Radio: David Marotta on Real Estate Matters (December 2020)

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On December 19, 2020, David John Marotta appeared on Radio 1070 WINA’s Real Estate Matters with host Michael Guthrie. Here is a summary of what they talked about:

0:00 Introduction and review of 2020

3:17 A K-recovery and a market of stocks rather than a stock market

3:50 The gravity of people’s personal economy

6:12 The importance of charitable giving for those of us on the top part of the K

7:09 The renovation business demand and the local real estate business

9:20 The demand for technology, healthcare, and consumer staples

9:55 Charitable giving

12:10 Interest rates and the importance of keeping a mortgage

15:48 The bullishness of the markets in November, 2020

17:44 The danger of inflation

18:20 The Haunting of Bob Cratchit by David John Marotta and Brendon Marotta published

You can listen here:

Transcript

Michael Guthrie: This is a show that hits on all different aspects of real estate, it’s amazing how the housing and the mortgage market impacts a lot of different aspects of our economy and our lifestyles here in the Charlottesville area.

Announcer: This is Real Estate Matters with Michael Guthrie, CEO and principal broker of Roy Wheeler Realty, former Virginia Association of Realtors Manager of the Year, and Charlottesville chambers small business person of the year. Here’s Michael Guthrie.

Michael Guthrie: Good morning Charlottesville, welcome to Real Estate Matters. I’m Michael Guthrie, and you are listening to news radio 1070 WINA, FM 98.5. I hope your weekend is off to a great start. Don’t forget you can always listen to us online at www.wina.com; click on the “Listen Live” button. We are there every Saturday morning at 10 o’clock. You can also find us on Facebook facebook.com/realestatematters. Twitter @REmattersWINA, and in the podcast obviously at the website. Click on “Podcast” and go to Real Estate Matters. You can find an archive of all of our shows there including archives of shows with a good friend, and a fairly regular guest of the show.

As far as regular guests, he is right up there with people like Greg Slater and Jay Dominic and CAR Real Estate leaders: David Marotta. David Marotta has a wealth management and financial planning business here in Charlottesville, and we’ve been friends for a long time. David usually makes an appearance here a couple of times a year to give us some ideas in regards to what’s happening next and what has happened. And here we are, the Saturday before Christmas in what has been an incredibly unusual year. David, probably in yours and my lifetime, the most incredible year from the standpoint of just having to adapt to new things and, as we came on the air, I was saying, “who would have known that I’d be somewhat of a Zoom guru”.

That was not on my new year’s resolution for 2020, to be a Zoom guru, but we’ve had to do it. We’ve pivoted, we’ve adapted and I think that kind of segues into what I want to talk to you about; how lots of people, lots of businesses, have done the same thing this year. Back in March or April, if you had bet me that we would end the year, not only ahead of last year but significantly ahead of last year as far as real estate productivity, I would have taken that bet and lost. Back to March and April, I was thinking we would finish the year maybe 35% off of 2019, and in fact with just 10 or so days to go, we have outperformed 2019.

Probably back in the middle of November or end of October, we hit the year to date numbers of 2019, which like I said, if I had taken that bet, I would have lost big time. And probably if I was a betting man, I would have put a fair amount of money down on that bet. I’m guessing you’ve seen the same things in regards to the way you’re advising people and helping people through this.

David Marotta: It certainly has been what they call a K-recovery with some of us doing great and going up while some of us are out of work and unemployed. Our businesses are shut down and we’re not quite sure what to do. So, it really has been that kind of year, the market of stocks rather than a stock market. And we’re doing fine here but we know there’s a lot of people who are not, and who are out of work and that’s sort of heartbreaking on the one hand, on the other hand, you’re not quite sure what to do about it because the COVID numbers are back up and we are not quite sure how to handle that.

Michael Guthrie: So, David, that’s a really good point and I did want to bring it up so thank you for mentioning it. You know, almost every other day we see another business that is closing their doors, especially in the restaurant service business. Like Fellini’s, which has been around forever, and they just can’t make it with the numbers going back up and people getting cold and having to go inside but they can’t get enough people indoors; it’s really sad to see that bottom part of the K impacting people negatively and yet there are many on the upper portion of that K, and I don’t mean to make light of this at all, but when you watch the news, you see people that are trying to be serious, to understand, be truthful and communicate the gravity of what we’re going through. Back in the day when I first started, a young man who was doing about 20 ventilators a month, was on the NBC Nightly News talking about how they just did this partnership with a Ford assembly plant and, obviously, his financial wealth has changed significantly, unfortunately because of the gravity of a situation.

That’s great that you brought it up. It’s really tough that there are lots of people doing quite well and then there are others, what is it 54 million, people that are food deficient. my wife was telling me about the University of Connecticut today, I don’t know if you’ve heard about this,—- but they have it set up in their Husky football field where people drive in with their trunks open, and they are putting food in people’s trunks.

I don’t think I am making this up, it is seven cars a minute, it could even be 12 cars a minute, where you have people that are putting food in people’s trunks and then they continue on. It’s almost as though the cars don’t stop, it’s like an assembly line. In one sense it is awesome the way people are adapting and helping people, but it just shows that this thing is taking a toll on a lot of people.

