WEBVTT 00:00:00.000 --> 00:00:03.379 Welcome back to the Deep Dive. Today we are tackling 00:00:03.379 --> 00:00:07.099 a subject that is, well, it's literally all around 00:00:07.099 --> 00:00:09.699 us. It is, yeah. It is the floorboards under 00:00:09.699 --> 00:00:12.740 your feet right now. It is the steel beams holding 00:00:12.740 --> 00:00:15.740 up the roof over your head. It is the patch of 00:00:15.740 --> 00:00:19.030 grass at the park. But and here's where it gets 00:00:19.030 --> 00:00:22.829 really heavy. It is also this massive invisible 00:00:22.829 --> 00:00:25.870 engine that drives 39 percent of the world's 00:00:25.870 --> 00:00:28.670 total carbon emissions. An incredible number. 00:00:28.789 --> 00:00:31.149 It's the primary reason for some of the biggest 00:00:31.149 --> 00:00:33.850 geopolitical shifts in human history. And when 00:00:33.850 --> 00:00:35.950 you strip away the Zillow listings and the for 00:00:35.950 --> 00:00:39.229 sale signs, it all boils down to a very specific 00:00:39.229 --> 00:00:42.770 and kind of strange legal definition of what 00:00:42.770 --> 00:00:45.409 a human being can actually own. It is fascinating, 00:00:45.549 --> 00:00:47.149 you know, because when most people. hear the 00:00:47.149 --> 00:00:49.390 words real estate their brain goes to a very 00:00:49.390 --> 00:00:51.869 specific domestic place right to buying a house 00:00:51.869 --> 00:00:53.969 exactly they think of browsing listings checking 00:00:53.969 --> 00:00:56.329 mortgage rates maybe watching those shows where 00:00:56.329 --> 00:00:58.409 people flip houses for a quick profit sure the 00:00:58.409 --> 00:01:01.770 fun stuff the fun stuff but the actual machinery 00:01:01.770 --> 00:01:05.069 behind it the legal the historical the environmental 00:01:05.069 --> 00:01:08.760 machinery is infinitely more complex. It's really 00:01:08.760 --> 00:01:11.680 the operating system of society. And that is 00:01:11.680 --> 00:01:14.840 the goal for today. We want to move beyond scrolling 00:01:14.840 --> 00:01:18.299 through kitchen photos mentality. We want to 00:01:18.299 --> 00:01:20.599 understand the system itself. We are pulling 00:01:20.599 --> 00:01:24.219 from a massive dossier today, primarily analyzing 00:01:24.219 --> 00:01:27.120 the comprehensive breakdown of real estate provided 00:01:27.120 --> 00:01:30.159 in its Wikipedia entry, which covers, I mean, 00:01:30.159 --> 00:01:32.459 it covers everything from Roman law roots to 00:01:32.459 --> 00:01:35.239 modern money laundering. That range is key. Yeah. 00:01:35.319 --> 00:01:37.819 It really is. You can't understand why a condo 00:01:37.819 --> 00:01:40.359 in Manhattan costs $10 million unless you understand 00:01:40.359 --> 00:01:42.540 Roman property rights, the Great Depression, 00:01:42.659 --> 00:01:44.459 and the mechanics of global finance. It's all 00:01:44.459 --> 00:01:46.400 connected. It is all connected. So let's start 00:01:46.400 --> 00:01:48.420 with the absolute basics. And I want to challenge 00:01:48.420 --> 00:01:50.019 the definition right off the bat because it feels 00:01:50.019 --> 00:01:51.900 like something we just take for granted. What 00:01:51.900 --> 00:01:54.420 is real estate? If I buy a house, I tend to think 00:01:54.420 --> 00:01:57.000 I'm buying the structure, you know, the wood, 00:01:57.019 --> 00:02:00.120 the bricks, the windows. Is that accurate? It 00:02:00.120 --> 00:02:02.959 is accurate, but it is incomplete. It's a really 00:02:02.959 --> 00:02:05.780 good starting point. If we look at the core definition, 00:02:06.620 --> 00:02:09.860 Real estate is property consisting of land and 00:02:09.860 --> 00:02:12.020 the buildings on it. Right. But here's the part 00:02:12.020 --> 00:02:14.479 that usually surprises people. It also includes 00:02:14.479 --> 00:02:17.240 the natural resources. Oh, natural resources. 00:02:17.620 --> 00:02:19.659 Yes. That means the props growing on the land, 00:02:19.759 --> 00:02:21.879 the timber standing in the forest, the minerals 00:02:21.879 --> 00:02:23.780 deep under the ground, the water flowing through 00:02:23.780 --> 00:02:27.479 it, and even the wild animals. Hold on. The wild 00:02:27.479 --> 00:02:30.400 animals. If a deer wanders onto my property, 00:02:30.599 --> 00:02:33.340 that deer is technically part of the real estate. 00:02:33.740 --> 00:02:36.030 Well. Not in the sense that you own the deer 00:02:36.030 --> 00:02:38.870 like a pet, but in the legal framework of real 00:02:38.870 --> 00:02:41.389 estate, the entire ecological package is part 00:02:41.389 --> 00:02:44.469 of the land. Huh. If it is attached to the land 00:02:44.469 --> 00:02:47.009 or living off the land, it is considered part 00:02:47.009 --> 00:02:49.669 of the estate. The key phrase you have to lock 00:02:49.669 --> 00:02:52.610 onto here is immovable property. Immovable. Right. 00:02:52.669 --> 00:02:55.310 Real estate is the class of property that you 00:02:55.310 --> 00:02:57.710 cannot pick up and put in your pocket. So it's 00:02:57.710 --> 00:03:01.250 defined by what it isn't. In a way, yes. It is 00:03:01.250 --> 00:03:03.439 the property that stays put. That distinction 00:03:03.439 --> 00:03:05.740 feels crucial because I think in the modern world, 00:03:05.800 --> 00:03:10.939 we conflate property with just stuff. You know, 00:03:10.960 --> 00:03:14.460 I own my phone. I own my car. I own my house. 00:03:14.680 --> 00:03:17.659 It all feels like it's in the same category of 00:03:17.659 --> 00:03:21.439 ownership. But it isn't. Not legally. And this 00:03:21.439 --> 00:03:24.099 is where we get a really interesting aha moment. 00:03:24.199 --> 00:03:26.800 If we look at the etymology, the origin of the 00:03:26.800 --> 00:03:30.699 words themselves. OK. The word real in real estate 00:03:30.699 --> 00:03:34.800 isn't. Real as opposed to fake. Right. It relates 00:03:34.800 --> 00:03:37.740 to the land property itself as distinct from 00:03:37.740 --> 00:03:40.900 personal property. Okay. So real means related 00:03:40.900 --> 00:03:43.900 to the land. Exactly. And the word estate, that 00:03:43.900 --> 00:03:46.439 refers to the interest a person has in that land 00:03:46.439 --> 00:03:48.539 property. Okay. That sounds a bit like legalese. 00:03:48.780 --> 00:03:50.960 Interest in the land. Does that distinction actually 00:03:50.960 --> 00:03:53.120 matter in the real world or is it just something 00:03:53.120 --> 00:03:55.419 lawyers say to bill more hours? Oh, it matters 00:03:55.419 --> 00:03:58.020 immensely. Immensely. Because interest implies 00:03:58.020 --> 00:04:00.860 a relationship. It's not just absolute ownership. 00:04:01.120 --> 00:04:02.360 What do you mean? You can have an interest in 00:04:02.360 --> 00:04:04.460 the land without having total control over it. 00:04:04.659 --> 00:04:07.020 For example, you can have the land, the real, 00:04:07.180 --> 00:04:09.479 but someone else owns the mineral rights underneath 00:04:09.479 --> 00:04:12.120 it. Oh, I've heard of that. Right. So if I sell 00:04:12.120 --> 00:04:15.759 you the real, the surface land. but I keep the 00:04:15.759 --> 00:04:19.220 estate or the interest in the minerals, I can 00:04:19.220 --> 00:04:21.199 technically come back and start drilling in your 00:04:21.199 --> 00:04:24.220 backyard. So real is the dirt and estate is the 00:04:24.220 --> 00:04:26.860 bundle of rights attached to the dirt. That is 00:04:26.860 --> 00:04:29.620 a great way to put it. A perfect way. And to 00:04:29.620 --> 00:04:31.339 clarify that distinction you mentioned between 00:04:31.339 --> 00:04:34.639 stuff and real estate, we have to look at personal 00:04:34.639 --> 00:04:37.600 property. Okay. The law draws a very hard line 00:04:37.600 --> 00:04:40.980 here. Real estate is immovable. Personal property 00:04:40.980 --> 00:04:43.480 is not permanently attached. I assume this is 00:04:43.480 --> 00:04:46.480 why when you buy a house, the seller takes the 00:04:46.480 --> 00:04:49.279 fridge but leaves the built -in dishwasher. Exactly. 00:04:49.420 --> 00:04:51.680 That is the classic example. It's the one everyone 00:04:51.680 --> 00:04:54.160 uses. The fridge is usually on wheels. You can 00:04:54.160 --> 00:04:56.199 unplug it and roll it away. So that's personal 00:04:56.199 --> 00:04:58.959 property. It's personal property, or the old 00:04:58.959 --> 00:05:01.920 term is chattel. The dishwasher, on the other 00:05:01.920 --> 00:05:04.240 hand, is plumbed into the wall. It is screwed 00:05:04.240 --> 00:05:06.759 into the cabinetry. It has become a fixture. 