. So when you say Location, location, location, but how do we figure out which locations will actually change that their definition goes from bad to good,
Bill Pulte 28:23
all market dependent, all market dependent? And I don’t mean to say that, but it’s true. You know, I’m always looking
Eric Chemi 28:29
for easy answers here. I’m looking for the quick fix, right? But no, go go tell them
Bill Pulte 28:35
quick fixes to go levered long, or to go long, you know, the builders, if that’s a philosophy that you believe, but I think you got to be very careful, because if you do have some issue with rates, or you do have the labor market get, you know, hit, you can see the builders go down. So that would be the quick way to make money. The other thing that I think makes sense is, you know, there’s a ton of redevelopment opportunity, in my opinion, which is a huge way to make money in the mobile home park business by making the mobile home parks, more of a community more of a subdivision field. That, to me, is something that we’re looking very strongly at as the multifamily. We think that that is where there’s tremendous upside to make some of these communities more beautiful, more, like more of a neighborhood field and so called trailer park. So that would be kind of an easier answer, or, or investing in apartments. You know, those would be some of the, in my opinion, less speculative ways to make a ton of money on the land speculation and trying to forecast which areas are up and coming. You know, it really is a tough answer. It’s not as easy as some of those other answers I just gave you. You know, you really have to look at it on a block by block basis.
Eric Chemi 29:41
Obviously, I’m joking about the quick fix, right? Like I appreciate your candor on here’s where people can go wrong and how they can lose a lot of money. You mentioned some redevelopment, mobile home communities. Tell me more about that. I have not thought about that as a strategy. So your family’s involved with that?
Bill Pulte 29:57
Yeah, we’re looking at it very strongly. And the reason is, is because again, this zoning issue, a lot of these mobile home parks are zoned for, you know, being able to have a lot of homes have low cost homes, high quality, low cost homes. And so we’re looking at actually bringing some low cost high quality homes into some of these developments. And you know, we’ve had a number of successes in starting that project, as I mentioned, but I think that it’s going to require people to be creative, whether it’s with mobile home parks, whether it’s with redeveloping apartment complexes that are already zoned for these things. That’s where I would like to see people go instead of land speculation. And again, my family has made a lot of money in land speculation. So I don’t want to shy people away from it. But you really got to be careful. So you’re not in the gambling business.
Eric Chemi 30:44
What were what were a couple of things that worked in terms of the family strategy on land speculation, so that you made it a true investment that was thoughtful and not gambling, what were some of the philosophies around that. So in
Bill Pulte 30:56
the land acquisition, in the land flipping business, as I mentioned, you want to really make sure you have an understanding of the regulatory approvals that you can get, you know, the city water, the city sewer, that you can get it zoned properly for residential versus commercial, that you can break up the parcels the way that developers would like you to do it. So that is very important. Regulation is point number one. Point number two is, like I said, on a block by block location by location basis, are people going to move there, and, you know, of course, you can get better returns, but you can also lose a lot of money in the land flipping business if you don’t have the right location. So I would be looking at areas where, you know, there’s some big tenants like Walmart’s, you know, that’s historically been, the way that we’ve made money as a family anyway, is, is by looking at some of these big tenants, whether it’s the Walmarts of the world, or the big grocery stores, or whatever, or the Chick Fil A’s, you know, that’s an they’ve got a really good real estate department, for example. I mean, there are some ways that you can kind of piggyback off of people to see where things are going. But it really is a block by block basis. And you know, it’s an exciting time, and people can invest in land acquisition, it’s just make sure you know, your local local market.
