Dave:
The rollercoaster of the economy and the housing market keeps rolling on with each day seemingly more confusing than the last. But today, James, Kathy, and I are here to help you understand what is going on in the housing market and the news. Break it all down for you and help you make sense of what you should be doing with your own portfolio. Kathy, how are you? Thanks for being here.
Kathy:
I’m doing great. I’m here at a conference. So glad I could be at both, here with you and at this conference.
Dave:
Nice. What are you speaking about?
Kathy:
Uh, this morning was on new construction. This afternoon will be how to squeeze cashflow out of properties today and then, um, also do, doing a syndication group. All, all kinds of things.
Dave:
Yeah. Oh, you were the star of the chef.
Kathy:
Nice. Oh, maybe a little
Dave:
Nice, James. How are you?
James:
I’m good. I just got back to Arizona. It’s sunny and warm, and I was in the mud all week.
Dave:
Here in Seattle?
James:
Yeah. I think I ruined four pairs of shoes. Oh, wow. And
Dave:
Your shoes are expensive, man. I’ve seen those shoes. You, this is a lot of money.
Kathy:
Course he
Dave:
Did. The funniest part is James, for everyone doesn’t know, James likes doing these IVs. I don’t know what’s in them. Your
James:
Vitamins.
Dave:
But, like, you were speaking in front of the conference and you didn’t even mention it. You were just kind of thought it was, like, a natural thing to do
James:
Home. I guess I didn’t mention it, did I?
Dave:
Kathy:
Just can’t miss it. And it’s in Orlando. Come on.
Dave:
It’s gonna be fun.
Kathy:
Oh, yeah. All
Dave:
Right. Well, let’s turn to the headlines because so much is going on. Honestly, I woke up today. It’s, it’s Friday, April 3rd. We’re recording this. I woke up today and I was gonna be like, “I am really scared of stagflation. That was gonna be my headline. I was gonna make my own.” And then all of a sudden, we had a great jobs report today, and I’m like, “Maybe I’m overreacting.” But just wanted to call out two sort of, like, major things that are going on and get your opinions on it. So the first is 180-ish thousand jobs added in March, which is a big rebound from February. We saw losses. So that’s good news. But overall, if you just average together the last six months, we’re seeing about 15,000 new jobs per month. Not great, but this is hopefully a good sign. So still, somehow, mixed signals on the, the labor market.
We can’t get a direction on it. On the other end of the spectrum, you know, if we’re talking about rates and where things are going, I’m particularly worried about inflation. I don’t know about you guys, but we haven’t seen a CPI print since the war in Iran started. But there are some leading indicators, like there’s this wonkier way to measure inflation called the Producer Price Index, so not what consumers are paying, but what suppliers are paying. And that went up 0.7% in just a month, which is a lot. If you extrapolate that out for a year, that’s over 8% inflation. It probably won’t happen. I’m just saying, like, that was a lot for one month. Um, so, you know, see, oil prices continue to go up. I’m particularly worried about food prices. If you look at fertilizer costs, like, I think inflation is going up, and I am still worried about stagflation and just stagnation in the housing market and the economy in general, but maybe I’m being paranoid.
What do you guys think?
Kathy:
Well, it was, it was really shocking to see the jobs report. And also, retail sales came in stronger than expected, which says the consumer is still spending money. Uh, whether they have it or not, I’m not sure.
Dave:
What is happening?
Kathy:
Also interesting, the ADP, you know, report that came out, uh, a key takeaway was small businesses, which is under 20 companies, drove the majority of job gains. And that’s really interesting. I
Dave:
Haven’t
Kathy:
Seen that. Uh-
Dave:
That’s great.
Kathy:
It’s really great news. It’s a healthy sign that, uh, it used to be that small business owners really were the backbone of the economy and maybe that’s coming back. Maybe the tax cuts, um, inspired that. That’s true. But, uh, that’s, that’s really good news, right?
Dave:
I think so, yeah.
Kathy:
So I don’t know. Hopefully this, this war just ends soon and we can, you know, see prices come back, uh, oil prices come back down. And how about some peace? That would be amazing.
James:
Yeah.
Dave:
Oh, interesting.
