VP Harris Wants to Stop Wall Street Homebuying

Dave:
Evictions are up, rents start to fall and Vice President Harris takes aim at Wall Street’s role in the housing market. Today we’re viewing the top headlines. What’s up everyone? It’s Steve. Welcome to On the Market. With me today is Kathy Fettke. Kathy, how are you?
Wonderful. Happy to be here. Henry Washington is also with us. He’s always so eager to talk about political debates publicly.

James:
Yeah, I love politics and macroeconomics.

Dave:
Yes. So glad to have you here. And James Dainard, welcome back James. Good to see you. Good to see you

James:
Guys. I’m excited to hang out with my friends this morning.

Dave:
Yeah, this is a great way to start a Monday morning. Hopefully it’s a great way for all of you to start your day as well. And if you’re new to the On the Market podcast, just so you know, what we’re doing today is what we call a headline show. It’s basically where we take four topics that we feel are the biggest headlines impacting investor decision making and operations today. And we talk about it today we’re going to be talking about four stories. The first story is presidential campaign, specifically vice president Kamala Harris has come out with some policies around the housing market. Next, we’ll talk about falling rent prices. Third, we’ll talk about surging evictions specifically in the Sunbelt, which is kind of surprising. And last we’ll talk about how downtown commercial real estate losses aren’t just impacting investors on those properties but are also impacting normal investors like all of us.
Before we get into it, make sure to hit the follow button on Apple or Spotify to make sure you never miss an episode of On the Market. All right everyone, let’s get into it. Our first headline is a juicy one. I’m excited to debate this one, talk to you all about this, but the headline is Kamala Harris wants to stop Wall Street’s home buying Spree. The news source here is courts. Basically the summary is as part of her presidential campaign, Harris announced a slate of economic proposals last week, one of them as a promise to Congress to pass the Stop Predatory Investing Act. So I think that’s one important thing to note here. This is not something the president can do by his or herself. This is something that Congress would have to do and the idea is to actually act on a bill that was introduced in 2023, which would remove tax benefits for large investors buying swaths of single family rental homes, specifically single families. Harris also proposed government support of $25,000 in down payment assistance for first time home buyers and proposed ordering the construction of 3 million new housing units. Henry, since you love waiting in on political debates, why don’t you tell me a little bit about how you feel about this proposal here?

James:
I am not mad at it. I think that we as a country have to do something affordable housing. We have to do something about being able to people purchase homes and get into homes. And I think that there are lots of larger institutional buyers who are buying up swaths of single family homes, which could be homes that could be used by people living in those communities to own them. And we do have an inventory shortage and so I don’t hate this. I think where we have to draw a line is between large institutional investors and smaller more mom and pop investors because mom and pop investors are providing a service to communities in a lot of sense. They’re taking dead inventory or inventory that should be dead that people shouldn’t be living in, and they’re hopefully renovating them and then providing them back to that community. So essentially adding inventory and keeping properties safe and livable. I think that there has to be some division between what a large institutional investor is doing versus what a smaller more mom and pop investor is doing because the value add to the population or the community I think is different. Oh,