Eric Chemi 32:08
You It’s funny, you say that Walmart Chick fil A idea, because I thought it was the other way around, I thought it would be the guys like you come in, you get the land, you get the houses built, people move, then Walmart and Chick fil A come in, you’re almost telling me follow that, let them let them lead you to where the population growth is, or at least you
Bill Pulte 32:29
know, be mindful of the collection of things. So yes, it’s not always going to be the builders that are gonna go out there and do it. But sometimes, for example, if there’s a, you know, like, let’s take the South, for example, if you’re at a Publix or you’re at a Kroger in Michigan, and it’s a new one and it’s in in an area, it might be way more interesting to go to what used to be the outskirts because you know, that there’s some of these anchor tenants that have just recently popped up for, you know, it may not be as close to the newer developments, right, it might not be five minutes away from the subdivision. But it may be 10 minutes away from what used to be the outskirts. So I’m just saying you’ve really got to look at this on a location by location basis. Look at what other smart companies are allocating capital there, where are the other jobs where the manufacturing, you know, manufacturing’s, the best in terms of creating jobs for, you know, new homes. So all of these things need to be looked at, on an individual case, by city by city block by block basis. I mean, I’ve known people, Eric that have literally lost their shirt on one parcel of land that is literally next to another parcel of land. I mean, that’s, that’s how crazy to land businesses. So you’ve really got to know down to the parcel down to the block. What is the strategy? And what is the probability that you’re going to be able to make money on that piece of land? And
Eric Chemi 33:47
could it be something as simple as you know, this parcel was able to get the sewer line to their place, but But it couldn’t be extended another 100 feets all of a sudden that one could do it, is it stuff like that?
Bill Pulte 33:58
Yes. Or it may cost you $100,000 to, you know, move the city sewer over or move the city water over? Or, you know, there may be some kind of environmental issue or a septic tank? Or? I mean, it could be it could be a ton of different things, right. And so, that’s why again, I don’t mean to say, oh, you know, this is the tried and true thing, you really have to go, you know, parcel by parcel block by block, anchor tenant by anchor tenant and say, Okay, what’s the probability of success that if I buy this piece of land, I’m going to win on it? Or a better question is what’s the what’s the probability that I’m going to lose money on it? And you know, you want to be in that 10 to 20% At worst, in my opinion, probability or possibility that you could lose money on that on that land acquisition strategy. The
Eric Chemi 34:46
pricing is also tricky, because let’s say you find something you like, other people are looking at the same stuff, too. They’re doing their homework. It’s it’s you’re competing against guys like you bigger budgets, and now all of a sudden, it’s a little bit of an auction and the more I spend the less likely I am to make money off of this right? The higher this price is, the more likely I could lose. How How do you know when, hey, you know, smart money’s not going to spend more than me, right? If I’m the highest bidder, there’s a reason why a guy like you didn’t want to spend more, that should make me nervous to not to be the winner of the auction, right? Correct.
Bill Pulte 35:19
Correct. And that’s where you can go down market, you can buy lower size land, you know, the big boys they’re going to be buying, they’re going to be punching, you know, at a certain weight class. So if you’re a small mom and pop or you’re an individual investor, you just just start small and climb the ladder that way, and one day, you’ll have the balance sheet to fight with those guys. But in the meantime, by the a plus location, by the a plus property by the a plus no environmental issues, city, water, city sewer. And that’s how to win
Eric Chemi 35:49
someone who, let’s say, has $100,000, maybe even up to a million dollars. So it’s like, I don’t want to put all these eggs in one property basket. But I know housing in general is going to be more expensive. I know that on a national level, this is an investment I want to do. But I don’t have enough money to put it in one trade. What’s the move for them? Is it just go by REITs? Is it by the homebuilders? Is it? Is it by a basket of companies? Is it like public markets trades? Or is it invest in some kind of private vehicle? Like how do they best take advantage of the idea without a specific property?
Bill Pulte 36:22
If you have $100,000, and you’re looking to invest in real estate, yes, you could invest in REITs. Yes, you could invest in builders, you’ll probably do good in my opinion in those areas. But if you could find a rental or two, and that could be anything from mobile home park, that you make a mobile home into a nice home, that can be an apartment that you make into a nice apartment, that can be a single family home, that in my opinion would probably be the best way to find a way, even at the smallest scale to put 100 or $200,000 at work, and just build up from there and use the cash flow to buy other units.