00:05:07.230 --> 00:05:08.990 It has become part of the real estate. It has 00:05:08.990 --> 00:05:10.329 become part of the real estate, correct. So it's 00:05:10.329 --> 00:05:11.949 the difference between a chattel and a fixture. 00:05:12.649 --> 00:05:16.350 Precisely. Vehicles, boats, jewelry, furniture, 00:05:16.550 --> 00:05:19.230 that is all personal property. Even the rolling 00:05:19.230 --> 00:05:21.269 stock of a farm, like the tractors and combines, 00:05:21.449 --> 00:05:23.410 is personal property. Even though it's used on 00:05:23.410 --> 00:05:25.829 the land. Right. But the barn the tractor sits 00:05:25.829 --> 00:05:28.420 in, that's real estate. OK, so we have the definition. 00:05:28.519 --> 00:05:30.899 It's land, it's buildings, it's resources and 00:05:30.899 --> 00:05:33.879 it's immovable. But who can actually own this 00:05:33.879 --> 00:05:38.480 immovable stuff? In my head, I picture a person, 00:05:38.680 --> 00:05:41.699 you know, a family holding a deed, a homeowner. 00:05:41.980 --> 00:05:44.860 But in the U .S. and globally, it's way more 00:05:44.860 --> 00:05:47.740 complicated than just. Bob owns this plot. It 00:05:47.740 --> 00:05:50.180 is. It's vastly more complicated. In the United 00:05:50.180 --> 00:05:52.500 States, ownership isn't limited to individuals 00:05:52.500 --> 00:05:54.740 at all. You have business corporations, nonprofit 00:05:54.740 --> 00:05:58.040 corporations, fiduciaries, fiduciaries, someone 00:05:58.040 --> 00:05:59.899 managing property on behalf of someone else. 00:05:59.980 --> 00:06:02.600 Really, any legal entity defined by state law 00:06:02.600 --> 00:06:04.779 can own real estate. So a building isn't necessarily 00:06:04.779 --> 00:06:07.060 owned by a person. It might be owned by a piece 00:06:07.060 --> 00:06:09.199 of paper that represents a company. Precisely. 00:06:09.259 --> 00:06:12.040 A massive skyscraper might be owned by a limited 00:06:12.040 --> 00:06:15.850 liability corporation, an LLC. A huge tract of 00:06:15.850 --> 00:06:18.629 forest might be owned by a land trust, a nonprofit 00:06:18.629 --> 00:06:21.709 conservation group. Right. The entity holding 00:06:21.709 --> 00:06:25.670 the estate, that interest in the land can vary 00:06:25.670 --> 00:06:27.949 wildly. And that becomes very important later 00:06:27.949 --> 00:06:32.470 when we talk about transparency and. Money laundering. 00:06:32.529 --> 00:06:34.670 We will definitely get to the shady stuff later. 00:06:34.790 --> 00:06:36.370 I'm looking forward to that. But first, I want 00:06:36.370 --> 00:06:39.350 to step back. OK. We have this system where we 00:06:39.350 --> 00:06:41.670 draw invisible lines on the ground and say, this 00:06:41.670 --> 00:06:45.250 is mine. Where did this idea come from? Who decided 00:06:45.250 --> 00:06:47.689 that a square of dirt could belong to a human 00:06:47.689 --> 00:06:49.910 being? This takes us into the history of ownership, 00:06:50.170 --> 00:06:52.949 which is in many ways the history of civilization 00:06:52.949 --> 00:06:56.629 itself. Wow. The source traces the philosophical 00:06:56.629 --> 00:07:00.160 roots back to the concept of a. Natural right 00:07:00.160 --> 00:07:03.399 to own property. You can see seeds of this in 00:07:03.399 --> 00:07:05.540 Roman law and in Greek philosophy. It seems like 00:07:05.540 --> 00:07:08.800 such a fundamental human thing now. This is my 00:07:08.800 --> 00:07:11.000 cave, but I guess at some point it had to be 00:07:11.000 --> 00:07:13.699 codified, written down into law. It did, because 00:07:13.699 --> 00:07:16.220 this is my cave works fine until someone bigger 00:07:16.220 --> 00:07:18.399 comes along with a bigger club. To have a stable 00:07:18.399 --> 00:07:21.199 society, you need a law that says... This is 00:07:21.199 --> 00:07:23.819 his cave, regardless of how big his club is. 00:07:24.019 --> 00:07:27.360 So by the 15th and 16th centuries, you had writers 00:07:27.360 --> 00:07:29.939 discussing what they called universal law or 00:07:29.939 --> 00:07:32.660 natural law regarding private property. And what 00:07:32.660 --> 00:07:34.399 were they grappling with? They were trying to 00:07:34.399 --> 00:07:37.180 figure out international relations, really. If 00:07:37.180 --> 00:07:39.519 a citizen from England owns property but travels 00:07:39.519 --> 00:07:42.720 to France, is it still theirs? How do we handle 00:07:42.720 --> 00:07:45.759 foreign investments? These were new global problems. 00:07:46.060 --> 00:07:48.319 So it was about protecting your assets when you 00:07:48.319 --> 00:07:49.980 weren't standing right next to them to physically 00:07:49.980 --> 00:07:52.959 defend them? Precisely. It's the software that 00:07:52.959 --> 00:07:55.459 runs the hardware of land, the rules that everyone 00:07:55.459 --> 00:07:58.639 agrees to play by. There is a key figure mentioned 00:07:58.639 --> 00:08:01.439 in the source, a Swiss philosopher named Emmerich 00:08:01.439 --> 00:08:04.740 de Wattel. He wrote a treatise in 1758 called 00:08:04.740 --> 00:08:07.620 The Law of Nations, and he really conceptualized 00:08:07.620 --> 00:08:10.560 this idea of private property as a natural law 00:08:10.560 --> 00:08:13.040 that nations had to respect, even with each other's 00:08:13.040 --> 00:08:16.319 citizens. 1758, that's right in the middle of 00:08:16.319 --> 00:08:18.579 the Enlightenment. It is. It's interesting how 00:08:18.579 --> 00:08:20.899 these abstract philosophical ideas translate 00:08:20.899 --> 00:08:24.120 directly into hard cash and fences and, you know. 00:08:24.639 --> 00:08:27.459 property lines. Well, without Vittel and those 00:08:27.459 --> 00:08:29.819 concepts, you don't really have a modern real 00:08:29.819 --> 00:08:32.720 estate market. You just have feudalism or, you 00:08:32.720 --> 00:08:35.100 know, raw conquest. Speaking of the market, the 00:08:35.100 --> 00:08:37.639 source mentions the birth of the appraisal industry. 00:08:37.919 --> 00:08:39.960 I always assumed that was a modern banking thing. 00:08:40.039 --> 00:08:42.320 You know, the bank sends a guy out to make sure 00:08:42.320 --> 00:08:44.419 the house is worth the loan. But this goes back 00:08:44.419 --> 00:08:47.000 way, way further. Much further. It actually began 00:08:47.000 --> 00:08:50.840 in England in the 1500s. The 1500s. Yep. And 00:08:50.840 --> 00:08:52.840 it wasn't about mortgages back then. It was about... 00:08:53.080 --> 00:08:56.259 Agriculture. Agriculture. Well, think about it. 00:08:56.379 --> 00:08:59.840 England was a primarily agrarian society. You 00:08:59.840 --> 00:09:02.779 have landlords, you have tenant farmers. They 00:09:02.779 --> 00:09:05.679 needed to clear land and prepare it for farming. 00:09:06.080 --> 00:09:09.220 Okay. So they needed to know what that land was 00:09:09.220 --> 00:09:11.639 worth in terms of its potential yield. How much 00:09:11.639 --> 00:09:14.639 food could it produce? So the first appraisers 00:09:14.639 --> 00:09:17.019 weren't looking at school districts or crime 00:09:17.019 --> 00:09:19.919 rates or curb appeal. They were looking at soil 00:09:19.919 --> 00:09:22.419 quality. Essentially, yes. They were asking, 00:09:22.539 --> 00:09:24.419 how many bushels of wheat can I grow on this 00:09:24.419 --> 00:09:27.000 field? Or how many turnips can I grow on this 00:09:27.000 --> 00:09:29.200 hillside? That makes so much sense. In England, 00:09:29.240 --> 00:09:32.039 they used the term surveying. But as the practice 00:09:32.039 --> 00:09:35.139 moved to North America, the term appraising became 00:09:35.139 --> 00:09:38.080 the standard. But it's all about the same thing, 00:09:38.240 --> 00:09:41.299 putting a value on the utility of the land. And 00:09:41.299 --> 00:09:44.340 speaking of value. We have to talk about what 00:09:44.340 --> 00:09:46.320 might be the biggest real estate transaction 00:09:46.320 --> 00:09:48.659 of all time, at least in terms of its impact 00:09:48.659 --> 00:09:51.179 on the map. The Louisiana Purchase. The Louisiana 00:09:51.179 --> 00:09:54.720 Purchase. A monumental moment, 1803. I think 00:09:54.720 --> 00:09:57.200 we learn about this in grade school, but we don't 00:09:57.200 --> 00:09:59.080 really think about it as a real estate deal. 00:09:59.399 --> 00:10:02.039 No, we don't. We think of it as history. But 00:10:02.039 --> 00:10:05.159 it was a purchase, a transaction between a seller, 00:10:05.360 --> 00:10:09.559 France, and a buyer, the United States. It was. 00:10:09.639 --> 00:10:13.059 It was signed via treaty. And the numbers, when 00:10:13.059 --> 00:10:15.120 you break them down today, are just absolutely 00:10:15.120 --> 00:10:17.100 staggering in how small they are. Let's unpack 00:10:17.100 --> 00:10:19.500 that math because this blows my mind every time 00:10:19.500 --> 00:10:21.899 I hear it. So the total cost was $15 million. 