Kathy:
Okay. So I’m not mad. I’m not mad at this bill, but it is a campaign and this is what the constituents want to hear, right? They want housing to be cheaper. It’s not the solution though I would say this is 12 years too late because the institutional came in 2012 when things were affordable. And I remember so many friends trying to get into the housing market when prices were cheap and they were just outbid constantly by all cash buyers and mainly the institutionals. Today it is a totally different story. A lot of the institutionals are building, they’re doing build to rent because it hasn’t really worked out for them either to buy existing homes. The numbers just don’t pencil. So there’s been a really big pivot to build to rent if you want to tax institutional investors to stop, which would have them stop doing it because they’re in it for the profit.
They’re not in it as a nonprofit just to do good things, but to provide rental housing which is needed, you tax them or take away their tax benefits. They’re just not going to do that. And again, I am speaking as someone who’s about to launch a build to rent community where it’s needed and not every renter wants to live in an apartment. Some want to live in a single family home. So this could really hurt renters because what’s needed is new supply and so much of that new supply is new and wouldn’t be there, wouldn’t be built if it becomes so prohibitive to do it. And again, there’s this belief that the institutional investors are taking over 25% of properties being bought by investors is a pretty normal number. And that’s the part they don’t share in these articles that it’s not new. It’s been around 20 to 25% for at least a decade.
When you hear investors are buying 25% of inventory, that’s you and me, that’s people listening to this show. This is people buying old stuff and making it new. Again, it’s not a bad thing. This is a good thing. In our rental fund, when we were buying houses, these were houses no first time buyer could buy, nobody would finance them. They didn’t have kitchens, they didn’t have working bathrooms. We had to go in and put 50 to a hundred thousand dollars in to renovate these properties that a first time home buyer doesn’t have that money to do

Dave:
That. But I guess Kathy wouldn’t this just support smaller investors doing this rather than big ones. I get the point of having investors do this and that investors do play a crucial port in revitalizing housing, but I think proponents are just playing devil’s advocate here. But wouldn’t small investors be able to do the same thing because this bill just targets people of 50 single family rentals or more,

Kathy:
Right? Okay, so how many investors own more than 50 properties? So you’re talking about a pretty small amount of people that have created a business in providing rental property and if they’re not doing good business, they’re going to be out of business. You can’t just put a rental price on a property and then people move in. It has to be market rate or no one’s going to live there.

James:
And one thing about that is the hedge funds in the small investors, we buy different things. They’re not one and the same. We don’t compete against hedge funds when we’re buying because we buy value add. And one thing I think these hedge funds really learned in 2010 to 2014 is you cannot standardize the construction process on these houses when you are buying that kind of inventory. You have to be able to standardize the processes. And what happened is they came in, they bought a ton of inventory up and Kathy’s right, this bill was proposed way too late because the heavy buying was 2010 to 14, but they went so far over budget on these properties. They could not standardize ’em. They were not getting things rented up quickly because the renovations were taking too long. They were costing too much. I mean I was talking to one of ’em back in 2014 and their renovation costs was two to three x higher than what ours was.
And so it’s just a completely different type of product and purchase. Now the hedge funds are the ones that are actually competing against the homeowners, not our small investors. But the thing I think that is kind of the smoke and mirrors about this bill and I don’t have a problem with this bill because anytime you can incentivize homeowners, giving them tax credits, help them with affordability on their down payments, that’s not a bad thing. Especially to get people in and especially for I think those key working population which is like police, doctors, nurses, those things, those could be subsidized a little bit that help the community. But the thing is they are bringing affordable housing to the market. If you look at a house that you say median home price, 425, 430 grand, let’s say someone takes a loan out for three 70 on that, in most markets the payment on that’s going to be nearly $3,000 a month with taxes, insurance and the payment in there and their rents are lower than what the purchase is. And so they actually are buying these and supplying lower housing costs to people. Yes, they have to be renters, but that’s because they can’t afford to buy in that market. And so sometimes when they’re saying it’s a bad thing, it’s still giving people cheaper housing than it would be to buy. And instead of targeting the hedge funds, they need to incentivize and help people get their payments down. And maybe that’s through the government. I think they’re targeting the wrong thing.

Dave:
Alright, we got to take a quick break, but don’t go anywhere. We have more headlines right after this.
Welcome back to on the Market. Let’s jump back into our latest headlines. Well, I think that’s interesting James, because to your point, they are providing rental housing and people tend to believe that we’re becoming a quote, rental nation data does not support that. Home ownership rate is pretty steady and so that is important, but I think there is this perception at least whether it’s true or not, that Wall Street is coming in, they’re buying up these homes and then they’re jacking up prices on rent. And I think that’s probably true in some sense, but also rent is just up everywhere and I think that realistically we all have played a part in that and that’s a lot of macroeconomics. Rent has just gone up due to a lot of large macro factors.