Eric Chemi 36:56
Okay, I I know some people doing that. And I think I’m impressed by their, by their hustle by their grit, their tenacity, because you got to deal with tenants, right? You got to deal with something that’s broken, you got to call someone to fix it, or you got to fix it yourself. And I think I don’t want to have to do a lot of work. So So I liked that idea that might my next question be like, Oh, wait for someone who thinks this may be too much effort on my part, is it what’s the next best option, which is I hear you, but maybe I’m not nearby, I’m not close enough to the rental, I can’t get there to be the guy who fixes it will remember
Bill Pulte 37:31
if you buy enough rentals close enough to you. And if you buy enough rentals in close enough proximity, you can hammer out a lot of the service issues pretty quickly. If you buy him sporadically, then yes, it does become quite a nuisance. If you want to be more of a passive investor. Of course, you could invest with groups like ours, you can invest with, you know, other family offices, you can invest in publicly traded stocks. But if you’re looking to make, you know, significant money over a long period of time, you know, investing in real estate, you really want to try to, you know, roll up your sleeves, understand how to fix these things yourself, and do it in a thoughtful way, group them all together, get some size, get some scale. And just realize that, you know, that’s a feature, not a bug of real estate. And that’s actually why these things can cashflows because you’re willing to do the work that other people won’t do.
Eric Chemi 38:24
When I think of the big home builders, though, I don’t think of them as holding on to rentals. I think of them as they build it. They sell it to a person and then they’re out. Is the model shifting though, because I hear about a lot of companies. It’s like, Oh, I know guys down my street. They work for these big firms. And it’s like a big institutional Wall Street money is putting a lot of money into buying single family homes across the country where they’re just going to rent them out. They’re never going to sell them. So is there a little bit of a model shift between the classic homebuilder that they created the house, they sold it, they’re out, versus I’m now going to buy these houses and I’m never going to sell them? Yeah,
Bill Pulte 39:02
so I think it’s definitely shifting where the big builders are looking at the product that they’re selling and saying, Hey, is this better that we keep this as a cash flowing asset? Or is this better that we sell it? You’ve seen companies like Taylor Morrison, you’ve seen Dr. Horton, you’ve seen Luminar. Basically keep some of their product and lease them out. I think that’s something that builders are going to continue to tinker with. It’s something that I’ve tried to get our legacy business. Pulte Homes into I think over time, that that is a tremendous opportunity. And it will be very interesting to see which builders really seize on it.
Eric Chemi 39:36
Do you fear that a generation from now I’ve got little kids and I think 20 years from now 30 years from now when they’re trying to buy a house? Will they literally not be able to afford one because no one’s selling it because they’re only going to be for rent and inflation and the way that you know mortgages and all this, the price of the house relative to income keeps going up and it’ll be so expensive that anyway my concern like I don’t have I was unconcerned a generation from now no one will be able to buy a house because it relative to income, I think
Bill Pulte 40:06
they will be able to, but I think it could be harder. And unless we as a country start growing again, in my opinion, you’re going to have more of what you’re saying, as opposed to less of it because of the inflation aspects. And to your point, people that have their hands on this property have their their hands on this homes, especially in those eight plus locations, I think those are going to continue to appreciate, in my opinion, not financial advice, at least with inflation.
Eric Chemi 40:31
Right, at least Yeah, exactly. To tell me, you know, obviously, Pulte, anyone can see the name, you’re not associated with the company that has that name. I’m
Bill Pulte 40:40
a very large and active shareholder in the company, large in the sense as an individual owner and in the company.
Eric Chemi 40:47
So you’re a shareholder, but not You’re not on the board. You’re not an employee, you’re a shareholder. That doesn’t work there. Talk about what it was like growing up in the family in the business, I clearly, you know, housing is in your blood here. What was that experience, like as a kid, where you’re having a different experience, and maybe the other kids are going to school with, like, what you’re hearing at the dinner table is very different.
