Tariffs, Inflation, and the Fed: The Chain Reaction Nobody Sees

The said is going to meet later this month to decide on whether or not to keep cutting rates. But the tariffs in China may change everything. See I was in Mexico City over the weekend. They're actually talking about this too, right because there, you know, it's very very different obviously down there, when you're reading the news about you know, what's going on there versus China also very very similar. Are tariffs going to be inflationary because that's going to If they are, it's going to seriously impact real estate. Yeah, and people, you know, I think that there's just this disconnect. You know, people look at the terriffs impacting the stuff they're buying off Amazon, like the clothes and things from China. But realistically this goes into building material building costs, which also can affect mortgage rates depending on the inflation. So there's a lot that this has to do with real estate. Yeah, and I know, obviously this is a super controversial topic. The you know, Trump is not moving from his position. I could assure you that he wants to protect American in industries and he believes strongly that this is going to bring back jobs. Whether we believe it or not, that's his view, so I you know, this is just going to he's doubling down here, And the reality is is if imports cost more, then the tendency would be for us to buy local or stay in the US. So now the question is is everybody's saying it's not going to create inflation, and there's even some concern on whether or not it will really bring jobs. Now you know that is I knows personally plenty of companies that are now moving their manufacturing back here and hiring. So now that's a very very small sampling. It's certainly not reflective of the whole economy, but I do know that that is definitely happening. I have a lot of friends that used to outsource things and they manufacture elsewhere because it could be done so much cheaper, and then they sell it in the US. So you know, it has created jobs in those particular examples. But the question would be is it going to affect their prices? You know? And I think you know, some of our friends that we have that are moving over are not fully moved over yet, so it will be interesting when they do if it effects. And I definitely think it will. I mean, it has to, you know, in the conversation I've had, it's it's a heck of a point because that's always the next question, right, what does it do to your margins? So there's a couple of things. One, don't forget the business, whatever it is, has a margin, right, So I don't know twenty thirty forty percent. Let's just say so if something they're getting from China with five hundred buck dollars, you know, and then twenty percent of that is makes it let's say six hundred, that's their margin. So they're definitely getting squeezed on their margins. On the other side of that, they have to decide, you know, can they push you know, something that was five hundred out to six hundred, can they can they do that? You know, if they bring it into the US, may be it's seven hundred, right, and so you know, those are those are the things that they're they're wrapping their heads around. If they still want to be in business, they they can't just have a massive price increase to the consumer because the consumer ultimately decides whether they're not going to whether they're going to buy something. So you know, that's the big pickle that they're in. And I think you know, they're scrambling. Obviously, they try to figure out how to make it work. So the Fed's main main mandate is to control inflation and unemployment, right, and they've been balancing that and they've been focusing on inflation the past few years. And then now they had started to lower rates because they're starting to focus on the job market, and that was kind of expected, you know, throughout the end of the year. But now with these tariffs on China being implemented, you know, the Fed's really going to have to consider what they want to do at the end of October, you know, I mean it's really now they're the ones that have this big decision on what to focus on. Well, that's right, and you know, so let's just look at the data because I think that's really really important for every and everything that we talk about. So we know that the fed's target goal is two percent. There's a lot of people that think that that's too low. But what is interesting is obviously if you're saving money, that's an important number because I mean said two percent a year over ten years, it's twenty percent loss in the purchasing power of your savings. So the FED is sitting it too. Now there's some people that say that it should be higher, and then there's what's what a lot of people are starting to call the neutral rate. So what's the neutral rate? The neutral rate is what is the number? What is the inflationary number where there's neither inflation or deflation, right, is kind of that neutral Now it's obviously more complicated than that, but you kind of get the point. So, in other words, when the government's not, economy is not pushing up or or pulling back, right, and so so the question is what is the real number? Is the FED going to move the needle? You know, are they going to push that up? But inflation went from two seven to two nine, we know that right now. That's not very much, but it did go the wrong way. And also there's the unemployment rate that you know is kind of out there on the horizon as well. Now, if this works, if if people are going to manufacture more in the US, then you're going to have onboarding of jobs as well to kind of offset some of that. And of course AI is a huge wildcard in all of this. But the reality is is, like I said, I was just I just flew back from Mexico City, last night. They've they've been four and five percent inflation, and and you know, and their savings rate is too so so so right now they have the almost the exact same issue. So so if there's tariffs on