Kathy:
Well, costs have gone up, Dave, the insurance has gone up, property taxes go up. Of course that has to get passed on to the tenant. People don’t own homes and take the risk of being a landlord to lose money, lower the insurance costs, lower the property taxes if you want lower rents or bring on new supply.

Dave:
Yeah, I guess I don’t a personally have a problem with this bill. I don’t think it hurts smaller investors. It only goes after just being selfish. It goes after people who are bigger than me personally and it’s not like they’re penalizing the bigger investors per se, it’s that they’re not offering tax incentives. I think there there’s a critical differentiation there. It’s like they’re just not incentivizing big Wall Street companies. Instead they’re incentivizing smaller investors like all of us or homeowners, which may be where the incentive should go. Sounds like what it should be. To me

Kathy:
In our funds we own more than 50 properties, so this would affect me, but it’s not me. These are individuals who have invested in my syndications who want and need those tax benefits. So you’re talking about individuals who maybe don’t want to own that property themselves, they want someone else to manage it for them. This is their retirement plan and they do get the tax benefits from it. So with this type of bill, you are eliminating that side of it of again, people who would like to invest in real estate but don’t want to do it themselves. They want it to be a retirement plan. It’s not like Wall Street is just this group of business suits of people that live in New York City. It’s investors worldwide who would be affected, the people who invest in those funds.

James:
Well, and it’s also they’re getting blamed right now because honestly just like housing prices that went up, we printed a lot of money, there’s more money. I mean things cost more now and there’s been a runup in rent the last couple years, but we’ve now seen a pretty big drop or pullback in 2024. I mean rents are starting to come down a little bit. I was looking at some of these areas that they’ve been buying on, they heavily bought in Phoenix. Phoenix is down 9.4%, 2024 on the rent. So they were asking for higher rents. They could get ’em and that’s what the money was in the market. But as supply and demand changes, they might be charging less than rents too and they actually might not be the bad guy. They might have the cheapest inventory in the market soon and so they could go from being the bad guys to the good guys really quick because they have to get these houses rented. I

Dave:
Mean I get that the idea behind this, and obviously we all have different opinions about this, I am skeptical that it would work. I think that I understand the motivation of trying to make it more affordable for people, but at the same time, as we’ve said, institutional investors own less than 2% of the total supply in the country. And so even if you got them to buy less property, it’s not going to make an enormous impact on the overall housing market. Of course, these people are very active in certain submarkets, so if you’re in a submarket where they’re super active, it could have a difference. But I think to me that’s the bigger concern is we might limit and regulate something unnecessarily because it wouldn’t even actually do anything.

Kathy:
Yeah, I mean just again, you come back to why does the government give tax incentives at all to any of us? Why? And people ask that question all the time, why do real estate investors pay less in taxes than other people? And it’s because rental housing is needed and instead of having the government do it, which the government has tried and it didn’t work out well, a law was changed where government was providing housing, but it was basically lower income people were all living in the same place. So it became spread out instead of the government providing it. Let’s incentivize individuals to provide that rental housing and otherwise who’s going to provide it? It is either going to be the government or it’s going to be individuals and you have to decide who you want to be your landlord.

Dave:
Well, I guess what they’re trying to do though is incentivize home ownership instead of being a renter. So the argument would be less rentals and more homeownership and instead of the Wall Street owning these, then individuals would own them or small investors would own them.

James:
Yeah, I think that’s kind of the point that I’ve been trying to say is if we’re going to prioritize incentivizing a group of people, given what’s going on in the economy right now, I’m totally okay that we are trying to find a way to incentivize homeowners and smaller investors who are going to stimulate the economy versus a larger investor or even a fund who is raising money from investors who, I mean frankly probably have other options for investing. They’re not solving a need of a roof over their head right now.