00:10:22.340 --> 00:10:24.519 Okay. Which sounds like a lot of money in 1803. 00:10:24.679 --> 00:10:27.059 And it was. It was a significant sum. But you 00:10:27.059 --> 00:10:29.080 have to look at what they bought. It literally 00:10:29.080 --> 00:10:31.779 doubled the size of the United States. It paved 00:10:31.779 --> 00:10:34.919 the way for all of Western expansion. And when 00:10:34.919 --> 00:10:37.740 you divide that $15 million by the sheer amount 00:10:37.740 --> 00:10:40.120 of land acquired... Here it comes. It creates 00:10:40.120 --> 00:10:43.919 a price point of roughly $0 .04 per acre. $0 00:10:43.919 --> 00:10:46.740 .04 per acre? You couldn't buy a single plane 00:10:46.740 --> 00:10:49.600 of grass for $0 .04 today. Not even a speck of 00:10:49.600 --> 00:10:53.340 dirt. It is absurd. But why? Why was it so cheap? 00:10:53.500 --> 00:10:56.779 Was the land considered worthless? No, not at 00:10:56.779 --> 00:10:59.500 all. The land was incredibly valuable. It had 00:10:59.500 --> 00:11:01.980 fertile plains, the entire Mississippi River 00:11:01.980 --> 00:11:05.399 system. So what was it then? This teaches us 00:11:05.399 --> 00:11:08.419 a massive lesson about real estate value. Think 00:11:08.419 --> 00:11:10.559 about what that four cents actually represents. 00:11:10.779 --> 00:11:13.320 It wasn't a market price based on soil quality 00:11:13.320 --> 00:11:16.480 or timber. It was a distress sale. Napoleon was 00:11:16.480 --> 00:11:18.820 in trouble. Napoleon was in big trouble. He needed 00:11:18.820 --> 00:11:22.120 cash and he needed it fast for his wars in Europe. 00:11:22.590 --> 00:11:25.070 But more importantly, he couldn't defend the 00:11:25.070 --> 00:11:27.490 territory. He knew that if he didn't sell it 00:11:27.490 --> 00:11:29.509 to the Americans, the British might just take 00:11:29.509 --> 00:11:31.190 it from him or the Americans would eventually 00:11:31.190 --> 00:11:33.570 just expand into it anyway. So he couldn't enforce 00:11:33.570 --> 00:11:36.429 his ownership. He couldn't. It teaches us that 00:11:36.429 --> 00:11:39.350 at the highest level, real estate value is entirely 00:11:39.350 --> 00:11:42.429 dependent on political stability and the ability 00:11:42.429 --> 00:11:45.159 to enforce your claim. You can have the best 00:11:45.159 --> 00:11:47.259 land on Earth, but if you can't stop someone 00:11:47.259 --> 00:11:49.679 else from taking it, it's worth pennies. That 00:11:49.679 --> 00:11:52.320 is a profound point. Value isn't just about the 00:11:52.320 --> 00:11:54.879 dirt. It's about the security of the claim. Exactly. 00:11:55.039 --> 00:11:57.759 So the U .S. gets this massive amount of land 00:11:57.759 --> 00:12:00.679 that opened the floodgates. When did it become 00:12:00.679 --> 00:12:03.019 a business? When did we get the guys in the blazers 00:12:03.019 --> 00:12:06.399 with the business cards? It started to professionalize 00:12:06.399 --> 00:12:09.000 in the mid -19th century. especially in the growing 00:12:09.000 --> 00:12:11.740 cities. The source notes the oldest real estate 00:12:11.740 --> 00:12:15.120 brokerage firm was established in 1855 in Chicago. 00:12:15.539 --> 00:12:18.340 It was originally called L .D. Olmsted & Co. 00:12:18.500 --> 00:12:20.779 And are they still around? I'm curious. They 00:12:20.779 --> 00:12:22.860 are. They are now known as Baird & Warner. That 00:12:22.860 --> 00:12:26.519 is wild. 1855, that's before the Civil War, before 00:12:26.519 --> 00:12:28.940 the light bulb. It shows you how deep the roots 00:12:28.940 --> 00:12:31.919 of this industry are in American cities. Chicago 00:12:31.919 --> 00:12:34.100 was booming. It was the gateway to the West. 00:12:34.240 --> 00:12:36.620 And someone needed to manage the buying and selling 00:12:36.620 --> 00:12:38.679 of all that new property. It makes sense. Then 00:12:38.679 --> 00:12:41.659 as the chaos of the market grew, people realized 00:12:41.659 --> 00:12:43.840 they needed standards. They needed some rules. 00:12:44.120 --> 00:12:46.580 So in 1908, you get the founding of the National 00:12:46.580 --> 00:12:49.399 Association of Realtors, also in Chicago. And 00:12:49.399 --> 00:12:51.600 I noticed the source made a specific point about 00:12:51.600 --> 00:12:54.919 the word realtor. We tend to use real estate 00:12:54.919 --> 00:12:58.100 agent and realtor interchangeably, but they aren't 00:12:58.100 --> 00:13:00.440 the same thing, are they? No. And the association 00:13:00.440 --> 00:13:02.620 is very, very protective of this distinction. 00:13:02.879 --> 00:13:06.000 I bet. The term realtor wasn't coined until 1916. 00:13:06.360 --> 00:13:08.980 It was created specifically to identify these 00:13:08.980 --> 00:13:10.879 professionals who were members of the association 00:13:10.879 --> 00:13:14.220 and crucially adhered to a code of ethics. So 00:13:14.220 --> 00:13:16.440 it was a branding move. It was a branding move, 00:13:16.539 --> 00:13:19.080 essentially, to separate the professionals from 00:13:19.080 --> 00:13:21.720 the casual and perhaps unscrupulous land peddlers 00:13:21.720 --> 00:13:23.919 of the time. It was a way to say, I'm not a shark. 00:13:24.080 --> 00:13:26.500 I'm a realtor. Exactly. You can trust me. So 00:13:26.500 --> 00:13:28.639 things are booming. We have realtors. We have 00:13:28.639 --> 00:13:32.100 firms. Cities are growing. Yeah. And then 1929 00:13:32.100 --> 00:13:34.860 hits. The party stops. The Great Depression. 00:13:35.340 --> 00:13:37.860 And for real estate, it was just catastrophic. 00:13:37.879 --> 00:13:40.399 We talk about stock prices crashing, but real 00:13:40.399 --> 00:13:42.720 estate values fell off a cliff. How bad was it? 00:13:42.840 --> 00:13:45.419 The source says that over the four years following 00:13:45.419 --> 00:13:49.259 the 1929 crash, real estate values depreciated 00:13:49.259 --> 00:13:53.940 by 50%. Half the value gone. Yeah. Just evaporated. 00:13:54.240 --> 00:13:56.580 Think about what that does to an economy. It 00:13:56.580 --> 00:13:58.990 freezes everything. People couldn't sell their 00:13:58.990 --> 00:14:01.350 homes because they were underwater. They owed 00:14:01.350 --> 00:14:03.090 more on the mortgage than the house was worth. 00:14:03.210 --> 00:14:05.350 And banks couldn't lend because all their assets 00:14:05.350 --> 00:14:07.769 are suddenly worth half as much. Exactly. The 00:14:07.769 --> 00:14:10.809 entire system seized up. And that crisis forced 00:14:10.809 --> 00:14:12.649 the government to step in. They couldn't just 00:14:12.649 --> 00:14:15.230 let the housing market die. Right. They basically 00:14:15.230 --> 00:14:17.789 had to invent the modern housing finance system 00:14:17.789 --> 00:14:21.029 from scratch. You get the Banking Act of 1933 00:14:21.029 --> 00:14:24.389 and then the National Housing Act of 1934. And 00:14:24.389 --> 00:14:26.669 what did these do? They created the concept of 00:14:26.669 --> 00:14:30.149 mortgage insurance, managed by the FHA, the Federal 00:14:30.149 --> 00:14:33.450 Housing Administration, and the FDIC. Before 00:14:33.450 --> 00:14:35.669 this, buying a home was incredibly difficult 00:14:35.669 --> 00:14:38.490 for the average person. Why? Because you often 00:14:38.490 --> 00:14:41.730 needed huge down payments, like 50 % of the home's 00:14:41.730 --> 00:14:44.370 value, and very short repayment terms, like 5 00:14:44.370 --> 00:14:47.509 or 10 years. 50 % down. That would make homeownership 00:14:47.509 --> 00:14:50.269 impossible for almost everyone today. It would. 00:14:50.679 --> 00:14:53.179 It was a luxury for the wealthy. These acts were 00:14:53.179 --> 00:14:55.460 designed to try and democratize it, to make it 00:14:55.460 --> 00:14:58.220 accessible. And then came the biggest player 00:14:58.220 --> 00:15:02.320 of all, Fannie Mae. 1938, the Federal National 00:15:02.320 --> 00:15:05.980 Mortgage Association. Yes. And its purpose, which 00:15:05.980 --> 00:15:09.220 sounds very technical, was to serve as a secondary 00:15:09.220 --> 00:15:11.779 market for mortgages. I want to pause on this 00:15:11.779 --> 00:15:14.100 because secondary market is one of those finance 00:15:14.100 --> 00:15:16.639 terms that makes people's eyes glaze over. It 00:15:16.639 --> 00:15:18.879 does. But it's the reason most of us can buy 00:15:18.879 --> 00:15:23.000 homes. Explain it like I'm five. What is a secondary 00:15:23.000 --> 00:15:25.460 market for a mortgage? Okay, that's a great challenge. 