Bill Pulte 41:09
Yeah, you know, for my first nine months of my life, you know, I was, you know, getting to be able to walk and crawl. And as soon as that was done, I was able to get on subdivisions and job sites and those types of things. So it’s been in me since I was very, very young. And then in grade school, and in high school and college, I went and worked at various roles within the different building companies that our family has. It’s very interesting, you know, when you grow up on a job site, or something like that, you learn very quickly what jobs you may want to have and what jobs you don’t want to have. And also, you know, that smell of wood the smell of sawdust, and it was a great upbringing, seeing the Pulte Homes business grow has been a great blessing that I’ve had from an early age, I was one of 25 grandchildren, and my grandfather’s I was he had 14 children and 25 grandchildren, I was the only one in pultegroup with him, I was the only one in the family who was on the board of pultegroup. And so that was an incredible experience being on the board there for four years. And then being involved in around that business. We had to we had to unfortunately in 2016, removed the CEO of the company at the time. And so you know, it wasn’t all rainbows and butterflies, but at the end of the day, you know, the building business is a great business I encourage people to do it and you know, make sure you hire and retain and only promote good people because if you don’t then it can become quite a problem.
Eric Chemi 42:36
I mean, I’ve been reading I think anyone can Google your name and and look for the some things there’s been some controversies between the EU and some of the executives at the firm and in between the family. How do we summarize that I see a story about you know, Twitter bots and stolen identities and harassment and and you know, all these things that are public and you’re you’re buying shares that the CEO sold and, and your family’s buying properties that the companies has sold. So there’s a lot of intertwined things that you said it’s not all one of the peaches and cream, it’s not all roses and rainbows, right? What is what how would you summarize? How would you summarize the the current relationship between you and the firm between your family and the firm? What is it like right now?
Bill Pulte 43:16
Well, we have a great relationship with the company insofar as we love the employees. However, as you know, executives, especially if you get a couple of executives in this case, they’re the old legacy executives in my opinion from Richard do Gasser we unfortunately had a force out of the company in 2016. And so the gentleman who runs the company these days was the right hand man to the gentleman, we had a force out of the company. Long story short, we forced him out in 2016. Couple of these executives are still around one of the executives was busted running as fake identity scheme on Twitter against me, believe it or not in my family, where he impersonated my dead grandfather was the founder of pultegroup. To just you know, maliciously harass and attack me and this is a subject of a lawsuit in Florida right now we’re getting to the bottom of it and proving our case, which we look forward to. But my punch line is that we have, in my opinion, 6000 great employees that pultegroup We have and I say we obviously I’m not with the business day to day as an executive, but obviously is a concern shareholder. There are great people in this company. I think the future prospects of this company are great. And as far as my legacy and our legacy as a family is concerned, we’re not going to let you know any one or two executives or three executives who are screwing around screw with that. So I hope we get back to Dr. Horton and lonar levels but you know, all in due time and we’ll keep we’ll keep doing it until we get in there.
Eric Chemi 44:43
What we’re gonna get into some other you know, your philanthropy and all this later, but But I what made it that you have the 25 grandkids Why were you the one was there something between you and your grandfather that had a special relationship? Or did all 25 have an opportunity to go on job sites and see who liked the best is the best Why were you the one that ended up being on the board and none of the other cousins?
Bill Pulte 45:03
You know, I took a pretty strong interest in him, I would say, from a young age, he took an interest in me. And he saw that I had some financial success. Shortly after college, I had started my own firm of which he helped me with and so we had some working relationship together. And then when polti was kind of going down the tubes, as I mentioned, in 2015, you know, stock had been chronically low, while all the other builders had rebounded from the Great Recession, it was just kind of logical, the two of us looked at each other and said, you know, we gotta fix this thing. And so, you know, he was 78, or 79, at the time, still very with it. But again, he wasn’t, you know, apt to get on planes and fly around everywhere, like maybe his 26 year old grandson was, you know, I would go on CNBC, you know, every other week, or whatever it was, and go out there and say, Look, we need to turn this company around. And so we had a lot of success, we turned it around, the stock grew 30% per year, my grandfather passed away shortly thereafter, we sold our shares. And, you know, we had a little bit of falling out with the CEO. The problem is, is I see it is, I don’t care who the CEO is, and I want the company to be successful. It’s just, we need to get these guys to be at the level of Linaro. Dr. Horton, I mean, these are world class businesses on Arne, Dr. Horton. And I just want to make sure the executives are doing as good of a job at polti as they are at these other builders, and that that’s where my main focus is, and I know my grandfather, if he were still alive would want me to focus on that,
Eric Chemi 46:26
what would it be? You know, I’ll get off the top of his head. But what makes one company better than another? What is it that is it financial discipline? Is it picking the right areas? What is it that all of a sudden those other competitors have surpassed you guys? What is it that they’re doing better that you wished you could see the company do better?