China, then of course things that they do there are going to be less. What I like what you put down here, Dan, You know, you said fifty four percent of all like household appliances, for example, in the US are from China, so that that might not seem like much, but that's a lot. And so you start to see, you know, can we manufacture household appliances in the US. Well, there's always a ramp up period, you know, like maybe we can, but there's always going to be a ramp up period. And also, you know, there's a big cost increase because people are already upset over the cost increases of the last few years. I mean, my god, I just had to get a refrigerator from one of my rentals and at a dent ending place it was one thousand dollars. Yeah, you know, and at least to be new, right, yeah, And that's wow. That was at a dent ending place. So you know, so for me, I'm like, man a thousand bucks, you know now with a tariff or now manufactured here in the US, like how much am I going to have to pay for a new refrigerator? You know, dose little things add up to people, and landlord does. And I also think the other thing to watch is I also know manufacturers or entrepreneurs or companies or you know, they're looking to other countries. So so if there's a you know, one hundred percent terraf or fifty percent tariff for whatever the number is on China, you know, maybe they move it to know, Vietnam, maybe they move it to Cambodia. You know, maybe they move it to Mexico. You know, there's which we have that NAFTA diagram of the North America Free Trading. So so there's lots of things obviously that are going on behind the scenes, and companies are trying to figure out, you know, how do I stand in the business, how do I keep my margins? How do I not pass on I think that is always the first thing. You know, you can't just pass on an increase on something that you've been selling for years, uh to the consumer just overnight. So so really who takes it in the chin is the company so then the company has this side, do I continue to do this? Are the margins even there? Can I pass this on? So all that stuff's going on right now. And one of the strategies is to look at other countries. Well, and I think one of the biggest things is going to be you know, new construction, right so you have to look at the construction side of things. So we already have home builders right now getting squeezed because they're not able to you know, they're doing a lot of concessions, they're pulling back. You know, the market is not super strong for them right now. But if they're building costs go up, they're going to have to either calculate that in and sell the home for more like moving forward, or they're going to have to pull back and stop building all together. That's a really big point. Pass So you know, we haven't even talked about this much like I mean we did during the supply chain pandemic times, right, but right now home affordability is actually a supply issue and an interest rate issue, right So we know this obviously, you guys know this, and so and by the way, we are seeing more listings and we are seeing all kinds of stuff going on in that market, and that's actually trending. But the reality is is nobody's really talking about how much does it cost to buy to build a home today right from scratch? And I think that that is something that everybody needs to think about, is excuse me. So that is going back to the appliances, right, the appliances, the lumber, you know, which, of course we know that we get a lot from let's say Canada. The concrete, you know, the roofing tiles also from Mexico, at least in Arizona. So there's a lot of things that are going on that you know, contribute to the to the price having and you know, we're a general contractor, we're a builder. Right now, we're actually under construction on three hundred and twelve units, so this is something that we're dealing with right now. The the reason why our costs right now of construction are lower is there's only one It's because there's not a lot of people building. So that's it, right, So, so as interest rates go down and as people build, what happens is if you're a you know, a drywall contractor and you're scrambling to keep your doors open, you're going to take whatever work you can. But the minute people start going again and you have lots of options, you start to build your profit into your price. That's just how business is. And so there was a time when it was booming a couple of years ago where they had their pick like which contract, which subcontractors, and which which general contractors do I want to work with? Which jobs do I want? And they could they you know, they would put these huge margins on there, and that is how the business is because you're scrambling at that point just to get those drywallers on your job. And so that's obviously regress. And so that's a piece. And while that's I wouldn't con necessarily call that inflationary as a result of tariffs, but it is a supply and demand issue that actually pushes prices up and also squeezes them back down. So we don't have that right now. So if you add low interest rates and you add higher tariffs that passes through on some of these things on it in addition to the high prices, you know, it actually could get a little bit worse. Well, when you say low interest rates, you mean high interest rates. Well, what I'm saying though, is if low interest rates create more building, right, and people go out and get loans to build houses, build subdivisions, build departments, build whatever, then what happens is those small subs, those contractors, those subcontractors, they have their choice, and now all of a sudden they start to wrap up and they start to pad their margins. That's what I'm saying. But you're probably not going to have building if you have that not lowering interest rates and you have high TIFFs to which are going to increase building costs because it's a supply and it's a demand. So you can only you know, if it's going to cost more to build a