00:15:25.580 --> 00:15:28.360 Imagine your local bank is a bathtub full of 00:15:28.360 --> 00:15:31.039 water. The water is the cash they have to lend. 00:15:31.279 --> 00:15:33.399 Okay, I'm with you. Bathtub full of cash. When 00:15:33.399 --> 00:15:35.919 you come in to borrow money for a house, the 00:15:35.919 --> 00:15:38.039 bank takes a big bucket of water out of the tub 00:15:38.039 --> 00:15:40.440 and gives it to you. You promise to pour it back 00:15:40.440 --> 00:15:43.419 in, drop by drop, with interest, over 30 years. 00:15:43.580 --> 00:15:46.340 Makes sense. But if 10 people come in and borrow 00:15:46.340 --> 00:15:49.720 money, the bathtub's empty. The bank has no more 00:15:49.720 --> 00:15:52.279 water to lend. So they're stuck. They are stuck. 00:15:52.600 --> 00:15:54.639 They have to wait for those first 10 people to 00:15:54.639 --> 00:15:57.000 slowly pay them back before they can help the 00:15:57.000 --> 00:16:00.320 11th person. The system jams up. So nobody else 00:16:00.320 --> 00:16:03.039 gets a loan. Right. Fannie Mae was created to 00:16:03.039 --> 00:16:05.379 be a giant tanker truck that pulls up to the 00:16:05.379 --> 00:16:08.279 house. They say to the bank, hey, give us those 00:16:08.279 --> 00:16:11.159 empty buckets the IOUs from the borrowers, and 00:16:11.159 --> 00:16:14.240 we will fill your bathtub back up with cash right 00:16:14.240 --> 00:16:17.120 now. So the bank gets their cash back immediately. 00:16:17.620 --> 00:16:20.220 Correct. Fannie Mae buys the mortgage from the 00:16:20.220 --> 00:16:23.480 bank. Now the bank has liquidity, a full bathtub 00:16:23.480 --> 00:16:26.200 to lend to another homebuyer. It keeps the money 00:16:26.200 --> 00:16:28.919 moving. That's a brilliant analogy. It fundamentally 00:16:28.919 --> 00:16:31.159 changed the accessibility of homeownership in 00:16:31.159 --> 00:16:33.179 America because banks weren't scared of running 00:16:33.179 --> 00:16:35.820 out of cash anymore. That is a huge shift. We 00:16:35.820 --> 00:16:37.899 went from four cents an acre treaties to this 00:16:37.899 --> 00:16:40.320 complex financial engine designed to get people 00:16:40.320 --> 00:16:42.940 into homes. A massive shift. And that brings 00:16:42.940 --> 00:16:45.159 us to what most of us deal with on a daily basis. 00:16:45.930 --> 00:16:48.350 Residential real estate. Residential. Yeah. The 00:16:48.350 --> 00:16:50.409 biggest asset class for most people on the planet. 00:16:50.570 --> 00:16:52.289 It's not just the white picket fence, though, 00:16:52.309 --> 00:16:54.929 is it? The source outlines a pretty diverse landscape. 00:16:55.250 --> 00:16:58.730 No, the classification is broad. Residential 00:16:58.730 --> 00:17:00.929 real estate includes both single -family and 00:17:00.929 --> 00:17:03.889 multi -family structures. The defining characteristic 00:17:03.889 --> 00:17:06.950 is that it's available for occupation or for 00:17:06.950 --> 00:17:09.819 non -business purposes. So living in it. Basically, 00:17:09.920 --> 00:17:12.359 yeah. And despite how expensive it feels to buy 00:17:12.359 --> 00:17:14.720 a home these days, the ownership rate is actually 00:17:14.720 --> 00:17:17.920 still pretty high in the U .S. It is. The source 00:17:17.920 --> 00:17:20.539 cites the Congressional Research Service. And 00:17:20.539 --> 00:17:24.640 in 2021, 65 percent of U .S. homes were owned 00:17:24.640 --> 00:17:27.099 by the person or family occupying it. That is 00:17:27.099 --> 00:17:29.890 a majority, certainly. But home looks different 00:17:29.890 --> 00:17:32.230 depending on where you are. I loved the breakdown 00:17:32.230 --> 00:17:34.670 of housing types in the source. It really shows 00:17:34.670 --> 00:17:37.170 how language shapes our view of property. The 00:17:37.170 --> 00:17:38.930 linguistic differences are great, aren't they? 00:17:38.990 --> 00:17:40.849 Take the difference between an apartment and 00:17:40.849 --> 00:17:43.250 a flat. I always thought flat was just the British 00:17:43.250 --> 00:17:45.950 way of saying apartment. It mostly is, but the 00:17:45.950 --> 00:17:48.920 definitions are specific. An apartment, that's 00:17:48.920 --> 00:17:51.400 American English, is an individual unit in a 00:17:51.400 --> 00:17:54.259 multi -unit building, usually defined by a perimeter 00:17:54.259 --> 00:17:57.680 of locked doors. A flat British English is the 00:17:57.680 --> 00:17:59.740 equivalent. Okay, simple enough. But then you 00:17:59.740 --> 00:18:01.900 have the distinction between a condominium and 00:18:01.900 --> 00:18:05.079 a co -op. This is where people often get confused 00:18:05.079 --> 00:18:07.420 and where they can get into legal trouble if 00:18:07.420 --> 00:18:09.759 they aren't careful. I admit, I use them interchangeably 00:18:09.759 --> 00:18:12.039 sometimes. I bought a condo, I bought a co -op. 00:18:12.099 --> 00:18:14.519 But they are legally very different animals. 00:18:14.839 --> 00:18:17.569 Very, very different. With a condominium or condo, 00:18:17.589 --> 00:18:20.710 you own the unit. You have a deed for your specific 00:18:20.710 --> 00:18:23.750 box of space. The air inside the walls? The air 00:18:23.750 --> 00:18:26.349 inside the walls, the drywall, the floor. You 00:18:26.349 --> 00:18:29.029 own that piece of real estate. The common grounds, 00:18:29.230 --> 00:18:32.150 the hallways, the gym, the pool are shared jointly 00:18:32.150 --> 00:18:34.730 with the other owners. Okay, so I own the apartment 00:18:34.730 --> 00:18:37.210 and we all own the lobby together. Correct. Now, 00:18:37.269 --> 00:18:40.190 a co -op or a housing cooperative is totally 00:18:40.190 --> 00:18:43.220 different. In a co -op, you do not own your unit. 00:18:43.339 --> 00:18:46.119 You do not own any real estate at all. You don't. 00:18:46.119 --> 00:18:47.619 Then what are you paying for? What do you get? 00:18:47.779 --> 00:18:51.180 You are buying shares in a corporation. Oh. That 00:18:51.180 --> 00:18:54.420 corporation owns the entire building. Your shares 00:18:54.420 --> 00:18:57.180 then grant you what's called a proprietary lease, 00:18:57.319 --> 00:19:00.299 which is the right to occupy a specific unit. 00:19:00.599 --> 00:19:03.720 You are a shareholder in a company, not a real 00:19:03.720 --> 00:19:06.009 estate owner in the traditional sense. That is 00:19:06.009 --> 00:19:08.250 a massive difference. That means my neighbors 00:19:08.250 --> 00:19:10.509 are technically my business partners. Exactly. 00:19:10.650 --> 00:19:12.990 Which is why co -op boards are notorious for 00:19:12.990 --> 00:19:15.670 being strict and intrusive. The dreaded co -op 00:19:15.670 --> 00:19:17.869 board interview. Right. If your neighbor stops 00:19:17.869 --> 00:19:20.349 paying their maintenance fees, the corporation 00:19:20.349 --> 00:19:22.750 suffers, which means you suffer financially. 00:19:23.190 --> 00:19:25.329 You are tethered to the other residents in a 00:19:25.329 --> 00:19:27.670 way you just aren't in a condo. That explains 00:19:27.670 --> 00:19:30.329 why they want to see your tax returns and interview 00:19:30.329 --> 00:19:32.710 your dog before they let you move in. Precisely. 00:19:32.940 --> 00:19:35.200 They are protecting the financial health of their 00:19:35.200 --> 00:19:38.240 corporation. And the source notes that this model 00:19:38.240 --> 00:19:41.259 isn't just a New York City quirk. It is actually 00:19:41.259 --> 00:19:43.920 the majority of housing in Indian metro cities. 00:19:44.140 --> 00:19:46.619 Really? Yeah. It's a very common global structure 00:19:46.619 --> 00:19:49.390 for urban living. We also have attached dwellings, 00:19:49.410 --> 00:19:52.470 townhouses, row houses. Terraced houses, as they 00:19:52.470 --> 00:19:55.430 say in the UK. Continuous rows with shared walls 00:19:55.430 --> 00:19:57.809 and no intervening space between them. And then 00:19:57.809 --> 00:20:01.069 the classic detached dwellings. Bungalows, villas, 00:20:01.109 --> 00:20:03.690 split -level homes, mansions. And we shouldn't 00:20:03.690 --> 00:20:06.990 forget the more portable dwellings. Mobile homes, 00:20:07.269 --> 00:20:09.990 houseboats, even tents are listed as a form of 00:20:09.990 --> 00:20:12.630 dwelling walls made of fabric. It challenges 00:20:12.630 --> 00:20:15.910 that idea of immovable property slightly. But 00:20:15.910 --> 00:20:18.309 if it is your primary residence, It fits the 00:20:18.309 --> 00:20:20.650 residential category. The source mentioned some 00:20:20.650 --> 00:20:22.750 cultural specifics that I hadn't heard of before. 