James:
And at the same time, you can get them at reasonable, like salary, like normal salaries. Like for, I remember like 2021, 2022, it’s like people come in right out of college and there’s nothing wrong with this. We just can’t afford it. And they’d have offers from all the big tech companies- mm-hmm. So like, “Oh, what can you offer?” I’m like, “Not that. ” And now there’s definitely a lot more talent looking for jobs. And so I think it’s made it a lot easier as small business owners to hire. It’s getting a little bit more balanced out.
Dave:
That’s super interesting. I actually saw that in the data, you know, they track this stuff, like how much of a pay increase you get by switching jobs. And during COVID, I forget the exact number, but it was like average 10%, super high. Now it’s flat. And so, you know, obviously for people who want higher wages, that’s not great, but it’s interesting to hear some of the benefits for smaller businesses, because you’re right, James, Google, Amazon, all these people overhired, essentially. They were just trying to hoard talent, labor talent for a really long time. And now maybe that means for anyone out there looking to build a business, you’re gonna be able to hire better quality people for the first time in a while. It’s almost like real estate, right? You’re getting better deals now because there’s less competition and maybe we’re seeing that in the labor market too.
James:
Yeah, we’re definitely seeing it. And I’ve noticed a lot of, like, people coming in to apply for positions, they were kind of still in that COVID freelance mode. We’re like, “Oh, no, I’m just gonna pick up a contract here, pick up a contract here, double dip, and now all of a sudden there’s not as many contracts available.” And they’re like, “No, no, I just want full-time employment.”
Kathy:
Mm-hmm.
James:
You know, which is good. I mean, because as a small business owner, you don’t want turnover and you don’t want people jumping around. And so, like, we always say at our office, like, “You stay with us a short amount of time or you’re with us for life.” Mm-hmm. And, you know, a lot of our employees have been with us over 10 years and that’s been a lot more refreshing. So I think we’re … I mean, I’ve been hired for a job that I didn’t really need need, but the person was so good, they were qualified and I was like, “Okay, we can build around this because we need it down here.” And so that’s been very refreshing as a business owner because it was brutal for years.
Dave:
That’s good news. Uh, well, I mean, I guess for, for the housing market and, and industry, at this point, I’m more worried about inflation than the labor market. It, it switches every day. So ask me next week and I’ll change my mind. But I, I think we’re … Even if the war ended tomorrow, I don’t think oil prices are going down anytime soon. And a lot of these things just ripple through the economy for a while. The, the uncertainty that’s created here is pushed up bond yields. The fear of inflation, I just wanna sort of explain what I said earlier. Oil prices up, what, 60, 70%- Yeah. … over, you know, just a month ago.
People look at that and they see what they’re driving and the gas prices, but oil goes into everything. Shipping, everything that we import, diesel costs to ship things, it goes into plastic. We actually just saw that Dow, the company that makes a lot of plastics just said that they were in- they were doubling their expected increase in input costs. So we’re gonna see this ripple through the economy. Does that mean we’re gonna see five, 6% inflation? Probably not, no. But it, it is going to put upward pressure on inflation, which keeps mortgage rates high. We also see 30% increase in fertilizer costs. I know this seems like totally obscure, but this really matters a lot for food prices. We’re probably gonna see grocery bills start to go up. And these are the things that ordinary Americans have been struggling with, right? Gas prices, electricity prices, food prices.
And I just think it’s gonna decrease demand. Like, people are gonna get stretched out on other parts of their life, and mortgage rates are higher. And I didn’t think we could go much lower in terms of transaction volume than we were in January, but I actually, now the way I’m looking at it, I think we’re just … I don’t know if the spring selling season is going to materialize this year.
James:
Did it was. And then I feel like this is, like, the tariffs all over again. Like, the market … I remember last year, it was so red hot, they announced the tariffs and it was like the curtain just dropped. Yeah. I haven’t felt that yet, though. End of April could, the curtain could drop. And so it’s like push your properties to, uh, to, to market. Typically, like in our market, end of May was usually when it slowed down. Last year came in April, about halfway through. We’re still seeing a little bit of push through. We’re still selling houses, but I will say the velocity of buyers showing houses is slowing down a little bit right now.