Bill Pulte 46:42
Well, one of the things is pretty obvious is, and again, the employees are doing a great job and pultegroup. So I want to be clear, it’s really an executive or executives who are selling the stock, you know, in my opinion, you don’t see, you know, like Don Horton, as far as I’m concerned, you don’t see him selling off big pieces of his ownership. And Dr. Horton, same with Stuart Miller l&r, you don’t see him, you know, dumping the shares. And so I wanted to send a strong message, I bought $11.9 million worth of poultry stock a few months ago, to let the employees know that the family was going to stand with the company. And you know, even if you have an executives who’s who’s unloading the shares, you know, that we believe in the long term prospects of the business. So that’s just kind of one high level thing. I mean, I could give you a bunch of specifics in terms of the operating business, but just, I’m trying to illustrate to you that philosophically, people who believe in a business are not typically unloading large percentages of their issued shares. I mean, many of these executives is, you know, they, they’re getting granted these shares, they’re not necessarily buying them. And, you know, that’s fine and dandy, but we want to make sure people are long term holders, if they’re leading a company, in my opinion,
Eric Chemi 47:47
what’s what is one operational critique you might have? And I think it would help just our audience thinking about from an investment point of view, or a, how you pick houses, or how a bit how would they build the company pick houses, what’s an operational critique that maybe, hey, we’re not doing as well as a competitor because of decision making a lot of course,
Bill Pulte 48:05
and and this has been something that’s been publicized. But the CEO has said that he’s not interested necessarily in getting into certain types of rentals, home rentals. I think that that is a tremendous missed opportunity. I think there are missed opportunities all across the board rentals happens to be one. I think, when you’re a hired executive, like I described and have a compensation scheme, like this gentleman has, you may be it may create more work for the executive to have to get into home rentals, in my opinion, the people at Dr. Horton. And again, maybe that’s because Don Horton’s there, or Stuart Miller, they’re willing to make the tough decisions to explore some of these more speculative things, knowing that maybe not all of them will pay off, but that they need to look at it. So I’d like to see polti specifically, operationally pivot more towards rentals. And, you know, that’s just one of many examples that I have,
Eric Chemi 48:56
that we were talking about the rentals a few minutes ago. Yeah, I’d
Bill Pulte 49:00
love to have them be buying them instead of me. But if they’re not going to do it, you know, the family will be buying their product,
Eric Chemi 49:07
or your money buying all these products. So how will you continue to be the king of Twitter philanthropy as your the self proclaimed inventor of Twitter, philanthropy talk about? Talk about why that is, how did you get involved in because I sort of feel like now, you know, there’s others that are trying to do it, but you say, You’re the first one who is doing that?
Bill Pulte 49:24
I mean, I say I’m a self proclaimed one. But if it’s not me, then who is it? Right? I was the first mover. You know, I was the first person who really started giving away money on Twitter. And, you know, at one point, it was very much looked differently at let’s put it that way. Now, these days, it’s like the hot thing to do a guy he has 2 million Twitter followers, you would know who he was the other day, very well known personality. And he says, hey, I want to get into this whole X philanthropy thing, which is now called excellent therapy. And so you know, now it’s like the hot thing to do, but when I started out, it wasn’t and I think all great movements start that way and I say look at Twitter, philanthropy or ex philanthropy will not be successful until it does not require Bill polities effort. Because until it’s independent of me, and until this internet kind of takes it on, where we ever had been successful, so we need to get more people giving, we need to get more people doing this in a viral movement. And you’ve seen it, you’ve seen all across Twitter, I mean, people are helping people every day. You know, we help people every day with insulin pumps with diabetes drugs, with you know, cancer treatment, paying for groceries, when people are going through chemotherapy. This is what the internet should be used for. It shouldn’t be used for just tearing people down every day. And that’s what we’re trying to do at x philanthropy.