00:20:23.049 --> 00:20:26.549 Cholls and avelis. Yes, these are specific housing 00:20:26.549 --> 00:20:29.509 types found in South Asia, particularly India. 00:20:29.930 --> 00:20:32.690 A choll is typically a building with shared amenities, 00:20:33.029 --> 00:20:36.009 often associated with working class, housing 00:20:36.009 --> 00:20:38.890 think, shared balconies, and sometimes shared 00:20:38.890 --> 00:20:42.089 kitchens or bathrooms. A haveli is on the other 00:20:42.089 --> 00:20:44.710 end of the spectrum. It's a traditional townhouse 00:20:44.710 --> 00:20:47.150 or mansion, usually with an inner courtyard, 00:20:47.369 --> 00:20:50.309 historically significant in India and Pakistan. 00:20:50.490 --> 00:20:52.549 And what fascinated me was the measurement systems 00:20:52.549 --> 00:20:55.190 mentioned for these. Yes. We were so used to 00:20:55.190 --> 00:20:58.029 square feet or maybe square meters. Right. But 00:20:58.029 --> 00:21:00.170 for Havelis and Charles, the source mentions 00:21:00.170 --> 00:21:02.210 measurements like the gaz, which is a square 00:21:02.210 --> 00:21:05.130 yard, and other units like quila, marla, and 00:21:05.130 --> 00:21:07.910 bega. It just reminds us that real estate is 00:21:07.910 --> 00:21:10.650 deeply local. The way we measure it, the way 00:21:10.650 --> 00:21:13.170 we name it, and the way we sell it depends entirely 00:21:13.170 --> 00:21:15.849 on the culture and history of a place. So we 00:21:15.849 --> 00:21:18.190 have the types of homes, but let's pivot to the 00:21:18.190 --> 00:21:20.329 mechanics of how this industry actually works 00:21:20.329 --> 00:21:23.150 as a moneymaking machine. We have talked about 00:21:23.150 --> 00:21:25.569 buying a home to live in, but what about the 00:21:25.569 --> 00:21:28.190 business side? The source distinguishes between 00:21:28.190 --> 00:21:31.849 development and investment. And that is a crucial 00:21:31.849 --> 00:21:34.349 distinction to make. Think of development as 00:21:34.349 --> 00:21:36.529 the manufacturing phase. Building the product. 00:21:36.890 --> 00:21:39.490 Exactly. It involves the planning, coordinating, 00:21:39.730 --> 00:21:42.549 construction, and renovation of property. So 00:21:42.549 --> 00:21:44.450 the developers are the ones wearing the hard 00:21:44.450 --> 00:21:46.769 hats, looking at blueprints. Or they're the ones 00:21:46.769 --> 00:21:48.869 hiring the people in hard hats. They are the 00:21:48.869 --> 00:21:51.670 producers of real estate. And here is an interesting 00:21:51.670 --> 00:21:54.369 insight from the source. Real estate development 00:21:54.369 --> 00:21:57.750 can actually be less cyclical than real estate 00:21:57.750 --> 00:22:00.339 investing. That seems counterintuitive. I feel 00:22:00.339 --> 00:22:02.720 like construction stops the moment the economy 00:22:02.720 --> 00:22:04.880 dips. You see those half -finished skeletons 00:22:04.880 --> 00:22:07.420 of buildings during recessions? It can happen, 00:22:07.500 --> 00:22:09.859 for sure. But development projects are often 00:22:09.859 --> 00:22:12.759 extremely long -term. You might plan a building 00:22:12.759 --> 00:22:14.640 today for a market that won't even exist for 00:22:14.640 --> 00:22:17.119 four or five years. So you're betting on the 00:22:17.119 --> 00:22:19.180 future? You're betting on the future. You can't 00:22:19.180 --> 00:22:22.059 just steer that ship around quickly. Investment, 00:22:22.200 --> 00:22:24.640 on the other hand, is about purchasing existing 00:22:24.640 --> 00:22:27.589 property for profit. either from rental income 00:22:27.589 --> 00:22:31.589 or from resale. It reacts much, much faster to 00:22:31.589 --> 00:22:34.109 market changes. An investor can sell a stock 00:22:34.109 --> 00:22:36.549 or a re -chair in a second. A developer can't 00:22:36.549 --> 00:22:39.470 just sell a half -built foundation. Speaking 00:22:39.470 --> 00:22:41.109 of investment, we have to talk about flipping. 00:22:41.309 --> 00:22:44.069 It's basically a genre of reality TV at this 00:22:44.069 --> 00:22:47.410 point. I bought this dump, put in subway tile 00:22:47.410 --> 00:22:50.410 and gray paint, and made 50 grand. It's everywhere. 00:22:50.809 --> 00:22:52.869 Flipping is buying a property with the intention 00:22:52.869 --> 00:22:56.190 of reselling it quickly for a profit. It relies 00:22:56.190 --> 00:22:59.190 on what's called arbitrage, buying low and selling 00:22:59.190 --> 00:23:02.369 high or capitalizing on a quickly rising market. 00:23:02.990 --> 00:23:06.029 And often it involves repairs to force that value 00:23:06.029 --> 00:23:08.230 up. But it is not as easy as TV makes it look, 00:23:08.269 --> 00:23:10.289 I'm guessing. Not at all. The margins can be 00:23:10.289 --> 00:23:12.769 tight and the risk is very high. The source actually 00:23:12.769 --> 00:23:15.549 categorizes investment risks into three buckets, 00:23:15.789 --> 00:23:19.569 which I found interesting. Core. Value -added 00:23:19.569 --> 00:23:22.089 and opportunistic. Yes, this is standard industry 00:23:22.089 --> 00:23:24.829 terminology. What's the difference? Core is your 00:23:24.829 --> 00:23:28.529 safest bet. Think of a fully rented, high -quality 00:23:28.529 --> 00:23:31.470 apartment building in a good city. It generates 00:23:31.470 --> 00:23:35.509 steady income, low risk, lower return. It's like 00:23:35.509 --> 00:23:37.789 a bond in the stock market. Okay, slow and steady. 00:23:37.990 --> 00:23:41.069 Exactly. Value -added is buying something that 00:23:41.069 --> 00:23:44.480 needs working. A fixer -upper. An apartment building 00:23:44.480 --> 00:23:46.579 with high vacancy that you can renovate and lease 00:23:46.579 --> 00:23:49.359 up. You are actively adding value to increase 00:23:49.359 --> 00:23:51.480 the return. So that's where flipping would fall. 00:23:51.720 --> 00:23:53.980 Yes. Flipping is a short -term version of a value 00:23:53.980 --> 00:23:56.539 -add strategy. And then you have opportunistic. 00:23:56.640 --> 00:23:58.859 The high -risk stuff. The highest risk. This 00:23:58.859 --> 00:24:01.160 is ground -up development, buying land and building 00:24:01.160 --> 00:24:03.779 from scratch, or buying in a totally unproven 00:24:03.779 --> 00:24:05.819 emerging market. That's where you can make an 00:24:05.819 --> 00:24:08.769 absolute fortune. or lose your shirt. And there 00:24:08.769 --> 00:24:11.049 is a concept mentioned called hedonic regression, 00:24:11.410 --> 00:24:13.529 which sounds like a very fancy band name, but 00:24:13.529 --> 00:24:16.970 I assume it's an economic term. It is. And it's 00:24:16.970 --> 00:24:18.829 vital for understanding why real estate is a 00:24:18.829 --> 00:24:21.309 tricky investment. It refers to the fact that 00:24:21.309 --> 00:24:23.950 real estate values, specifically the building, 00:24:24.089 --> 00:24:27.069 the improvements, tends to depreciate with age. 00:24:27.269 --> 00:24:29.349 Wait, I thought real estate always goes up. Buy 00:24:29.349 --> 00:24:31.369 land if they aren't making any more of it. The 00:24:31.369 --> 00:24:33.730 land might go up. That's the Mark Twain quote. 00:24:34.319 --> 00:24:36.599 But the house itself is falling apart from the 00:24:36.599 --> 00:24:39.700 second it's built. Oh, right. Think of a house 00:24:39.700 --> 00:24:41.859 like a brand new car that you've parked on a 00:24:41.859 --> 00:24:45.539 plot of solid gold. The house itself is rotting 00:24:45.539 --> 00:24:48.440 a little bit every day. The roof aims for leaks. 00:24:48.640 --> 00:24:51.500 The pipes aim for rust. The kitchen style goes 00:24:51.500 --> 00:24:54.240 out of fashion. That's hedonic regression. The 00:24:54.240 --> 00:24:56.519 physical asset is trying to go to zero. Exactly. 00:24:57.119 --> 00:25:00.220 But the ground beneath it, the gold, is usually 00:25:00.220 --> 00:25:02.759 getting more valuable due to scarcity in location. 