Kathy:
Yeah, not everybody. Again, this is a question that’s come up for 20 years at Real Wealth is why doesn’t everybody own a home? Not everybody wants to own a home. You’ve got a very large cohort of people who are not at home buyer age, they don’t know where they’re going to end up and stay. They don’t want all the overhead and expenses. It costs more to own a home today than to rent. So there’s nothing wrong with being a renter. You might be a renter and own investment property elsewhere. So it’s almost like there’s a cloud over the idea that some people just prefer to rent, they don’t want to own or they’re not in a position to own or they want to do it someday but not now. So they still need a place to live.

Dave:
Alright, well good discussion. I will see if this bill actually gets any traction and if so, we’ll have to wait and see if it has any impact on affordability or the home ownership rate over time. Let’s move on to our second headline, which is that asking rents fall across all bedroom counts for first time in four years. This comes from Redfin News and the summary is that the nationwide median asking rent was $1,647 in July, which is down 53 bucks from an all time high in 2022. So it’s down a bit and it has been for about two years, mostly flat, not like it’s dropping super far, but what’s interesting is that previously there had been differentiation between what rents were falling, smaller apartments were falling less, they had only fallen 0.1%, but now we are seeing bigger apartments fall fastest with three plus bedroom apartments dropping 2.4% in the last year, which frankly I was pretty surprised to see, at least in my experience, bigger apartments usually hold their value better. James, I’m curious if you’ve seen that across your portfolio. Are you experiencing any rent declines or any pattern in rent behavior? No,

James:
We’re still renting. Fine. We’re up at least one to 2% on our rents right now. I think it depends on the product that you’re buying into market though. The stuff we’re seeing in our local market, if you’re the brand new construction, a little bit more luxury, those rents have came back a little bit on the top. And the market, the great thing about being us as renovators is we’re kind of in the sweet spot, right? Because we’re providing housing that’s in great shape. People have a very nice place to live, but we’re not the top end of the market. We’re not competing against new construction typically we’re about a dollar 50 cents to a dollar a square foot less than brand new construction. And so we kind of feel like we’re in the sweet spot. We are offering a very nice place to live. It’s been fully renovated, it’s almost as good as new construction, maybe just not quite the same perfected space, maybe a little bit less amenities, but they get a nice place to live and then that’s where the absorption rate is because as people are coming off the new construction and they want to go a little bit cheaper, they still want a nice place to live in these metro areas, especially when you have tech backing you and there’s people making good income.
And so we haven’t seen that drop in our inventory and I think it also part of this article is there’s trends, it references that Austin dropped 16.9% year over year, which was the biggest metro drop, but it also was the highest increase in 2022. In 2022 they were up 17% and then they slowly went back like four or five or I think it was five, 6% in 2023 and now it’s kind of came down from there. So it’s always in a hockey stick, right? There’s always going to be we’re riding in a market, it peaks and it comes back a little bit and levels out and so really they’re down to 2022 pricing. That’s not the end of the world. But I think for investors that packed their performa and they really were banking on this high appreciation, you’re going to get yourself in trouble, but honestly, if you’re putting out a good product, you’re not in the top end of the market. We’re still seeing rent growth in our metro areas.

James:
When I look at this, I don’t know, I’m not shocked or surprised. I think there’s a couple of factors. There have been new a, a-class apartments being built all over the place in especially these more desirable places, the Texas to Florida’s where people were moving to even around in my local market, a-class apartments going up everywhere and then offering incentives to people to move into them because they’re competing with all these other new construction, a-class apartments. I mean when you put that much rental supply on the market, I think a lot of these are just coming online and now people have options. If they’re having to lower their rents to get people in the door, then it’s just trickle down effect of B class apartments are now getting more influx and so everybody’s having to lower their rents a little bit because people have more options.
If I can go rent a class apartment for a nice price, then there’s just more competition. So I’m not surprised seeing that rents have come down a little bit in some of these markets. And the other thing to remember too is rents went up post covid because during covid, landlords weren’t really raising rents. Either they weren’t able to or they weren’t out of principle because people were in tough positions because they lost their job and they needed a place to live. And coming out of C landlords then were faced with a few things. They had to fix their apartments that were sitting untouched for a few years during Covid, and so they’re now having to pump money into fixing them, but supplies were expensive then, and so it cost more to renovate properties coming out of Covid than it did pre covid. And so they had to put all these money into these units and then they had to then rent them to be able to recoup those funds and recoup the lost rents they had. And so we saw rents really spike because of covid, and so when you have a big spike, you’re going to start to see things come down over time. I think that with the increased inventory, this is what I would expect.