Eric Chemi 50:40
What got you started? What was it that you woke up one day and said, I’m good a give something away on Twitter,
Bill Pulte 50:46
I had this idea. It was that cottage in northern Michigan and enjoying a good Bud Light or something like that, I think, later Coors Light. And I walked out on the patio, and I said, you know, I made all this money. This is great. You know, I’ve done well, I think it was 27. Or no, it was 28 or 29 at the time. And I said, you know, why don’t I figure out how to give away some of this money. And so I was, you know, I had, I don’t know, 10,000 followers or 20,000 followers at the time. So I fired off this tweet, and I said, I will give you know, $10,000 to some charity or person who can say that this has been, you know, that this would be go to good use. And you know, at the time, my tweet went completely viral, which was like 5000 likes, which was a ton of likes at the time for me, and I was like, Whoa, like, This is crazy. So I knew I was onto something. I was like lightning in a bottle. You know? And I remember that night in bed. My wife said to me, you know, she calls me Billy, she says, What the hell are you thinking? It’s crazy now in some ways, but it’s also not. And it was definitely crazier, albeit not so much. Back to that. And then over the next coming days and weeks, that thing just took on a life of its own. And then the next thing, you know, the president united states retweeted me and retweeted me again. And then my followers had 100,200 1000. And now we’re at 3 million. So it’s just one of those things.
Eric Chemi 52:04
What’s what’s next, for the world of Bill polti? What are we going to see kind of coming up in 2024?
Bill Pulte 52:10
We’ll see we’re gonna have a big 2024 We’re gonna have a big Christmas season on X philanthropy, we’re gonna be doing a lot of partnerships, we partnered with the big YouTube star, Mr. Beast, you know, he’s been a very big partner of Twitter, philanthropy. So you know, you may see us be working with people like him. And then we’re going to continue to do you know, the different investing things we do. We’re very active with the Reddit community, and hopefully we can get pultegroup in the right spot. Again, it’s more about a legacy thing. And, you know, making sure that that the company continues to accede. And where
Eric Chemi 52:44
can people find us like? So given the Twitter handle? Is there a website is there what are all the ways that someone wants to, you know, watch this once interact? Or, you know, follow you more? How can they do that?
Bill Pulte 52:54
Sure, just add pulte @pulte on Twitter, or x and @pulte on Instagram and look forward to connecting with everyone. And if anybody’s got money, and you want to help with a legitimate cause, and you don’t want to go to big corporate or charitable overhead, you can just boom, send them send that money right to people on the internet. And it’s a new way of giving. So join us.
Eric Chemi 53:14
Awesome, Bill, thank you so much. This is great. I appreciate hearing some of this, and it makes me second guess maybe some of the investing ideas I might have had at home. I’m glad maybe we stuck some of it and T bills and not just let’s buy land five states away, you know, sight unseen and see what happens with it. So this is this is really helpful to think about just some of the mistakes and how not to lose your shirt.
Bill Pulte 53:39
You got it, Eric, thanks for having me.
Eric Chemi 53:41
Thanks so much for joining. And everyone. Thanks so much for watching. If any of you are watching this listening thing, maybe I need help with my finances, I got to think through some of these trades. Before I make a mistake, you can always go to wealthion.com you can connect with somebody there we’ve got financial advisors that we endorse, it’s completely free, there’s no commitment to working with them. You can just you know, work with them as you want as you wish or not. They’re looking to help as many people as possible. That’s just a free service that we provide here on Wealthion If you’ve enjoyed this conversation like I’ve had with Bill polti and I feel free you know, like it you know, subscribe to the channel, tell your friends it really definitely helps us this. This shows more people on YouTube, the content and across the other podcast platforms. So thanks again to my guests and thank you all for watching.