David Marotta: This is certainly a year in which, if you have some margin in your accounting, giving to charity is really important. Charities need it most when a lot of people can’t give, and I think that’s a big factor in all of this.If you can afford to give, you should give. I’m sitting here in an office building, it’s got three floors on it, and we’ve got two people working here. As a landlord of office space, I think the office space market has kind of fallen apart, we’ve proven that we don’t actually need office space. All of our staff are working from home, the receptionist and I are working here and it’s working out just fine, but office space is gone. On the other hand, fixing up your home is having a tremendous business effect as people are putting in mudrooms, home office extensions, bigger pantries and more freezer space. Lowe’s and Home Depot are doing great in all this, on the other hand a lot of stores are shut down and not doing a very good business at all.

Michael Guthrie: That’s a really good point about the renovation business because you’re absolutely right, it’s just off the charts and quite honestly, it’s impacting new home construction because there’s more demand on materials. It’s not just the builders that need the material, it’s the renovation people that need the materials as well. Then you add in the fires and the hurricanes and all those places that were destroyed and are being rebuilt again, I know we’ve talked about this on the show in the past with David Marotta. They need materials, so the demand and lumber costs have gone up astronomically, and now new home construction prices are having to go up to offset that. The one other thing you mentioned that I totally agree with, the reason the market is so good here in Charlottesville is that everybody’s leaving New York, you know, blah, blah. Well, yes, there’s a little bit of truth in that but a lot of those people aren’t leaving New York, they’re just going to their second home until this ends and then they’ll go back to their home in New York. But what you do have is people in condos saying “the condos are too small” and people in townhouses saying “I need a yard for my kids to play and wander around in” —- and people in houses that like you said, need a second office, because both people are working from home, and they’re probably going to continue to work at home because like you, as you’ve already confirmed, people are realizing that people can work from home and be as productive and so they probably don’t need the space.

—- People living in houses are now needing offices in their homes. Like you said, people are realizing that they are probably going to continue working from home, since we can remain just as productive during the day.

Early on during COVID I remember hearing that the Executive Vice President for Wells Fargo, in charge of their mortgage business, moved everybody home within 30 days. They did more mortgages, like 30% more mortgages, than they had done when everybody was in the building. They’ve proven that they don’t need 15 floors of underwriters and closers. It’s going to be very interesting as commercial leases end, how constricted people decide to go.

David Marotta: Yes, and as people have moved home, and have a home office environment, Dell is selling tons of laptops, because now everyone needs a laptop at their home to run their business on. So, technology is going up and up and up, healthcare is also doing well, biotech and consumer staples — along with healthcare, biotech and consumer staples. What are we buying? We’re buying consumer staples, since it has a fairly high inflation for the year. Grocery stores keep going up a little bit, which is making consumer staples an easy recommendation.

Michael Guthrie: Welcome back to Real Estate Matters, The Saturday before Christmas.

A great place to segue again with David Marotta, we’re talking about the economy, we’re talking about COVID and the impact of COVID. David, one of the things you said earlier in the show, which I really agree with, is that people really need to give, maybe more than ever before because a lot of people can. We’ve got a lot of people who have done really well in this situation, and a lot of people haven’t. So those people really need to give a little bit more this year, and there are a lot of matching grants out there. Giving Tuesday, obviously it was extraordinary here a couple of weeks ago, we had Blue Ridge Area Food Bank, Salvation Army, Albemarle Housing Improvement and list goes on and on of folks like Abundant Life who are doing amazing things out in the community around prospect and history. There’s so many organizations that are doing great work and really need your help, and it’s the end of the year which is the time that they are counting on you to donate. The thing I wanted to bring up with David, as it relates to all that is moving forward into 2021, what are your thoughts of people our age? A lot of these folks haven’t been really impacted by this at all, because they’re retired and already have their money set aside. In some ways, this has been great for them. But moving into 2021, Jay Dominic from Movement Mortgage, says that he’s telling people for the first three to four months in 2021, that he thinks interest rates will still have a three in front of them. He doesn’t know what will happen later in the year, but he absolutely thinks that people can hang in there and wait till after the first of the year and still get really nice, almost historically low interest rates. What are you seeing in your situation?

David Marotta: We bought our house in 1990 and paid $170,000. 30 years later you would think we’ve paid our mortgage off, but we currently still have a 30-year fixed mortgage. I just refinanced this past fall for $190,000, because somewhere along the line I took an extra $100,000 out of the markets. You would think a financial planner would be debt free, but it’s much better to have debt than not have any debt. I could slap over enough money to pay off my mortgage, but having that money at work in the markets has been better. And having my house go up with inflation has been better. My house is now worth a lot more than I paid for it, but having that mortgage at work in the markets is great. We recommend a 30-year fixed mortgage. I got 3.325%, of going rate, it was a cash out refinance.

Michael Guthrie: When you refinanced did you do that to take money and invest it elsewhere?

David Marotta: No, the previous time I did it when I took money out. Now I was just refinancing the loan that was existing, and in 20 years I’ve taken $20,000 out of the house. I took $100,000 out and I paid off $80,000. So yes, that situation.