00:25:03.379 --> 00:25:05.640 So real estate investing is essentially a bet 00:25:05.640 --> 00:25:08.460 that the land value will appreciate faster than 00:25:08.460 --> 00:25:10.380 the house falls apart. That is a brilliant way 00:25:10.380 --> 00:25:12.900 to visualize it. You are fighting entropy with 00:25:12.900 --> 00:25:15.180 location. You've got it. Now we need to talk 00:25:15.180 --> 00:25:17.799 about the darker side of investment. The source 00:25:17.799 --> 00:25:21.240 brings up luxury real estate, but not in the, 00:25:21.400 --> 00:25:24.019 you know, selling sunset kind of way. It talks 00:25:24.019 --> 00:25:27.859 about it as a vehicle for stored value. This 00:25:27.859 --> 00:25:31.279 is a huge and often invisible phenomenon we see 00:25:31.279 --> 00:25:35.259 in major global cities. London, New York City, 00:25:35.460 --> 00:25:39.680 Vancouver, Miami. And what does that mean, stored 00:25:39.680 --> 00:25:42.680 value? It means luxury real estate isn't always 00:25:42.680 --> 00:25:45.220 about having a place to sleep. For a certain 00:25:45.220 --> 00:25:47.759 class of global elite, it is often used as a 00:25:47.759 --> 00:25:50.319 safety deposit box made of concrete and glass. 00:25:50.819 --> 00:25:53.359 So people buy a $50 million penthouse and just 00:25:53.359 --> 00:25:55.880 leave it empty. Exactly. The source is explicit 00:25:55.880 --> 00:25:58.019 about this. It says luxury real estate is used 00:25:58.019 --> 00:26:00.240 to store value, particularly by wealthy foreigners. 00:26:00.460 --> 00:26:03.240 And sometimes it's for a more nefarious purpose, 00:26:03.480 --> 00:26:05.660 money laundering. I think we hear money laundering 00:26:05.660 --> 00:26:07.579 and we think of, I don't know, casinos or strip 00:26:07.579 --> 00:26:09.339 clubs from the movies. How do you launder money 00:26:09.339 --> 00:26:11.559 with a penthouse? It's actually cleaner and easier 00:26:11.559 --> 00:26:13.880 with real estate. Let's trace the money. Suppose 00:26:13.880 --> 00:26:16.980 you are a corrupt foreign official or a criminal 00:26:16.980 --> 00:26:19.440 in a country with a weak rule of law. You have 00:26:19.440 --> 00:26:22.440 $10 million in illicit cash that you don't want 00:26:22.440 --> 00:26:24.630 your government to find and seize. You can't 00:26:24.630 --> 00:26:26.450 just put it in a bank account because they'll 00:26:26.450 --> 00:26:28.289 ask questions about where it came from. Right. 00:26:28.369 --> 00:26:30.910 Anti -money laundering laws. Exactly. So what 00:26:30.910 --> 00:26:33.430 do you do? You set up a shell company, let's 00:26:33.430 --> 00:26:36.930 say an LLC in Delaware, where corporate anonymity 00:26:36.930 --> 00:26:39.529 laws are famously very strong. You don't have 00:26:39.529 --> 00:26:41.650 to list your name on the public documents. Okay. 00:26:41.690 --> 00:26:46.589 So now Mystery LLC exists. Mystery LLC then takes 00:26:46.589 --> 00:26:50.430 your $10 million in cash and buys a luxury condo 00:26:50.430 --> 00:26:53.529 in Manhattan. It pays in an all -cash transaction. 00:26:53.950 --> 00:26:56.089 And that's key. No mortgage. That's the key. 00:26:56.210 --> 00:26:58.710 Because there is no mortgage. There is no bank 00:26:58.710 --> 00:27:01.490 scrutiny. No lender is doing a background check 00:27:01.490 --> 00:27:04.170 on you or your source of funds. So the seller 00:27:04.170 --> 00:27:08.049 gets the cash and Mystery LLC gets the deed to 00:27:08.049 --> 00:27:10.809 the property. Correct. And just like that, your 00:27:10.809 --> 00:27:13.410 dirty money has been converted into a clean physical 00:27:13.410 --> 00:27:17.170 asset, a penthouse on 57th Street. It is stable. 00:27:17.559 --> 00:27:20.079 It holds value, and it is incredibly hard for 00:27:20.079 --> 00:27:21.900 your home government to touch because it's now 00:27:21.900 --> 00:27:24.319 under U .S. law and owned by a faceless corporation. 00:27:24.759 --> 00:27:26.119 And you don't even have to live there. You don't 00:27:26.119 --> 00:27:28.400 even need a key. You don't want to. You just 00:27:28.400 --> 00:27:31.119 want the asset. That explains why you see those 00:27:31.119 --> 00:27:33.980 super tall, super skinny pencil towers in New 00:27:33.980 --> 00:27:37.019 York that look completely dark at night. Nobody 00:27:37.019 --> 00:27:40.099 is home. Nobody is home. The vacancy is a feature, 00:27:40.279 --> 00:27:42.539 not a bug. They have no intention of renting 00:27:42.539 --> 00:27:44.640 them out. It's just a line item on a balance 00:27:44.640 --> 00:27:47.319 sheet. It's a gold bar shaped like a living room. 00:27:47.529 --> 00:27:49.970 It's incredible to think about a home that isn't 00:27:49.970 --> 00:27:52.089 a home. It really challenges that definition 00:27:52.089 --> 00:27:54.549 of residential we started with, doesn't it? Is 00:27:54.549 --> 00:27:57.410 it really residential real estate if no one resides 00:27:57.410 --> 00:28:00.390 there? That's a great question. We spent a lot 00:28:00.390 --> 00:28:03.490 of time talking about the financial cost of ownership 00:28:03.490 --> 00:28:06.910 mortgages, flipping, laundering. But there is 00:28:06.910 --> 00:28:09.509 a hitting cost on the balance sheet that doesn't 00:28:09.509 --> 00:28:12.509 show up in dollars. It shows up in carbon. And 00:28:12.509 --> 00:28:15.109 right now, the bill is coming due. You mentioned 00:28:15.109 --> 00:28:18.059 this stat in the intro. And it really bears repeating 00:28:18.059 --> 00:28:20.960 because it's so shocking. Real estate is responsible 00:28:20.960 --> 00:28:24.059 for 39 percent of total emissions worldwide. 00:28:24.539 --> 00:28:27.039 39 percent. That data comes from the International 00:28:27.039 --> 00:28:29.920 Energy Agency from 2019. It's a staggering figure. 00:28:30.079 --> 00:28:32.200 That is almost half of the world's emissions 00:28:32.200 --> 00:28:34.880 coming from buildings. That seems impossibly 00:28:34.880 --> 00:28:37.339 high. Is that just from, you know, leaving the 00:28:37.339 --> 00:28:39.019 lights on and running the air conditioning? No. 00:28:39.079 --> 00:28:41.240 And that's the common misconception. We need 00:28:41.240 --> 00:28:43.980 to break that number down. A huge chunk of that. 00:28:44.519 --> 00:28:48.900 11 % of total global emissions comes specifically 00:28:48.900 --> 00:28:52.440 from the manufacturing of materials used in buildings. 00:28:52.640 --> 00:28:55.420 The concrete, the steel, the glass. Exactly. 00:28:55.519 --> 00:28:59.259 This is called embodied carbon. The process of 00:28:59.259 --> 00:29:01.559 making cement, for example, is incredibly carbon 00:29:01.559 --> 00:29:04.700 intensive. It involves heating limestone to extreme 00:29:04.700 --> 00:29:07.279 temperatures, which releases enormous amounts 00:29:07.279 --> 00:29:10.410 of CO2. So before a building even opens its doors, 00:29:10.509 --> 00:29:12.630 before a single light switch is flipped for the 00:29:12.630 --> 00:29:15.069 first time, it has already accrued this huge 00:29:15.069 --> 00:29:18.269 carbon debt. A massive carbon debt. So even if 00:29:18.269 --> 00:29:21.009 you build a super efficient net zero house that 00:29:21.009 --> 00:29:24.069 runs on solar power, the concrete in the foundation 00:29:24.069 --> 00:29:26.450 alone has already done significant environmental 00:29:26.450 --> 00:29:29.069 damage. Wow. And the source mentions that this 00:29:29.069 --> 00:29:31.490 environmental relationship goes both ways. The 00:29:31.490 --> 00:29:33.309 environment impacts the real estate value, too. 00:29:33.430 --> 00:29:36.210 Well, environmental degradation can severely 00:29:36.210 --> 00:29:39.990 devalue property. If you discover the soil on 00:29:39.990 --> 00:29:42.250 a property is contaminated from an old factory 00:29:42.250 --> 00:29:45.490 or the air quality is terrible or it's in a new 00:29:45.490 --> 00:29:48.769 flood zone due to climate change, the value plummets. 00:29:48.769 --> 00:29:51.509 Right. This has driven a huge demand for what 00:29:51.509 --> 00:29:54.210 are called site assessments or ESAs. What is 00:29:54.210 --> 00:29:56.890 an ESA? An environmental site assessment. Nowadays, 00:29:56.990 --> 00:29:59.089 for almost any commercial real estate deal or 00:29:59.089 --> 00:30:01.789 private development, you have environmental surveyors 00:30:01.789 --> 00:30:04.220 and engineers come in. And what do they do? They 00:30:04.220 --> 00:30:06.599 examine the land for any existing contamination, 00:30:06.900 --> 00:30:09.519 and they also analyze the potential environmental 00:30:09.519 --> 00:30:12.059 impact of the new development. You can't just 00:30:12.059 --> 00:30:14.680 build blindly anymore. If you buy a piece of 00:30:14.680 --> 00:30:16.799 land that turns out to be a toxic waste dump, 00:30:16.960 --> 00:30:19.420 you are now liable for the cleanup. So it's a 00:30:19.420 --> 00:30:22.420 huge financial risk. A massive risk. And this, 00:30:22.420 --> 00:30:24.720 in turn, has led to the rise of green development. 