house and nobody wants to pay that price to build a new home, then they're not going to be doing it because they're only doing it. If they can sell it. So we've we've just seen that, right, Like you guys, some of the some of these big d R Horton, Pulti, Lennar like those are public. So the beauty of that is you get to actually dig into their you know, their earnings reports and stuff and so so hopefully you guys know that Lenar has been using massive rate bydowns and marketing costs and things like that to move some of their new product. And and they're not the only ones, right, so so why do they do that. They do that to be more competitive. So but again that goes back to the margin, right, So you know you think about what what the price of something is. It's land plus construction, that's it. That's the number. So every develop helper has that number. What do they pay for the land and what does the cost to build this house whatever that house is. That's their basis that anything over that is profit or margin. And so you know, as as you start to see these margins come down, which is reported in these in these quarterly earnings, then you know they start to pull back too. Well. I think it's important to note that you know, these your starter homes get hit the hardest on this kind of stuff because there's less profit in a starter home than there is in a more luxury, higher end home. So you know, these builders are really going to have to you know, they're already. Bare bones, Like what more bare bones can you do? Right? And so if builders aren't building, that's going to push people back to existing homes essentially, and. That's not such a bad thing because you know, we are. We are seeing a growing inventory right in that arena, right, and so historically, you know the existing housing stock, let's just say the common people that own stuff have always competed against new home construction always, right, And I also think the consumer always is looking for something new, right, and that will always be the case. The question is is how's it priced? And and and then also what's the cost of finance it? And and so the home builder has the advantage and I've being able to buy down that rate right as part of their profit margin. That's what they use. It comes out in the form of a marketing expense. But the reality is is it just comes straight off of their their bottom line. That's all. That's all that is. And so you're right, what will happen is the if we really want to see and by the way, this is going to be temporary, but if we really want to see this work, then you need to have low cost construction, you need to have low cost price to finance, and you to have a lot of supply because supply is always going to bring down pricing. When there's a lot of something whatever it is for somebody to choose from, then you that's when you start to see discounts, that's when you start to see you know, better pricing is when there's lots of choices for the consumer. That is the number one thing that's going to drive this down. The problem is is, you know, back to the original conversation or the tariffs as they make their way depending on what we get from let's say China, because you know that's just the most recent article, but tariffs have been on the table for a while now. We don't we don't get everything from China either, right, There's we use a lot of places to to import goods and so does every other country. Right yeah, I mean, but I but I do think though when you're looking at home, so you know, I had this with one of my clients just this week. Is she was looking at making an offer on a home that needed a bunch of work done because it was cheaper, and then we were looking at homes that were fully ready, and after she got this work quoted, she realized how much cheaper it is right now typically to buy a home that is fully redone because the costs of labor and supplies are so much more. And this is definitely going to get worse if these tariffs are implemented, and so I think you know, as a seller or as a home buyer, you know, you should know that if you're going to be listing your house like, it's going to sell faster if it's fully done. It's always kind of been the case because people, you know, like a fully done home. But now it's really a monetary you know, it makes more sense a lot of times to buy a home that's already been done. Well, okay, so now let's take a look at, you know, replacement cost versus brand new, right, and I think this is something that you always got to watch. So you guys probably know we've been buying properties. We're an aescirl right now on one in Las Vegas, two hundred and six units that was built just a couple years ago, and it's fully occupied, stabilized, and we're buying it below replacement cost. So there's all kinds of reasons for that. But so the question would be would you break ground on something next door? The answer would be no, because when things are selling below replacement cost, then you obviously would not be building right now right now, Different markets obviously are responding at different pricing, and so it doesn't mean that you can't build. But what it means is in some markets, if you can buy below replacement cost, you will And so that's also the same thing that is happening to existing housing stock. So if you've got something that you've been you know it's twenty years dated inside, twenty thirty years dated inside, when people walk into it, they know, some people will just buy it as is, of course, but some people are going to want to renovate and they're going to want to update things, and so then they're going to have to look at these kinds of things as kind of to Denil's point, So in some cases when you're looking at do I buy existing or do I buy something that's been renovated or new, they're calculating that and it's not too difficult to do, and so it's just less of a pain in the bot to be able to buy something that's refreshed and somebody's already taken that hit financially, and it just it