Michael Guthrie: Let me just interrupt for one second because I want to make sure we make this point which was a good one. For those who are listening, when the end of the year hits and they’re paying their taxes, that might be something to consider; is to go back and see if that still is a place where you can get a deduction.

David Marotta: And if you’re charitable enough, then you’re guaranteed to get a deduction, so you have charity and you have your home mortgage to get deductions. That’s a deduction that’s still in place and is still in my highest tax rates. So, you know, I’ve got a sort of a win-win situation there at three and three eighths. I’m probably paying maybe two and three eighths of the real stuff, and I’m taking up a percent off on my taxes. Having a mortgage is a better idea if what you’re going to do with the extra money is throw it in the markets. You know the markets have gone up so much since 1990 that I’ve made out like a bandit in that equation, and think I will continue to because the markets will continue to go up, and that’s despite 2000 and 2008. There have been a lot of setbacks along the way, but the markets are still way up over the past 30 years, and who wouldn’t want to have invested as much as possible 30 years ago, no matter what the 30 years are, it’s always a good idea to invest in 30 years.

Michael Guthrie: I heard an African proverb the other day I really liked: the best time to plant a tree was 20 years ago, the next best time to plant a tree is today. Yes, because, if I could have done that 30 years ago it would be great, but I didn’t. Or maybe I didn’t do enough of it. And David, that’s the other thing we’re talking about here. Oh, at some point I was going to make it, in regards to investing. The key to this is not to take the money and just put it away but to be really disciplined about what it is you’re going to do with that money. We talked about the fact of the stars align, I want to just talk about that really quickly, whether you like it or not, we do know who the President is going to be. We do have some vaccines in place now. There are a lot of different things that have come together that make the market bullish right now.

David Marotta: The market is kind of glad that we’re going to have a mixed Congress. We don’t want one party in office because one party in office tends to do things that are not checked by anyone. That’s another slice to November, both because Biden won but it wasn’t a blue wave, it sort of all works out to be perfect and November was up 10%. On the one hand, 2020 is unprecedented. I’m waiting for precedent years, when we can all just kind of relax and have normality. Who knows, maybe 2020 is going to end with aliens landing on the lawn of the White House, I have no idea, I wouldn’t be surprised by any of that. I think we’re kind of back to normal and we’re back to normal markets, which are high according to forward P/E ratios. The forward P/E ratios have low expected earnings, they’re going to go back to normal earnings when this pandemic is over. So, I think it’s a great time to invest, there’s still a lot of money that’s sitting on the sidelines, waiting to get back into the markets, and you’ve missed out on a whole year of good returns, that’s unfortunate. We always think jumping out of the markets is bad for two reasons. You may have tons of reasons to do it, and it’s still a bad idea because when you jump out of the markets, you have now bet all of your savings on timing and correctly to get back in. And that’s just dangerous. Most people, when they jump out of the markets, get back in at a higher rate, and you might as well have just ridden the ride out in that case. Because the market bottoms not when there’s good news, but when there stops being bad news. And you never know when there’s going to stop being bad news. You get bad news, you get good news. And then the markets go up, because you didn’t get any bad news. And that’s sort of the way the markets work, it’s always better to ride it out, than trying to time the markets.

Michael Guthrie: That’s great information. David Marotta with just a minute or two left here with one last thing to talk about: all the stimulus money. We’ve robbed Peter to pay Paul, when does that come back to roost as it relates to the colony?

David Marotta: Yes, so it comes back to gradually risk inflation. I think that that’s the correct way, and inflation over 30 years, even moderate inflation, will rob you of 75% of the value of your account. So, the biggest danger to retirees is inflation, and inflation is best hedged by being invested in the markets.

Hey, I don’t know if you know this or not but I came out with a book.

Michael Guthrie: Tell us about it!

David Marotta: It’s The Haunting of Bob Cratchit. It’s a wonderful Christmas story so for those listening to this podcast, you still have time to buy it with two-day shipping on Amazon. It’s a wonderful Christmas story about responsibility and gratitude. And it will make you laugh and make you cry. It’s got some scenes in it with Tiny Tim and Scrooge and all the characters we are familiar with, but it’s got Bob Cratchit as the lead. It’s a story of what would happen if he was haunted the same night Scrooge was in order to prepare him for what Scrooge was about to give him.

Michael Guthrie: Oh my gosh. Tell us the title of the book again.

David Marotta: The Haunting of Bob Cratchit.

Michael Guthrie: The Haunting of Bob Cratchit, you can find it on Amazon. I’ll get it. I’ll find the link and I’ll add it to my Facebook page. David, thank you so much for being with me, I’m always really really glad to have you on the show.

David Marotta: Thank you so much for having me.

Michael Guthrie: Our time is up, we thank you for yours, as always, Merry Christmas, because I will not see you until, well right after Christmas, and I might sing a few songs a week from Saturday. Go Hoos!

Photo by Robert Anasch on Unsplash

Follow David John Marotta:

President, CFP®, AIF®, AAMS®

David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. In addition to his financial writing, David is a co-author of The Haunting of Bob Cratchit.