Dave:
Buyers looking at housing, you like
James:
Foot traffic? Buyers
Dave:
Looking. Yeah.
James:
Yeah, that’s the thing I gauge most. Every Monday, I go through every listing that we have, and we have them in all different price points. How many bodies are coming through because that’s, tells you the activity- mm-hmm. … in that … I mean, that’s the blood that, that’s pumping through your market right there. And I would say that has slowed down a little bit, but the people that are coming are pretty serious about writing an offer, maybe because also their rate locks are expiring. Mm. So, you know, once those rate locks expire, then you feel the curtain close. Yeah.
Dave:
This is obviously if you’re an agent or a loan officer, like, this is not good news. Personally, like, I wouldn’t be mad if we saw prices come down a little bit. I think it would make buying a little bit easier. So I, I don’t know if this is gonna force a little bit more reality for some sellers, but I, I would imagine that this is gonna create both some frustration because, uh, you know, it’s not good, big long term, but it’s what we keep talking about. The flip side of a more, a slower, more difficult market, it’s better negotiating leverage and better deal flow. And, and I think that’s kind of the trade off that I’m looking for. And I think, you know, that’s my recommendation is to keep looking because I think the discounts are gonna be easier to come by if the market stays the way it is right now.
Kathy:
Oh, yeah. I mean, on the buy side, it’s, uh, it’s strong. This is your time. This is the time, right? There’s this blip. The curtain did come down a little, you know, like James was saying. So there’s more properties on the market, more opportunity to negotiate, a little harder to sell in certain markets. Uh, we have our subdivision in Florida that has been actually selling pretty steadily, but the Utah one, just screeching halt, but that also has to do with the fact that there was no winter in Utah this year.
Dave:
And it’s in a mountain town, right?
Kathy:
It’s a mountain town. Yeah. Mountain towns got hit hard. Yeah, because- Yeah. … you don’t have buyers. You don’t have, as James said, the, the blood, you know,
James:
You know what the one thing I’m seeing on our side though is there’s not as many opportunities. The deals aren’t there, especially because I know we’re gonna be dispoing kind of in the summer months. It, it’s still really competitive right now. The, the, it, like, deal flow has really shrunk over the last 60 days. And so- Yeah. … it’s, it’s always weird.
Dave:
Seattle just defies expectations, whatever it does. It’s always weird.
Kathy:
It’s its own little universe, just kind of like San Francisco.
Dave:
It is. It’s like San Francisco, New York. Yeah. Like it, they kind of just defy gravity. Yeah. Not always in a good way. They’re just like, they do their own thing. Yeah. Yeah. But like I, you know, I was looking at a deal this morning in the Midwest for a renovated four unit at a seven cap. And I was like, all right, like, that’s a little bit better. Yeah. You know, things are starting to get a little bit better. Yeah. Um, it’s not everywhere, but those deals are sneaking through on market. My guess is that trend is going to continue in the majority of markets, maybe not Seattle and, and some other places, but I think for most like mid-level affordability kind of markets, we’re gonna start seeing more and more of that. And it’s why I’ve sold some properties recently because I think I’m trying to reload, buy new stuff because I think better a- like definitely better assets are on sale, like higher quality properties- mm-hmm.
… still asking a lot, but it’s still better inventory to look through it in, in the markets I’m looking in. All right. Well, I guess that’s sort of our outlook. I, I don’t know, summarize it. I think slow is, is what we’re going to see- Slow and stay. … until we get clarity. Yeah. It, but, uh, hopefully that means better deals. We gotta take a quick break, but we’ll be back with more headlines right after this.
Welcome back to On the Market. I’m here with James and Kathy. Going through the most recent headlines before the break, we talked about jobs and inflation numbers. James, what do you got for us today?
James:
The article I brought in was accidental landlords rise to a three-year high as the market shifts. And this is actually published by Zillow. I found this actually really interesting because I see this a lot over the different markets I’ve been in, is when people force the rental and they’re like, sellers, they’re not getting their price, they’re digging in their heels, they’re like, “I’m just gonna rent it. ” Yep. And they pull it off, they go fill it up, and then, you know, they’re sitting there, and is that the right strategy or not? ‘Cause a lot of times, mathematically, it makes no sense. And so, you know, I wanted to kinda chat about that, but the article’s very interesting because it talks about that we are on some of the highest levels we’ve ever seen where people cancel their listings, they put it back in the rental pool.