just lowers the degree of uncertainty, right yep. So let's jump into the bond market. Yeah, but the bond market, I think is like a lot of people don't understand the bond market I'm going to talk about this and why I think that this is actually one of the bigger issues to watch is because the bond market responds to inflation and uh and you know I'm going to get into that right after our commercial here from our sponsor Monetary Metals. Gold is there all time highs, but appreciation is it the only way to benefit Monetary Metals. You could potentially earn a yield on your gold paid in physical gold without selling it. Here's how it works. When you lease your gold through their platform. Pre qualified companies pay to use it under strict guidelines like renting out real estate, but with gold. Instead of paying to store your metal, you may earn up to four percent annually in goal. You stay in control, and you can choose which leases to participate in. Monetary Metals handles the due diligence lease terms in all the administration. Thousands of investors use this approach to grow their gold, not just sit on it. Is it Monetary dash Metals dot Com forward slash ken to learn more. Leasing gold involves risk and returns are not guaranteed. This is not an offer to buy or sell securities. Please review all risk disclosures at monetary dash metals dot com vi is it monetary dash metals dot com? Forward slash ken to learn more? All right, so now let's get into bonds. So here's the deal. If the bond market anticipates then inflation is going to go up, then then we have an adjustment with the bond yield. So that's that's basically how that works. And let's talk about what a bond is. The bond is essentially alone. Now it could be a corporate bond, it could be a municipal bond, so it's essentially alone, fixed straight loan with a fixed term. So so for for municipal it might be for infrastructure, roads or something like that. Right, So the government issues these, that's a municipal or it could be a government, which is basically our or could be corporate which was the government or corporate raising capital. Okay, so here's how it works. If you bought a ten year bond at three percent rate, let's say, and it's you're you're happy you're getting ten years on that on that non bond, Now bond rates go up to five percent. And by the way, bond rates are basically operate to the inverse of interest rates. So if interest rates go up, let's say as a result of inflation. So now that bond rate is a tenure bond at five percent. Now the bond that you actually have is less attractive than I wanted to five percent because it's more so therefore the bond rate, the bond yield decreases. So that's how that works. The bond price decrease. I mean. So that's how that works. And it can be a little complicated, but it's really important because here's how it works. Guys. If let's say you go buy a home, and you buy that home and you're good, and the rate is six let's say six percent, and now the mortgage company packages all those up and what's called mortgage it's called the NBS. The what is it mortgage bonds? Jesus right, Mortgage backed securities. That's right, I've got bond on my head. Mortgage backed securities, okay, NBS Okay, that's called securitization. They're taking all these mortgages and they're packaging up and they're selling them as bonds to investors. So that's how that works. So your mortgage goes into a mortgage back security and then it gets sold and so that becomes a bond, all right, And so that's why this affects this market, affects mortgage uh pricing, So that's why this is so important. So an inflation potential inflation actually does affect bond prices, which does affect of course mortgage prices. So this is why this is important to watch. Is if if tariffs actually do create higher you know, inflation, then it's going to affect the mortgage market, which is going of course going to affect the you know, the loans. And and I think that the you know, no matter what the if a if a home price is four hundred grand and your your rate of six, and all of a sudden you've got this inflation issue, and and and you've got this pressure on the on on the prices of these bonds. Then you're what you're going to have is you're going to have potentially interest rates potentially could rise as a result of this. Do you think though, that there's room for like some q E because Trump does not want interest rates going up? I know, of course, so all he can, you know, the Fed can cut rates, but to your point, doesn't it's the bond market that really sets the rate but could he implement some kind of q E or whatever they call q E light to try and you know, offset the interest rates, because he's going to want to do something. Right, right, I think yes. I think the big thing to watch is if inflation potentially is kind of the match for the fuse of all of this, right, and then he's going to have, in my opinion, you're going to have issues around what to do with interest rates. So and of course that affects consumption of every sort of autos, electronics, housing, and then of course you're going to start to see these other kinds of mechanisms that they're going to use, like the forty year potentially. Yeah. Yeah, but they do need to get these interest rates down. That's one of his big things. So you know, I think that it's important to know. I'm very interested to see at the end of October in a couple of weeks here, when Powell and the Fed meet, what they decide to do, because I think in their calculation they were going to continue to lower rates a quarter point, but they might put a pause on it. And I think that you know, what they decide to do will very clearly show whether they're going to focus on inflation or the job market, because the job market is not in a good position right now either, and these tariffs are not helping that. Right at least right now. That's that is for sure. So so I think, you know, if I was, I do believe that you're going to see a quarter quarter coming