00:30:25.069 --> 00:30:27.170 Which has been growing since the 1970s environmental 00:30:27.170 --> 00:30:29.410 movement, right? It has. It's not just a buzzword 00:30:29.410 --> 00:30:31.769 anymore. The source says it focuses on three 00:30:31.769 --> 00:30:34.910 key areas. Environmental responsiveness, resource 00:30:34.910 --> 00:30:37.829 efficiency, and sensitivity to cultural and societal 00:30:37.829 --> 00:30:41.190 aspects. So things like LE certification for 00:30:41.190 --> 00:30:44.950 buildings. Yes, LE is a big one. Also green infrastructure, 00:30:45.170 --> 00:30:48.230 like permeable pavements and green roofs, and 00:30:48.230 --> 00:30:50.750 conservation development, where you cluster homes 00:30:50.750 --> 00:30:53.710 to preserve open space. But that third point 00:30:53.710 --> 00:30:57.029 stood out to me. sensitivity to cultural and 00:30:57.029 --> 00:30:59.710 societal aspects. Yeah. Usually when we talk 00:30:59.710 --> 00:31:02.509 green, we talk about energy usage or water conservation. 00:31:02.849 --> 00:31:05.190 But this implies that fitting into the community 00:31:05.190 --> 00:31:07.970 is part of being sustainable. It is. A building 00:31:07.970 --> 00:31:11.150 that the community hates or that displaces a 00:31:11.150 --> 00:31:13.670 vulnerable population isn't truly sustainable 00:31:13.670 --> 00:31:16.549 because it creates social friction and instability. 00:31:16.710 --> 00:31:18.690 That's a really good point. Which is a perfect 00:31:18.690 --> 00:31:21.150 segue to the societal and legal side of real 00:31:21.150 --> 00:31:23.630 estate. Because real estate is where society 00:31:23.630 --> 00:31:26.369 physically organized itself. And historically, 00:31:26.509 --> 00:31:28.769 that organization hasn't always been fair. No, 00:31:28.869 --> 00:31:31.109 it has not. The source brings up the Civil Rights 00:31:31.109 --> 00:31:34.430 Act, specifically Title VIII. Which is better 00:31:34.430 --> 00:31:37.549 known as the Fair Housing Act of 1968. This was 00:31:37.549 --> 00:31:39.589 a landmark piece of legislation in the United 00:31:39.589 --> 00:31:42.069 States. And what did it address? It directly 00:31:42.069 --> 00:31:44.210 addressed the long history of racial segregation 00:31:44.210 --> 00:31:47.990 in housing. It was meant to help with the incorporation 00:31:47.990 --> 00:31:50.529 of African Americans into neighborhoods where 00:31:50.529 --> 00:31:52.849 they had been previously excluded. What did it 00:31:52.849 --> 00:31:55.470 actually do? Because we know segregation was 00:31:55.470 --> 00:31:58.529 the norm for a long time. It analyzed and outlawed 00:31:58.529 --> 00:32:01.329 discrimination in renting, buying and financing 00:32:01.329 --> 00:32:05.630 based on race, religion, national origin and 00:32:05.630 --> 00:32:08.990 sex. Before this, you could legally refuse to 00:32:08.990 --> 00:32:11.250 sell a house to someone just because of the color 00:32:11.250 --> 00:32:13.569 of their skin. A bank could refuse a mortgage 00:32:13.569 --> 00:32:16.190 on the same basis. Exactly. Or a developer could 00:32:16.190 --> 00:32:18.349 put a restrictive covenant in the deed of a house 00:32:18.349 --> 00:32:20.789 saying this house can never be sold to a black 00:32:20.789 --> 00:32:23.099 family. Or a Jewish family. Which happened all 00:32:23.099 --> 00:32:25.720 the time. All the time. The Fair Housing Act 00:32:25.720 --> 00:32:28.220 was the legal mechanism to try and stop that. 00:32:28.680 --> 00:32:31.099 It's a powerful reminder that real estate laws 00:32:31.099 --> 00:32:33.920 are often civil rights laws. Because access to 00:32:33.920 --> 00:32:36.839 property is access to wealth. It is. If you are 00:32:36.839 --> 00:32:38.839 systematically locked out of the real estate 00:32:38.839 --> 00:32:41.119 market, you're locked out of the primary way 00:32:41.119 --> 00:32:43.380 that most families build generational wealth. 00:32:43.940 --> 00:32:47.960 Precisely. The way we access that market, the 00:32:47.960 --> 00:32:51.240 information about it, changed forever in 1999. 00:32:51.700 --> 00:32:54.500 The internet era arrives. The source notes that 00:32:54.500 --> 00:32:56.880 real estate platforms appeared on the World Wide 00:32:56.880 --> 00:33:00.700 Web in 1999. This changed everything. Before 00:33:00.700 --> 00:33:03.039 that, the realtor held all the cards. They had 00:33:03.039 --> 00:33:04.880 the book. They had the big book of listings, 00:33:05.140 --> 00:33:07.420 the MLS book. You had to go to their office to 00:33:07.420 --> 00:33:09.759 see what was for sale in your town. Information 00:33:09.759 --> 00:33:12.650 was hoarded. It was a key part of their value 00:33:12.650 --> 00:33:15.910 proposition. Now that information is democratized. 00:33:16.009 --> 00:33:18.170 Absolutely. I can sit in my pajamas in Chicago 00:33:18.170 --> 00:33:20.849 and see inside a house in Tokyo. I can check 00:33:20.849 --> 00:33:23.470 the tax history, the school ratings, the price 00:33:23.470 --> 00:33:25.789 history for the entire neighborhood. It completely 00:33:25.789 --> 00:33:28.130 leveled the playing field for the buyer. But 00:33:28.130 --> 00:33:30.890 while the information is easier to get, the legal 00:33:30.890 --> 00:33:33.529 concepts behind it are still incredibly dense. 00:33:33.710 --> 00:33:35.990 They are. And just as important as ever. There 00:33:35.990 --> 00:33:38.250 are a few terms in the source that I've heard 00:33:38.250 --> 00:33:40.690 thrown around in movies or TV shows, but I frankly 00:33:40.690 --> 00:33:42.890 don't really know what they mean. I want to unpack 00:33:42.890 --> 00:33:45.170 these because they define what you actually own. 00:33:45.289 --> 00:33:48.089 Let's do it. Let's start with fee simple. It 00:33:48.089 --> 00:33:51.029 sounds like a paradox. Simple, and yet there's 00:33:51.029 --> 00:33:53.250 a fee. It does, but it's the most common and 00:33:53.250 --> 00:33:56.109 most complete form of ownership. When you buy 00:33:56.109 --> 00:33:59.309 a house, you assume you own it entirely, forever. 00:33:59.789 --> 00:34:02.190 In the law, that's called a fee simple estate. 00:34:02.490 --> 00:34:04.910 Okay. Think of it as owning the whole bundle 00:34:04.910 --> 00:34:07.410 of sticks. You can sell it. You can lease it. 00:34:07.430 --> 00:34:09.670 You can burn it down if you want. You can leave 00:34:09.670 --> 00:34:11.469 it to your kids. You can paint it bright pink. 00:34:11.889 --> 00:34:15.190 It is the absolute ownership of the land. OK, 00:34:15.269 --> 00:34:17.789 so fee simple is the gold standard of ownership. 00:34:18.210 --> 00:34:20.610 Contrast that with something called a life estate. 00:34:20.829 --> 00:34:22.949 A life estate is like owning a book, but you 00:34:22.949 --> 00:34:24.889 have to give it back to the library when you 00:34:24.889 --> 00:34:27.130 die. That's a great way to put it. I could give 00:34:27.130 --> 00:34:29.349 you a house, but specify in the deed that it 00:34:29.349 --> 00:34:31.050 is a life estate. You can live there for your 00:34:31.050 --> 00:34:32.889 entire life. You can even rent it out and collect 00:34:32.889 --> 00:34:35.469 the income, but you can't sell it. and you can't 00:34:35.469 --> 00:34:37.170 leave it to your children in your will. When 00:34:37.170 --> 00:34:39.590 you die, the house automatically reverts back 00:34:39.590 --> 00:34:42.150 to me or my heirs, or it goes to someone else 00:34:42.150 --> 00:34:44.369 I designated from the start. That feels very 00:34:44.369 --> 00:34:48.110 Downton Abbey. It's a way to control property 00:34:48.110 --> 00:34:51.090 from beyond the grave. It is. It's an old concept 00:34:51.090 --> 00:34:53.610 from English common law. Now, what happens if 00:34:53.610 --> 00:34:57.070 you own a property fee, simple, but you die and 00:34:57.070 --> 00:34:59.369 you have no will and no heirs? The house just 00:34:59.369 --> 00:35:02.130 sits empty forever, becomes a haunted house. 00:35:02.369 --> 00:35:05.519 No. This is where a fantastic legal term called 00:35:05.519 --> 00:35:08.360 eschete comes in. Eschete. Sounds like cheating. 