And I’m thinking part of this is because there is a lot of short-term rental operators that just wanna see if they can get rid of a property or not. But the cities that we’re seeing the most in, Denver actually ranks number one at 4.9% where roughly 5% of homes just don’t sell, they don’t wanna cut price and they take them as rentals. Hmm. And so your top five are Denver, Houston, Austin, San Antonio, and Portland, which I don’t know why anyone wants to be a landlord in Portland- Yeah. … to be perfectly honest.
Mm-hmm. And I’m a person that if I gotta take a loss on a property, which happens, it’s just, I mean, you buy enough homes, you’re gonna get the bad deal, or the wheels come off on a deal, or it just, you hit the wrong market, just the way it goes. You know, for us, if we’re planning on selling it, you know, there’s kind of two things that go components. Like right now, I am gonna be one of these sellers where I’m pulling something off the market, and I’m gonna keep it as a rental, and mathematically it doesn’t make any sense. But the reason I’m keeping this as a rental is because I can build two townhomes in the back of this yard. Mm. And so what I’m gonna do is plan permit and get the town homes ready to sell and see what I can sell the lots off for, then sell the house because it takes about a year to get that permit through in Seattle.
Mm-hmm. And so I’m doing that because there’s upside and it’s a strategy change, but if I just decided to keep that house with no upside, I’d probably be losing 1,500 bucks a month at best case scenario. And, you know, I see a lot of people forcing rentals right now, and it’s not the best strategy-
Dave:
I agree.
James:
… unless you can just afford to pay that big negative on numerous properties. It’s better to take the loss and relocate the money and reposition the money than to just let it kinda bleed yet. Uh, man, I’m talking a lot of blood-
Dave:
It’s very morbid. This is like a horror show.
James:
It is. It’s a little morbid today. Uh, but, but these things can bleed you out. And I remember seeing this, and I did this in 2008, right? Like, the market crashed. I was like, “I’m keeping all my properties,” and it just slowly eroded my bank account. Now, we’re not in 2008 again, but- Yep. … it was like I had savings and the savings got wiped out, and it would’ve been much better for me just to take it on the chin, sell those properties- Yeah. … and got better buys.
Dave:
But the properties you’re talking about, and the reason you wouldn’t recommend it is because they didn’t work as rentals, right? They weren’t profitable as rentals?
James:
Yes, they were not profitable as rentals, but that’s what I’m seeing a lot in that DSCR space where people are kind of refinancing, getting the biggest loan they can, and then they’re getting their income and it’s a little bit less because, you know, it’s also talking about how rental inventory is now rising right now because of these sellers pulling things back in the market. And I’ve seen this happen, especially, like, in, like, the east side of, of Washington, which is like Bellevue, Redmond Kirkland, where they’re more expensive houses, they pull them off, the rents are terrible there. Yeah. Like, your rent math never works well. That’s another weird pocket where it’s like, rents are less than much lesser neighborhoods.
Dave:
Yeah, you’re, like, getting, like, a 0.3 rent to price ratio there, maybe less.
James:
Yeah, it might be less. It’s that bad.
Kathy:
Yeah, but that’s because you know how. You know, if you’re, if you’re an accidental landlord, you don’t know how to do that. You have probably another job that you’re good at, and it’s not real estate. And so for, for people who have regular income jobs, to lose money is a big deal. You know, it’s not like- I agree. … like we throw around money because we’re so used to making it and losing it. I don’t know about you, Dave,
Dave:
I don’t like losing it. Yeah. I hate losing
James:
Money. I absolutely
Dave:
Hate it.
Kathy:
But, but it’s like- No. … you know, like with James, he’s gonna, okay, I, I lost 300,000. I mean, I’ve heard him say this. I lost 300,000 on this deal. I’m just gonna go make it on the next. That’s not normal. No. That’s not how most people think. Now, if somebody was like, “Okay, if I sell this, I’m gonna lose money, but I still have some money. I could go put it in this deal and I’m gonna make it back,” they would do that if they knew how.