Kathy:
Yeah, it’s really important to read a little deeper into articles like this because the rents that they’re talking about is like Henry just said, these are apartment rents and we’ve known for quite a while. You can’t just throw a new apartment up. It takes years. So when new supply is coming, and this was fully expected that a lot of new multifamily supply was coming and that would lower rents. Again, it always comes back to supply and demand. Now on the other side, single family rents actually increased on average nationwide. I’m sure there’s areas where single family rents have gone down, but we know that there is a serious supply problem in the single family world. So there is multifamily coming online this year and next year. So that means that apartment rents will probably stay soft for at least a couple of years, and that’s great news.
That’s great news to tenants who have seen nine 10 double digit increases in their rents. To see it come down or stabilize for a few years is exactly what’s needed and that is a result of supply. So the issue with single family rentals, like I said earlier, is lack of supply. And the more we can address that, and I do love what Kamala said about that is find a way to incentivize the construction of new single family and that will bring rents and prices down in the single family world. But in apartments that’s already happening. We have more supply coming, so that’s good news for apartment renters.

Dave:
That all makes sense. I think the reason I was kind of surprised is we do have this shortage of single families and when I look at most multifamily deals that are coming online and pushing down rents, they’re smaller. It’s like studios, it’s one bedrooms, it’s two bedrooms. So I was surprised to see that the larger units are seeing downward pressure, but maybe people instead of living with roommates in a three bedroom, they’re going into two bedrooms or something just because those are relatively less expensive than the three bedrooms, but I think you all are right. This is probably going to still take some time to work itself out. We see that multifamily supply is going to be strong for a little while, but it’ll be super interesting because then it’s going to just fall off a cliff. You can see multifamily projections for the next few years and it’s just this pendulum that’s swinging back and forth where everyone in the pandemic started building like crazy. We now experienced the glut of supply that came from that. Then when rates started going up, there were no multifamily projects being started. The drop off is very dramatic, and so once this absorption works its way through, it seems like rents will probably grow again. It might take a year or two, but the pendulum seems sort of inevitably will swing back in the other direction.

James:
Well, and there’s a lot of inventory to buy right now because people don’t want to build this product. Dave, you made a really good point. There’s going to be a big blip in the inventory because people do not want to build this stuff right now and the banks don’t want to finance it either. And so I think there could be some oversupply, but then it’ss going to loosen right back up in two, three years, kind of what we’re seeing. Also in Seattle with townhomes, there’s not a lot of townhome units coming because there was this mass push of inventory, then the permiting got really long, really expensive. Now no one’s building it. There’s going to be a huge gap for townhome product in probably like 12 to 24 months in our market too.

Dave:
All right, well this will be interesting, definitely one that we’ll be updating you all on regularly. We’ll clearly be telling you when rents start to shift and trends there as it really impacts all of our respective businesses. We’ve got to take one last quick break, but stick around for our final headline.
Welcome back investors. Let’s get back to the conversation with that. Let’s move on to our third headline, which comes from the Wall Street Journal and reads eviction surge in major cities in American Sunbelt. Essentially what’s happening is that eviction filings over the past year and a half in dozens of cities are up 35% or more compared with pre 2020 norms. I think that’s the interesting thing here is that we’re not looking at data compared to what was going on during the pandemic. Obviously there was a lot of extenuating unique circumstances, government intervention that played a part there. This is pre 2020 norms, and so the other interesting part of this is that it’s happening more in really hot markets like Las Vegas. We see it Columbus, Ohio, not in the Sunbelt, but a market that has been very popular in recent years. Phoenix, we’re seeing this. Dallas is back to normal. Meanwhile in the northeast, cities like New York City, Philadelphia, we’re not seeing the same thing. So Kathy, I know that you operate a bit in some of these Sunbelt markets. Are you seeing or experiencing this at all?