from between now and the end of the year. So you know, I do. And and uh, you know, we all know that there's a there's a lag that that that makes its way into the economy, and and we don't know exactly whether these tariffs, you know, are going to really ripple through. There's there's a lot of factors here. The one thing though, I think is clear is you know, China, if this happens, you know, we we're the biggest consumer in the world and we consume a lot of Chinese imports period. That's that's just a fact. So you know, so that will make its way but I don't think it's going to make its way into next year. And this is you know, kind of why I'm really bullish on buying right now, because real estate in a lot of ways is is getting beat up. These crash bros, these YouTube crash you know, whatever you want to call them. It's interesting to me, you know that that uh, you know they're doing that because it's actually a little bit of a benefit, you know, to me when they're when they're signaling that, it's like, it's a great time to buy. Like you buy when things are disruptive. You don't buy when things are going great. That's that's the that's the epiphany that these these youngsters don't get is you know, when there's blood in the streets, when when banks are taken back, you know, commercial real estate projects, when rates are up, When when when expenses are up and cap rates are up and it's hard, that's actually the best time to buy because what you have is you have the people that didn't capitalize rel well, didn't operate well their occupancies, or you know, they sucked, they bought in bad locations, they overpaid, or whatever the story is, it doesn't really matter. You know, now's the time to go in and clean up those messes. And that's precisely what we're doing. And the exact same issue with this new construction. So why would we be buying new construction right now? Will you think about it? If if if rates went up and so people have a new construction, the rates are eight nine percent. That's really expensive. Plus there's a personal guarantee associated with that. So the developer that you know, they're on the hook for these really really high interest rates on construction debt. So, and the reason is is because it's riskier than regular debt because when you're building, there's there's no property, it's basically nothing. It's landed, and so it's priced accurately. It's it's more expensive. So when you get stabilized, when it's done, a lot of the risk is gone, and then you put new debt on. Well. So catching a developer at the tail end of a construction loan and trying to lease up is the greatest opportunity for somebody who's trying to buy that because now I'm buying something, and you know, they're getting deep, deep discounts, and so there's a strategy behind all this. You know. So interest rates even though they're high, and cap rates are high, and expresses are high, and you know, these doom and gloom YouTubers are saying, yeah, yeah, yeah, everything falling apart. That is precisely because I made the most money ever after the Great Financial Crisis in twenty eight nine, ten, eleven, twelve, when the banks were licking their wounds and they're taking back all these assets, that is the time. Now, you don't want to catch a falling knife either, but you do have to pay attention to when there's disruption. There's blood in the streets. The banks are taking back these projects, and the syndicators are licking their wounds, they're running out of money, they're trying to find new rescue capital. All that stuff's happening. The professionals are sitting on the sidelines, just lying in the coffers, ready to go. And that's that's kind of where we are. I think you're being a little confusing there because you're talking about the multi family market that is, and not where we are with the single family. So I think you need to clarify that. Well, yeah, yeah, it's but but you know, you're right, real estate it's a huge category. So I'm not specifically talking about a custom home, you know, or a neighborhood, but it is a huge piece. You know, real estate across the across all sectors is down. Yeah, but when you're saying, like the banks are taking homes back, like you know, when you say that, I think that people then assume I should wait till the bank starts taking homes back, and I just don't think that's great advice because banks aren't taking single family home. I said that banks are taking homes back. I said that there's bank defaults, there's for sure. I mean, we're dealing with them every day. And you know, I don't do single family at all. Guys, like, that's just not my world at all, So you know, of course it's going to be different. Yeah, I'm just going to clarify that. You clarify on the family, and I'll stay in my way. I just think that when people listen to you, they're like, you just. Saw a girl a step up. Let's go down as single families. Well, single family, we're really not seeing it's not really down that much. You know, we're seeing movement in the market for the past two months, and we're not really seeing a lot of home price to clients in Phoenix, in the area I'm in. You know, I can't speak nationally, but I know that like the Northeast is doing really well. I know that Florida and Texas are having some issues, but at the end of the day, everyone's in a two to four percent interest rate, and we're not having much distress on the seller side. You know, we're seeing sellers that they don't get the price they want. Maybe they'll reduce it a little, or they'll just delist it. We're not seeing a lot of major drops and prices unless it's a flipper or somebody that needs to sell immediately for some kind of reason. But for the most part, I mean, you know, things are still going off the shelf. I mean, I want to go show a client house the other day that had been listed for two days and now it's under you know, two of the seven homes we wanted to go see or under contract. So I mean, I'm just saying people kind of hang on what you