Dave:
That’s fair.
Kathy:
And that’s why hopefully you’re listening to this show so you can learn how. But I can see why someone would say, “You know what? I’m just gonna lose a little money even $1,500 a month because I believe, and if you … ” I would never, I would never recommend that, but that’s what I heard James saying, um, wi- with the idea that, um, you know, in a few years it’s coming back.
Dave:
I guess to me, it’s just still a math problem. Does it work as a rental? Yes or no? Is it as good as another rental you could go buy? Yes or no? If the answer’s no, sell it, lose money.
Kathy:
But I bet a lot of these people who are accidental, I bet they’re on two or 3% interest rates and maybe it does work.
Dave:
Yeah, exactly. Like, uh, that’s the thing is like if, did you inherit a home that’s a lot, a lot of times, by the way, accidental landlord sometimes either refers to people who maybe inherit something that they didn’t intend to be a landlord or they’re moving and they don’t know if they should sell or rent out their home. If you’re inheriting a property, you’re probably at a really good cost basis, you probably have lower taxes, you probably have a low mortgage rate. Like it can work a lot of the time. And if the numbers make sense, you should. I, I think for people who are moving though, it’s a lot harder a lot of the times, or for flippers, it’s harder a lot of the times. And so I just encourage people, analyze it just the way you would do a regular rental property. And if it works, uh, do it.
The other thing I’ll say is that I was speaking at this conference this week too, and someone was asking me this question, said, “I flipped a house, it’s been sitting on the market, should I just rent it out? ” And I was like, “How long has it been sitting?” It was like a really long time. I was like, “All right, send me the listing. I’ll help you analyze it. ” He sends me the listing. It’s been sitting on the market for 40 days.
And what I learned was that you just have to be aggressive in selling right now. Like you have to be very proactive about it. And, you know, I think a lot of people who have gotten into this, myself included, I haven’t done a lot of flips. I’m learning this myself, they just wait for offers to come in. But how we eventually got to sell is James and his team are awesome and they held open houses and they pursued and they negotiated a deal. They didn’t wait for someone to come to them with an offer. They were proactive about it. And we were able to get out of that deal with a, a slight profit on it, not lose money because the agents did a good job. And so I think a lot of people were sitting in this position as well, need to push on their agents a little bit more and, and- mm-hmm.
… see if they can go make a deal. If you’re in this tough situation, I’m sorry, it sucks. But it, and I really, genuinely, I’m sorry, but I think you need to work with your team to try and find solutions if, if the rental numbers don’t work. And it doesn’t just mean taking a massive loss or losing cashflow on a rental. Like if you work at it for a little while, not 40 days, I’m talking three, four months at least, maybe you can find a better solution for yourself. I’m
James:
Glad you brought that up, Dave, because brokers gotta do their jobs, which is not just push paper back and forth. You gotta make outbound calls, you gotta talk to every broker in the area. Like even if it’s not your listing, it doesn’t matter. It’s how many people are coming through their listing. Are you overpriced? You have to communicate. Our job as brokers is to communicate and bring that in. And if you don’t make the calls and you send text messages and emails and don’t get responses, then you gotta get the next response, which is make the phone call, call the other brokers, see how they’re doing. You gotta be proactive. But one thing with what Kathy said, you know, those are different strategies. Like when you take a big loss on a flipper development and you’re redeploying into something else, you’ve lost inventory, which is your money, and then you’re reputing it in to kind of build it back up.
That’s a big loss. Like most of these houses, people aren’t taking that kind of big of loss. So the math, how it needs to be broken down to is that let’s say I’m gonna lose, I got 100 grand in a property and I’m losing 50 if I sell.
Dave:
Mm-hmm.
James:
That’s a big hit. That sucks.
Dave:
Huge. Yeah.
James:
But if you’re gonna lose a thousand bucks a month on that for 12 months and you don’t have a strong opinion about the market, because what I’m seeing is people pull it off with no opinion. Yeah. They’re like, “Well, the market’s, I don’t know what’s gonna happen.” It’s like, well, if you don’t think it’s gonna come back and come back strong, then sell that thing.