Kathy:
We aren’t seeing it. We like to be in areas where there’s job growth and the kind of job growth that’s here to stay with new factories and lots of billion dollars of investment. It’s not going anywhere. So we are not personally seeing it, but I’m wondering if this has something to do with the office issues where it’s the same problem where people just aren’t working downtown and that affects a ton of businesses around those office buildings. So I think downtowns are getting hit pretty hard because of that because more and more people are moving to the suburbs. It seems that office outside of the cities is doing okay. I don’t know if it’s related, but that would be my guess that that’s something we talked about on past shows is if all these office buildings downtown are empty, think about the coffee shops and the lunch, the restaurants, all the things, the gyms, the things that people would do when they’re in town that maybe they’re not doing now and that would affect employees of those businesses and maybe affect their ability to pay rent. Also, we see headlines all the time that inflation is coming down and that’s true, but it’s still up. It’s just 2% higher after going up so much. So inflation is still very much a thing and wage growth has slowed down. So people are constantly complaining of inflation is down, but why am I paying so much for everything? Because prices are still inflated, just the pace has slowed down. So I’m sure people in downtown cities are feeling that in addition to maybe not having the work that they used to have,

James:
I’m jealous that they can evict people in these

Speaker 5:
Areas.

Kathy:
James going to have some haters on with that.

Speaker 6:
Well explain what you mean, James. Yeah,

James:
Okay. Yeah, and I’m not saying that in a bad way, but you know what? When people don’t pay their rent for a long period of time, you don’t deserve to live there. I’m sorry. I got tenants right now that are seven months behind on rent. Not only that, I’m at least five months away from getting an eviction date with these people, so I’m like 12 to 15 months back by the time that’s not reasonable, and they just set my building on fire, they broke the rules. You’re not even supposed to be smoking at my property. And they smoke, they threw a butt out, caught my building on fire. That’s the stuff I have a problem with that these evictions I get if people are running hard times, let’s help them out. Let’s figure out a way. And we always do as landlords, but these laws are out of control on the west coast. So these Sunbelt states, I think they’re also, people got behind the, and there were so many protection laws because of what was going on with the pandemic, and those things are all understandable and there’s just been a surge coming through and a backlog of it, and that’s why I think numbers are spiking where you’re not going to see that is in the west coast that much because it’s still almost near impossible to get out a tenant that is not paying your rent.

Dave:
Well, that’s a really good point, James. That was what I was originally thinking is like, yeah, they’re just allowed, but this is eviction filings, not necessarily successful evictions. So I assume with your tenant, for example, that you had seven months behind, you’ve filed for eviction, right?

James:
Yeah, you do. You can make your filing, but also if you are bugging, if I go to my tenant and I go, Hey, look, you need to pay us rent. You’re 60 days behind, they’re so protected. We get a letter for the attorney general saying, we’re harassing our tenants because we’re going, can you please pay us rent? That’s unreasonable, right? And again, I am probably the biggest softie landlord. That’s why I can’t talk to my tenants. I’ve lost so much money on rent because I’m like, oh man, they just need a break or they’re going to catch up. They’re going to catch up and that’s why I’m not allowed to talk to my tenants anymore. That happened like 10 years ago, but at the same time, nowhere, and I think they’re also the filings were high on the west coast because it’s also taken so long for these people to get moved out. I’d be curious to see what those stats were 12 months ago, how many filings were on the west coast? I bet you they were pretty high. We were so backlogged.