say. So when you say that there's blood in the streets and there's all this stuff, they take that. You know. You know, guys like obviously the word real estate means lots of stuff. And for me, I can tell you this for sure. The multifamily arena is the values are down twenty thirty sometimes even more. That is a fact. Why is that? That's because interest rates went up and cap rates one up. And if you guys know, multifamily real estate investment real estate. I'm talking about investment real estate. Daniel's talking about somebody who wants to buy home and move into. It, right, No, we're an investor, so who has seen the family. But also how it cash flows? Right, So you know, we're just we're we're in different arenas, that's all. But in my world there's blood in the streets for sure. Yeah, and so, and the difference is in your world. You know a lot of people didn't fix their interest rates because they were doing renovations, and then in my world most people have a fixed low rate. Yeah. But yes, but I will tell you this, Like you know, raising money from investors, it affects them. So if if there were LPs or investors invested in some of these deals, they're you know, the equity is not there, simple right, And so you know, so like this developer, like like the one I'm buying right now, like you know, we're buying at belower placement costs not not much above the loan. So that means that wherever the equity came from doesn't really matter. It really literally doesn't matter. Probably came from a pension or a life company or who knows that money's gone like literally it's gone because you know, you're basically the developers is trying to pay off their construction loan. So you've got equity and you've have debt. So you know, on my world, you know, we're trying to buy. We passed on a deal the other day in Arizona actually where the property wasn't worth the debt, so we passed. Like, I mean, this is what's going on in my world. So you know, maybe not necessarily in the single family side, but it's a very different world over there. So that's why we have Denilon. So we have a question from Matt and I think it's a good one and says, kind of Denil, what are your thoughts on people who are investing into renovations with lines of credit right now to refinance soon? Good question, really really insightful question. So there's a bunch of factors here, but let let me break it down. So this is basically a flip, right, you know. So so the price of the home plus the cost of the rounds plus the cost of the financing, that's your number. So if that's positive, then it's good. If it's negative, it's not good. So let me walk you through. I know, personally that some of these companies that were I guess they were ten, twelve, thirteen, fourteen, fifteen percent money. So the person that's that's buying the home and doing the renovation, they priced that in. But they price it in on an extremely short term basis. So they say, I'm going to buy a home in let's say October, and I'm going to be completely out of it by January or February, right, so they anticipate that this money's only gonna be out three or four or five months. The issue is time so and of course the cost so, and then that eats away your profit. So if you have if you're able to turn that house in three months, you're probably going to be fine. You've probably built that in. But if it takes six, now you're eating into the profit. But if it takes nine, now you're really seriously eating into the profit. And that's when you start to see the discounts. So it just you know, so those are the factors, and it just completely depends on how how many days on the market, and that is growing right now as we know. Yeah, and it is risky. You know, we just saw like one of the houses that we were looking at you know, just actually went to auction and it was a flipper and kind of same thing. Right, it had been sitting, the price had been lowered, I think. Then they listed it for to break even and it still didn't sell. So now you know it's going to auction. So there is risk to that right now, especially because later. Seconds are you telling me that there's risk and single family now there is for flipping what I what's a sacred here? Yeah, because they have to sell it, you know. Yeah, that look cool in trouble later guys, No, but this is my point, right, So you know that's a speculator, right, It's an insightful question, a great question. And and so you're not going to have that in the the person that owns a home, right, you're not gonna have that. But the person who buys it and then tries to time it, they're the ones in trouble because don't forget the big issue is exit and time, right, like you could do stuff like like on the multi family side, we had the exact same problem. People said, you know, I'm gonna buy this two hundred unit of project, I'm gonna renovate it in year one. I'm gonna have this floating debt on it and I'm gonna be out of it in the second year. Well, that just didn't happen, right, because rates went up and and of course now rents are soft based on you know, over five hundred thousand new units being added to the in the US this year. So all of these things have have play into this. But this is where experience comes in, right, And so so in the scenario word neil, the very unique scenario of the single family with the one single family house that actually apparently went back to the bank, I would go in and just crush that, right, because then I would go on and I would offer a deep discount for a renovated house, and and you know the bank doesn't want these back, right, And then so now there's a bidding war. And obviously you know, and I guarantee you there's a process where this person bought it renovated time was not their friend. It eroded the you know, the profit for them. And then the person who did this, of course, they're they're scrambling, they're discounting, they're doing whatever they can, and it's going lower and lower and lower and lower. Don't forget all the stuff that goes on before