Dave:
100%.
James:
And because you, you’re now losing 12 a year just to not lose 50. And if you take the other 50 you have and you go make a 6% return, well, that’s gonna pay you three to four grand a year. If you put in a hard money and that can pay you five to six grand and it doesn’t take long to get it off, plus you get the write-off.
Dave:
And you still might lose the 50. Like- Yes. …
James:
You don’t
Dave:
Know that you’re not gonna lose the 50. That’s the problem is like the market might not come back. You might lose, you know, if you’re losing 1,500 bucks a month, what is that? That’s $18,000 a year, and you still might lose the 50 in a year from now. Like, uh, it’s just, it’s a hard position to be in. Yeah. I am sympathetic if you’re in this situation, but you can’t throw good money after bad. Yeah. That, that’s how you really get into trouble here is sometimes you just need to chalk it up as a loss and move on.
James:
Pull a bandaid and just put the money in something else that will give you some steady growth. Unless you think you have upside in that property or you really do think, as an investor going, this is a short-term lull- Yes. … 12 months from now, it’s gonna be different. If you truly believe that, then go with that strategy. But if you don’t, look at putting your money into some good money.
Dave:
All right. Well, good topic. This was fun to conversation. I enjoyed this. But yes, run it, run the numbers. That’s the key. Look at two analyses. Actually run the numbers and figure out what the probability is, what’s the best way to use your money today. And I know it’s emotional, it’s hard. People do, you know, if you look at behavioral economics, people do a lot of irrational things to avoid losses, even if it’s not the right decision. So try and out think that one if you can. We gotta take one more quick break, but we have one more headline with you right after this break. Welcome back to On The Market. Kathy, James and I are here sharing the most recent headlines. We’ve talked about jobs, inflation, and accidental landlords. Kathy, what do you got?
Kathy:
Well, I’ve got this article from AP, it’s Sanders and AOC push a bill to impose AI data center moratorium. Hmm. Now it’s very unlikely that this will go anywhere, but it brings up really interesting topic of these data centers. And you’re seeing every conference that I go to, it’s like the hot topic. Data centers, everybody wants to invest in them because we are literally in one of the biggest growth phases that we’re ever gonna experience in our lifetimes with AI. Like we just don’t even know what we don’t know about what is about to happen to our world. And, uh, some people at the top probably know a little bit better and that’s why they’re building all these data centers because they know that, that AI takes a tremendous amount of energy. But the bottom line is this article is about communities across the country backlashing against these data centers- mm-hmm.
… because of the fear of rising electricity prices and pollution and water consumption and pollution with the water. It’s like we’re talking about a deregulation administration, and yet we have this push for AI that needs some regulation at a time where there’s probably not gonna happen. So for investors looking at this, you know, part of me is like, “Ooh, I wanna make sure I’m investing by all these new data centers because this is where the growth is gonna be. ” But then there’s all these issues that come around it, like, does that mean electricity bills are gonna go up? Does that mean that their air is gonna be poisoned? What does this mean? And how do we need to be careful about it?
Dave:
This is super interesting. I have a lot of thoughts. I guess, let me just start with the investing in your data centers. I’m not sold on that concept personally. Like, I know it increases construction activity and there’s like a short-term burst of activity, but like, I don’t know if that means that once the data center’s built that there’s gonna be like enduring growth in that area. I think they’re often in cheap areas where land is cheap and utility costs are cheap. And data centers infamously don’t require a lot of people to run them. Mm-hmm. So it’s not like it’s gonna be a boom job. You know, when you look at something like what they’re building in Columbus or Phoenix or Syracuse, New York, like these chip plants, like that creates economic activity. Yeah,
Kathy:
Yeah.
Dave:
The data center, I’m not sure. Mm-hmm. So that’s just one thing. The other thing though is I sort of agree, like I don’t think there should be a moratorium. We need data centers in the United States. Like if we wanna be competitive on AI, which I think is important, we need data centers. I agree with you, there probably should be some sort of regulation around what AI is used for. I’m not smart enough to know what that is, but I sort of think that if these companies are gonna come in and sort of like totally change the price of utilities and the cost of living, that like they should be taxed or pay for it in some way. Yeah. That’s just my personal opinion. Absolutely. I’ve always thought just generally with utilities, like they do this in some places, but like shouldn’t it be like a graduated price?