00:35:08.659 --> 00:35:11.159 It's an old feudal term. It basically means the 00:35:11.159 --> 00:35:13.840 property transfers to the state. The legal theory 00:35:13.840 --> 00:35:16.059 is that property can't just belong to no one, 00:35:16.099 --> 00:35:18.159 so the government is the ultimate backup owner. 00:35:18.460 --> 00:35:21.239 If there is no legal owner found, the state takes 00:35:21.239 --> 00:35:23.679 it. Okay, so that's how you lose property by 00:35:23.679 --> 00:35:27.119 dying. But the source mentions a way to gain 00:35:27.119 --> 00:35:29.960 property by, well, basically by stealing it, 00:35:30.000 --> 00:35:32.880 right? Adverse possession. The squatter's rights 00:35:32.880 --> 00:35:35.139 law. This one always fascinates people. It's 00:35:35.139 --> 00:35:36.940 essentially acquiring property rights through 00:35:36.940 --> 00:35:39.639 usage and occupation without paying for it. How 00:35:39.639 --> 00:35:41.539 does that actually work? I can't just camp in 00:35:41.539 --> 00:35:43.300 your yard for a week and then claim it's mine. 00:35:43.579 --> 00:35:45.780 No, it's much harder than that. The use has to 00:35:45.780 --> 00:35:48.179 be open and notorious. You can't be hiding. It 00:35:48.179 --> 00:35:50.519 has to be continuous, hostile meaning without 00:35:50.519 --> 00:35:53.539 the owner's permission and exclusive for a certain 00:35:53.539 --> 00:35:56.480 number of years. And how long is that? It varies 00:35:56.480 --> 00:35:58.360 by state, but it's usually a long time, like 00:35:58.360 --> 00:36:01.119 10, 15, or even 20 years. So if there is a vacant 00:36:01.119 --> 00:36:03.699 lot next to my house that nobody uses, and I 00:36:03.699 --> 00:36:05.960 start mowing it, put up a fence, plant a garden, 00:36:06.099 --> 00:36:08.800 and the legal owner just ignores me for 20 years. 00:36:09.000 --> 00:36:11.500 You might be able to go to court and claim that 00:36:11.500 --> 00:36:13.940 the property is legally yours through adverse 00:36:13.940 --> 00:36:17.059 possession. The law assumes that land should 00:36:17.059 --> 00:36:20.190 be used productively. If the owner cares so little 00:36:20.190 --> 00:36:22.070 about their property that they don't even notice 00:36:22.070 --> 00:36:25.090 you fencing it off for two decades, the law eventually 00:36:25.090 --> 00:36:28.110 sides with the productive user over the negligent 00:36:28.110 --> 00:36:31.650 owner. That is wild. It's use it or lose it codified 00:36:31.650 --> 00:36:35.369 into law. It is. Last one, Torrens title. What 00:36:35.369 --> 00:36:37.449 is that? This is a system of land registration 00:36:37.449 --> 00:36:40.480 that's designed to simplify things. In most of 00:36:40.480 --> 00:36:42.800 the U .S., to prove you own a house, you have 00:36:42.800 --> 00:36:45.920 to trace the deeds back 60 or more years to make 00:36:45.920 --> 00:36:48.320 sure the chain of title is clean and nobody else 00:36:48.320 --> 00:36:50.519 has a claim. Right. Title insurance. Exactly. 00:36:50.800 --> 00:36:54.320 A torn title system gets rid of that. The government 00:36:54.320 --> 00:36:57.360 maintains a single definitive register of who 00:36:57.360 --> 00:36:59.980 owns what. If your name is on the register as 00:36:59.980 --> 00:37:03.019 the owner, you own it. Period. There's no need 00:37:03.019 --> 00:37:05.840 to look at old deeds from 1920. It makes transferring 00:37:05.840 --> 00:37:08.380 property much safer and faster. It's amazing 00:37:08.380 --> 00:37:11.340 how much language and how many concepts are hidden 00:37:11.340 --> 00:37:13.960 inside the walls of a house. We think of it as 00:37:13.960 --> 00:37:15.619 bricks and pipes, but it's really a construct 00:37:15.619 --> 00:37:17.820 of words and laws. It really is. It's an abstract 00:37:17.820 --> 00:37:20.400 concept made physical. So we have covered a lot 00:37:20.400 --> 00:37:23.320 of ground today. Pun absolutely intended. We 00:37:23.320 --> 00:37:25.380 started with the core definition. It's the land 00:37:25.380 --> 00:37:28.039 plus the estate, the interest in it. We went 00:37:28.039 --> 00:37:30.659 back to the Romans and the philosophical idea 00:37:30.659 --> 00:37:33.880 of a natural right to property. We saw the industry 00:37:33.880 --> 00:37:36.940 rise from agricultural appraisers in the 1500s 00:37:36.940 --> 00:37:38.980 who were basically just counting turnips to the 00:37:38.980 --> 00:37:41.059 massive Baird and Warner brokerage in Chicago. 00:37:41.530 --> 00:37:44.750 We watched the market crash in 1929 and get completely 00:37:44.750 --> 00:37:47.170 rebuilt by Fannie Mae filling up that liquidity 00:37:47.170 --> 00:37:49.409 bathtub for the banks. We looked at the difference 00:37:49.409 --> 00:37:52.050 between a condo and a co -op owning the box versus 00:37:52.050 --> 00:37:55.070 owning the shares and how luxury apartments in 00:37:55.070 --> 00:37:57.190 New York are sometimes just piggy banks for money 00:37:57.190 --> 00:37:59.949 launderers using anonymous Delaware LLCs. And 00:37:59.949 --> 00:38:02.849 we confronted that huge environmental cost, the 00:38:02.849 --> 00:38:06.670 39 percent, the embodied carbon debt and the 00:38:06.670 --> 00:38:08.730 legal frameworks that try to keep the system 00:38:08.730 --> 00:38:11.860 fair, like the Fair Housing Act. It really drives 00:38:11.860 --> 00:38:13.960 home the point that real estate isn't just about 00:38:13.960 --> 00:38:16.780 location, location, location. It's about law, 00:38:16.980 --> 00:38:20.349 history and environment. Absolutely. It is the 00:38:20.349 --> 00:38:22.550 physical manifestation of our economy and our 00:38:22.550 --> 00:38:25.409 legal system. Whether it is a tiny home on wheels 00:38:25.409 --> 00:38:28.650 or a massive skyscraper, every single piece of 00:38:28.650 --> 00:38:30.590 real estate tells a story about who owns it, 00:38:30.650 --> 00:38:32.710 how they bought it, and what rights they have. 00:38:32.889 --> 00:38:34.909 And as we wrap up, I want to leave the listener 00:38:34.909 --> 00:38:36.610 with a thought that really stuck out to me from 00:38:36.610 --> 00:38:38.750 the see also section of the source material. 00:38:38.869 --> 00:38:41.909 It was just a single line item. It listed extraterrestrial 00:38:41.909 --> 00:38:44.590 real estate. Oh, yes. The ownership claims of 00:38:44.590 --> 00:38:47.210 property on other planets or moons. It sounds 00:38:47.210 --> 00:38:49.679 like a joke, like science fiction. But think 00:38:49.679 --> 00:38:52.619 back to Louisiana Purchase. France claimed a 00:38:52.619 --> 00:38:55.280 massive chunk of North America, a place they 00:38:55.280 --> 00:38:57.780 could barely control, sold it to the U .S. for 00:38:57.780 --> 00:39:00.059 four cents an acre. And that changed history. 00:39:00.139 --> 00:39:02.460 Right. That was based on the natural law of the 00:39:02.460 --> 00:39:05.820 time. We are now entering an era where companies 00:39:05.820 --> 00:39:08.019 and countries are seriously looking at the moon 00:39:08.019 --> 00:39:11.269 and Mars as places to set up shop. It raises 00:39:11.269 --> 00:39:14.429 the ultimate question. Do the concepts of natural 00:39:14.429 --> 00:39:17.150 law and property rights that we discussed today 00:39:17.150 --> 00:39:20.809 apply in space? Can you have a fee -simple estate 00:39:20.809 --> 00:39:24.389 on a crater on the moon? If Elon Musk builds 00:39:24.389 --> 00:39:26.730 a base on Mars and stays there for 20 years, 00:39:26.869 --> 00:39:29.510 is that adverse possession against humanity? 00:39:29.869 --> 00:39:31.750 It's a wild thought. We are still figuring out 00:39:31.750 --> 00:39:33.269 how to share the Earth and pretty soon we'll 00:39:33.269 --> 00:39:35.070 have to figure out how to share the stars. Indeed. 00:39:35.579 --> 00:39:38.840 The law of nations might be the law of planets. 00:39:39.079 --> 00:39:40.980 So the next time you walk into your apartment 00:39:40.980 --> 00:39:43.679 or look at a for sale sign, remember, you aren't 00:39:43.679 --> 00:39:45.280 just looking at bricks and mortar. You are looking 00:39:45.280 --> 00:39:49.159 at thousands of years of history, law, and incredibly 00:39:49.159 --> 00:39:53.000 complex machinery. And maybe, just maybe, a little 00:39:53.000 --> 00:39:55.579 bit of future space law in the making. Thanks 00:39:55.579 --> 00:39:57.340 for listening to this deep dive. We'll see you 00:39:57.340 --> 00:39:57.760 next time.