it actually does even go back and to default, there's a lot. You know, there's months and months and months and months and months of stress and anxiety and price reductions and all that kind of stuff. But at the end of the day, the market decides that's it. There's not a lot you could do. So so what I always tell people is, you know, stop, you know, death of a thousand cuts right, cut once, cut deep, and call it right. And that's what we've had to do that you just got to go really really low, let the market committed, save your butt, and then move on and call it a day, even if you're writing a check, right, And that is the way that that's the other side of it. And that's what we're seeing now is we're seeing the inexperienced deal with this now for the first time. So this is good. I'm ready to come on and just you know, as my dad would say, you know, it's like this makes you tough. So this is what we're seeing right now. Yeah, and I want to get into some of our ask ken questions. So Dave said, I'm building a team to help me vet potential multi family apartment buildings and communities. Can you advise on how early. I can compensate these people and how to look for a good recruit. You know, So this is a great question. I actually just had this question the other day from somebody else. So the reality is, Dave, thank you a great question. Don't pay anyone like period. Everything's based on performance. So it should be commission based, not believe that you need to build. You will have a gun to your head to try to cover your overhead, and you'll start to compromise on the fees that you're making, and you're you're going to start to close deals because you're going to have the stress of the overhead. You've got to build your team right now and with with performance. So now think about this. So you close something, just pay a pay a commission you you know, you close a mortgage commission, close an acquisition commission. Now you you might not be able to do that from an assistant standpoint, but you know, we're using VA's that you know, out of the country for things. There's lots of ways to do this, and so I would be very careful with you know, if you build it, they will come type of scenario because we're heading into what I consider to be one of the twenty six is going to be one of the bigger years of disruption for multifamily. And you know, I also think that we're going to see the institutions come back in and the big money come back in. And we're already seeing a little bit. And so this windows, I guess it's still open, but it's it's maybe half closed. And so what does that mean. What that means is there's gonna be managed money, there's gonna be funds, there's gonna be people that are setting things up. Right now, there's not a day that goes by that I don't see something where somebody's putting together some kind of fun to take advantage of distressed real estate. You know. And again this is the tale of two worlds going on. That's to Daniel's point. I mean, we are not seeing this huge implosion like we saw in two thousand and eight, which I went through for the single family market. But you know, the Bank of America, let's just sit pick on them real quick. You know, they are or Wells Fargo. They have loans in them in the multi family arena, in the office arena, and in the single family arena. So if you're a bank you don't care, like you know, you're a default is the default is default. So whether it's an individual or a syndication, or an office building, or a multi family or a retail or a condo project or a custom home, they don't care. You know, it's a different division. But the reality is it still affects the bank, still affects the lender. And so you know, that's what we're starting to see right now. We have a great question from Josh on YouTube. He said, do you think with multifamily rent softening it will pull more demand for single family home purchases? If so, how do you think that will affect single family pricing? Yeah, that's a good question. So now I don't want to assume, Josh, that you're thinking the single family home purchase is for investment. If you are, then the answers, yes, if it's you know, but a lot of you know, don't forget. There's a tremendous amount of single family I mean, single family used to be when I was a kid, nobody thought about buying them as investments, right they were people would buy it to move into them. So that market is kind of new. You have Wall Street now seriously involved, which I know is you know a lot of people aren't happy with right, But the answer to your question is yes, you know, we're going to have there is disruption. There's definitely rent softness for sure. You know, I'm tolling my entire company. So we get you know, let's call it ten thousand units no rent growth next year, guys, like, seriously, you cannot project rent growth, okay. So and in some cases you might even have concessions. So not not only is there no rent growth, but you might even have concessions, which means that our income for twenty five could be higher than twenty six potentially based on what's going on in the market. Now, why is that important. It's important because I can assure you that expenses are going down. So what this means is that twenty six could be a hard year than twenty five from a multi family operational standpoint, and that is the right way to underwrite things, and that is the right way to look at it. So now what that will do is it'll make a better case from a renter standpoint to you know, it'll make it harder because the the you know, the renter is going to get a better deal, Like I walked you guys through. You know, we have we have an area in Phoenix downtown where it's four months free on a twelve month lease. So imagine if you're a renter, like and you're you know, you're a You're at a place and you're paying fifteen hundred a month, let's say, down the street and something that's twenty years old, and you will stroll into a Class A building with the elevator, all the brand new amenities