James:
I could talk four days about being a good landlord, and I think there does need to be some give and take around stronger tenant laws and the ability for landlords to be more responsible. I think the answer lies somewhere in the middle. But in relation to this article, I wonder what percentage of the new filings are from new landlords. So landlords who’ve started to invest in real estate since the pandemic, because I think since 2020 we have had a lot of new landlords come online because we were all sitting at home. There was all this money that was being flooded and people were looking for ways to become investors, and that sped up online education. Now people are comfortable learning online, and so there’s just more information out there. People are more educated and people at a younger age are all wanting to invest. And so you’ve got this flood of new investors who are learning from people like us, how to be good landlords, and they are buying distressed properties.
And so if you come in and you buy a distressed property and you’re inheriting tenants who aren’t paying, then you’re going to have a lot of people who are new landlords who are filing evictions. Plus you’ve got people, like I said, there’s more education in the space and it’s a whole lot easier to file evictions with some of the property management tools that are out there. I would be willing to wager that a good percentage of these evictions are people inheriting tenants, new landlords, inheriting tenants and landlords who are just a little more educated about the space than pre pandemic. And I think that that might play a role in the amount of evictions being filed.

Dave:
That’s a really interesting point. Thank you for bringing that up. I hadn’t thought about that. The article also cites reasons that I should have mentioned earlier. Sorry. One was that automation makes it a little bit easier. So at least in states to James’s point where it’s allowed is that property management software sort of automates some of this, so when people fall behind on rent X amount of days that it might be automated. But I think the other thing that was just interesting is that there’s this correlation between places where evictions are up and where property rent prices have gone up the most. And they say in the article that it could be that renters in those markets are basically being pushed to the brink of what they can afford. And so more people are renting where they don’t have as much cushion. And I am never going to tell people not to charge market rents, but I do think it’s something for all of us to think about it or I will personally be thinking about. It’s like if you have a good, it’s another reason. If you have a good tenant, maybe you don’t necessarily want to push people past what they can afford, and it’s better to keep a great tenant in at current market rents and not risk them falling behind than it would be to try and push rents to the max and maybe attract a tenant who’s not in a great position to service that obligation.

James:
And I think as the market changes, rent slowed down, you want to think about that as your pricing to rentals. If your unit sits one month online, that is a huge loss of income annually for you. And so there is a sweet spot and it’s like if you don’t push it to the max, they ran out pretty quickly. I got one that I’m turning right now. Tenants are pretty rough. They’re in there five years. They definitely beat the place up. There was a lot of people in there and we’re going through our turn and we are putting that up for rent, probably a little bit below market. I just want to have it turn. So you want to be cautious on your rent pricing right now. It worked out. You can get a good tenant, offer ’em a good price, get it leased up quick, and it’s better for you on your math, for your investment.

Kathy:
James, you stated the exact reason why I don’t have buy and hold on the West Coast. People want to hate landlords, but they also don’t understand the risks that we take, that we aren’t in a position to be able to pay all the expenses of that property when someone else is not helping us cover it and they’re living there and getting the benefits of the property. It’s very, very hard to evict on the west coast, which is why so many investors are going to the southeast because they have very different landlord laws. So I’m glad that you put it out there to see that there is a tremendous amount of risk that landlords take, just the turnover costs, like you said, if somebody trashes your place, that can be tens of thousands of dollars to cover those costs and the six to 12 months that you’re covering all the expenses during the eviction process.

Dave:
Absolutely. Yeah, I totally agree. I mean, I am not against if people fall on hard times trying to find ways to help them stay in their apartment. What always me about this, and this is a topic for another show, but it’s like you’re taking someone’s one person’s financial problem and just transferring it to another person and just saying like, Hey, landlord, now this is your financial problem. Doesn’t actually, someone has to pay the bill. The bill doesn’t go away. And so that’s the challenging situation and sometimes it does have to