Like if you use just the normal amount of residential electricity, it should be really cheap in my opinion, for like the average person. Mm-hmm. But if you’re gonna use like 90% of this, the, you know, you go over normal levels, like it should get incrementally more expensive for you to use electricity every time you go above that. And if you did something like that, then AI, data centers, these companies, we know they have the money. They could pay more for electricity. Like they should probably pay more. These are public utilities and like the, the benefits of that should go to, uh, in my opinion, just like normal people.
James:
Mm-hmm. It’s funny because you need low utility costs. Like in Quincy, Washington is a place that there’s a lot of data centers because they have some of the lowest utility costs in the nation, right? And so it makes sense for it to go there. I can tell you, the population growth over the last four years of them building out there is next to nothing really out there. Mm-hmm. It’s the, it’s, it’s like the gold rush, remember when there’s all those little gold rush towns that were getting set up in the Dakotas and everyone was rushing to build housing there and then all of a sudden the gold ran out or whatever happened and they’re like, “Oh, now there’s these ghost towns everywhere.”
Dave:
Yeah.
James:
They don’t need more housing because it’s just-
Dave:
It’s temporary.
James:
It’s temporary. And you do make money though. I will say that. Like I know we did four fourplexes out there with a client and the cash flow she gets out there is unreal because of the contractors building it out.
Kathy:
But then what? Exactly. Then when it’s gonna get out. Yeah.
James:
Well, and the thing that you wanna look at is how much construction is set to be built out. Mm-hmm. And so this is an area where there’s heavy Microsoft there and heavy data centers out there. And so when we looked at this, this was five years ago, so she’s about halfway there. They had about 10 years of construction already bid out ready for schedule. So you know, you can kind of like anticipate your ride there. So depending on how much construction’s going, that’s where the money is. But otherwise, if you go to normal rents out there, it’s like a four cap at best.
Dave:
Right. And I guess now that we’re talking about it, I’m like, maybe it’s even worse to own rentals by a, a data center because your input costs are gonna be higher.
Kathy:
Exactly. That’s what I’m
Dave:
Saying. Yeah,
Kathy:
It’s gonna be higher.
Dave:
Yeah. So like if you’re a landlord and multifamily or you pay utility costs, that’s not gonna be good. And this is a little less direct, but if electricity’s super expensive, even if the tenant is paying for it, their budgets are gonna be more constrained, right? Mm-hmm. So, yeah, I don’t know.
Kathy:
I- Yeah, that was kind of my thought is you just, you, you gotta be aware of it because somebody might think, “Oh, wow, you know, I just read that all these data centers are going into Quincy, for example, I better, I better get on that wagon.” And it’s like, may- maybe think that one twice. Maybe if you own the data center perhaps, but-
Dave:
There you go.
Kathy:
Yeah.
Dave:
Then you’re caking.
Kathy:
Yeah.
Dave:
It’s interesting though. I, I think we’re so at the infancy of AI. Data, I just feel like people are getting excited because data centers are like the one tangible thing people can see about AI and they’re like, “That’s a thing that’s going on. Let’s get a piece of it. ” And I’m not sure that’s, we’re there yet that we really know, especially from a real estate perspective if and how AI is going to impact values. I, I personally am not going to care about data centers right now, but I think maybe I’ll be wrong. But I, I just think it’s, it’s too much spec- it’s speculation. Yeah. No one knows.
Kathy:
Yeah, for sure.
Dave:
All right. Well, that’s what we got today. We didn’t even mention Henry’s night here. He ditched us, but, uh, it was fun hanging out with you guys. James and Kathy thanks so much for-
Kathy:
He’s on stage. He’s
Dave:
Onstage. Uh, yes. Yes.
Kathy:
I just got to give him a hug.
Dave:
Well, hopefully you guys learn something from this episode of On the Market. Thank you all so much for being here, James and Kathy as always. It’s great to have you. We’ll see you next time.
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