and bells and whistles, and the rents twenty five hundred, let's say, but you get four months free. Okay, well it's ten grand, like ten grand, like you know, on a twelve month lease. That's you know, so just spread that over that. You know, all of a sudden, you're pretty darn close to you know, what's your hat what you have right now? So so you know, so that is for sure going to affect the single family home rental market for sure, right because these class A deals, they're going to have to get absorbed. And now, of course, if people want a garage and they have a family and they need a yard, and they want to their own pool, and they want their privacy and they want somebody above them, next to them, down below them, and all that stuff, then I get it. But if in the social capacity, if somebody has a home and they're like, you know, I like the lock and leaf scenario, I'm gonna go over here, because they're going to start to look at the pricing. So yes, I do think there'll be a little bit softest. It'll definitely pour over to the to the home. The single family home. Yeah, one always bleeds into the other because you can't have multifamily at a discount, and then such a gap between the single family. You know, renters aren't going to pay that, so you know it's hit all of us. Yeah, for sure. Yeah, so a really really insightful question. By the way, guys, this is going to be all of now year, so just strap on and just know that it's going to be a tough year, right, And and we're preparing our company, you know, we're you know, we're trying to figure out what can we cut because you know I, you know I, the market is going to tell you what the rent is and and it's going to have to absorb all this new new product. Well then you throw tariffs in and so every time in appliance breaks or every time you need to repair something, it's going to be more expensive. That's going to hit you too. Yeah, one hundred percent. Tammy from Ken prow is asking what areas of a rental should I focus on to increase the rents? The kitchens, the bedrooms, the bathrooms, et cetera. Yeah, if I were to rate them, I would go kitchen, one, bathroom, two, bedroom three. Now that's a real general but I think that you can do things pretty reasonably. So we do spray on counter tops, believe it or not, so you don't have to do the brand new countertops. The sprand countertops you can do for a one hundred hundred fifty a unit. And then of course paint is not that expensive, and you can do the scratch and dent stuff with you know. And by the way, when she says that, you know, these things are brand new and they have a little dent on the side, you know, next to the cabinet, you can't even see it, you know, so it's still brand new. But you know, so there are ways to do this, and and you know, flooring and lighting can be a little more expensive, but at the end of the day, you can you can actually upgrade a kitchen for darn reasonably, you know, and and uh you know you can do it for just a few grand. So now that might be a lot so but but I'm just saying that that that for sure when people walk in, you got an old fridge, old sinc, old cabinets, you know those kinds of things, you know, old countertops. It does make a difference in in in the overall appeal. So I do have a question though, so do you really think it's a great time to renovate now? Right now though? Because rents are kind of down? I know I have some units in are. Yeah, I'll tell you, tell you our philosophy. So at one time I had sixty eight million dollars of renovations going at one time over multiple projects. Now this is going back over two years ago. But I pulled the plug Mike Ross, and I said, listen, we should pull back from renovations. Why would I do that because I said, let's let's offer the consumer what we call a classic. Classic means you know, something that has twenty years dated inside and then you got to renovate. So if you have a one bedroom price, that's a classic. And you have a one bedroom price that's renovated, you're going to get two different kinds of rents, and you know, it's really an affordability play, right, So kind of back to Denil's point, there's there's a time where when there's a lot of competition that you might have to actually do a little bit of renovation to attract a tenant. But there's also a time where you might want to have two different price points for something and you might not get the money out of it. So you know, how do we check on that. What we do is we say, if we're going to renovate the kitchen, are we going to get more rent And the answer might be no, okay, But in a super competitive environment, if we have a renovated kitchen, maybe we're going to have higher ocuency. So that's the other piece you got to look at, you know, because when people are looking at three or four or five choices and all being the same, and maybe yours is just a little bit nicer, So you've got to consider all that. So sometimes you actually renovate to attract occupancy, you know, and I think we're heading into that time right now. Certainly if you have these class B properties, right, so imagine I'm going to class be property right now is dealing with like on that example, I just made like, you know, there's no possible way that they can compete with nine ten foot ceilings, brand new appliances, garage, you know, elevators and all that stuff. You know, when something's been built let's say in the nineties or early two thousands, so all of that. But you so you're you know, you just got to lick your wounds and ride through it. And so you don't want to renovate during that time either, right, because that's not going to help you. So it is an extremely good question. So it's hard to I don't know the answer on that particular one, but those are all the things that I would consider before I moved forward. Awesome, Well, it'll be interesting to see what the FED does at the end of October, and we will see you guys next week. Make sure to check out our podcast this Thursday. All right, so I see you guys.