James:
Go away and you just got to write the rent loss off,

Dave:
But you’re writing it off is my point, is letting someone stay in an apartment where they’re not paying is not a costless situation. You’re absorbing that cost, James. Anyway. All right. Let’s move on to our last topic here today, and we got to do this one quickly. We have been chatty today. Our last one is headline number four. How much do downtown real estate losses lead to property tax hikes? This comes from a, b, C news. I thought this was super interesting. Is there something I hadn’t thought about? But basically what happened is the mayors of Minneapolis and St. Paul both proposed property tax increases of roughly 8% citing among other causes. So it’s not just this one, but citing among other causes losses to downtown property values. A study done on Minneapolis showed that the impact of downtown commercial vacancies wasn’t as bad as they expected, but what they found was that they had lost about 50% of their assessed value since the pandemic and since that assessed value is down, that means the government can’t tax it as high of a rate, and if they’re not going to get those taxes from commercial landlords, they’re going to pass it on to property owners is what it sounds like.
All right, Kathy, I feel like you’re going to lay into this one. Go for it. I

Kathy:
Am ready. This is a fantastic plan to have a ghost town. So just like if you want more people to leave and more issues, tax the hell out of ’em and see what happens. Create growth. Growth is what brings in more money.

James:
Minneapolis, it’s already cold there. You want people to stay. Don’t tax the people who you want to be able to stimulate the economy. You’ve got to find a way to drive more traffic to the areas where you want to be able to increase your tax revenue. But passing it on is, I don’t know. I think your taxes should be raised based on the value of the property that’s been added. So yeah, our taxes are going up on some of the properties that we bought, but we’ve added value to them. They’re now more valuable properties. Paying more taxes is part of the game. I understand that, but to raise single family taxes because you’re not getting the revenue somewhere else seems unfair. Is that the word?

Kathy:
If they just did the opposite, if they said, we’re going to give all kinds of tax breaks if you bring your business here, they would see a complete turnaround, but that is just not how some of these cities think. Well,

James:
That’s how you truly do get the tax dollars up incentivized businesses. There’s growth. You can charge more when there’s growth and based on that income increasing, then you can start hitting ’em for the taxes because if rents are declining in the commercial space and insurance is up and let’s tax ’em more, who wants to open a business there that’s miserable?

Dave:
Well, it’s not businesses just everyone knows. They’re saying an increase in property tax for normal people, not for businesses, which I think is almost worse.

James:
Yeah, it’s way

Kathy:
Worse. It’s terrible. Yeah,

James:
They want affordable housing, but let’s just increase taxes. It makes no sense. Let’s

Kathy:
Make this the most miserable place you’d ever want to live and see if you

Dave:
Stay. Well, yeah, it’s very interesting. But it did make me just think about this. The problem in general is that in almost every major market, the tax base is going to go down. What’s unique to this story is how Minneapolis and St. Paul are responding to it, but the problem is going to be universal. These commercial properties in almost all markets are down, and that means that governments are going to be collecting less revenue, and it’s the theme of the day. Someone’s got to pay the bill or they’re going to cut services or they’re going to raise more debt. Something’s got to give when this happens.

James:
I agree with you. I don’t want people to think it’s lost on us to think like they’re struggling to create income and they’re probably trying to figure out how not to lay people off and cause an even better problem. And so they’re looking for a quick way to generate revenue. I think that this just isn’t the best quick way to generate revenue. I think that this way could end up causing even more problems, even if there’s a short-term influx of cash. What does it do to your town, to your community? And I don’t think that this is the easy button that they’re looking for.

Dave:
Alright, well, we did that one quickly. Thanks everyone. This was a really good episode. I really enjoyed all four of these discussions, so thank you all four of you. There’s a lot of good stuff to discuss here. If you all liked this episode as much as I did, don’t forget to follow on the market on either Spotify or Apple and share it with a friend, Henry, James, Kathy, thanks for being here. And thank you all for listening for BiggerPockets. I’m Dave Meyer. We’ll see you next time. On The Market was created by me, Dave Meyer and Kaylin Bennett. The show is produced by Kaylin Bennett, with editing by Exodus Media. Copywriting is by Calico content, and we want to extend a big thank you to everyone at BiggerPockets for making this show possible.