The 89% Solution

I love HGTV. Who can resist watching shows where shiny, optimistic, young couples live the American Dream of starting out their life together by buying a house?  Which one will they choose?  So exciting. There are shows with ideas for redoing your kitchen, shows about choosing colors, shows about solving common decorating problems people have.  It's all very comforting.  Then there are the shows I love to hate.  They have a show called "Bang for you Buck", for example, that tells us what percent return we can expect on our remodeling costs.  The episode I watched today showed 3 houses where the homeowners each spent $50K remodeling their back yards, adding pergola's and fire pits and outdoor kitchens, and the experts decided what percent return they would each get.  I always have a lot of questions about this part.  How do they know? I mean, knowing what percent return you'll get on the 50k you just spent on your yard means (a) You know exactly how much your house will sell for, and (b) You know exactly how many of those dollars are coming from that $50k backyard.  How are either of those things knowable?  

Did I mention this episode was filmed in Phoenix?  Phoenix, where home prices are in the toilet.  In some neighborhoods you can now get a house for $30,000.  But who could argue with putting a $50k backyard onto a $30k house?  You could get an 89% return on your investment!  That's what the winner was told he'd get.  An 89% return.  That's exactly $44,500.  Boy, was he happy!

I still don't know how they do it.  How can they know, "you will get a 39% return"?  I mean, why not a 42% return?   And they don't say, "you will get a 39% return on the money you spent when you resell your house", they say "you will get a 39% return on your investment"!   Does that mean you would get the $50k back plus another 39% ($19,500) on top of it? Do they mean you will recoup 89% of the $50k expense at sale?  Not clear.  And could you somehow get that money without selling the house?   It's pretty hard to sell a house in Phoenix right now. In some parts of Phoenix home prices are down as much as 81%, because there just aren't any buyers. The median home price in Phoenix is now down to roughly $124k.  But with an 89% return on his $50k investment, the winner will be able to sell his house for what? $168,500, which is {(124k+ .89(50k)}?  or $218,500 which is {124k+50k +.89(50k)?  I'm not totally sure.  And the couple who lost? They will apparently only get a 39% return because they didn't put in enough grass.  Grass.  In Phoenix! 

This is one of those ridiculous shows that makes me scream at my television. 

Maybe this was an episode filmed a few years ago, before things got ugly.  Before people got stuck in those Phoenix houses because they couldn't sell them, and they couldn't refinance their loans because they were so far underwater.  But should they really still be showing those episodes now??  I mean isn't that a little insensitive?  I'll bet those people aren't thinking damn, I wish I'd spent $50k on my backyard, they're thinking Damn, I wish I HAD $50k!  Or maybe Damn, I wish my house was worth $50K!  I'll bet they're thinking that renting wasn't such a bad thing after all, and that all those episodes of House Hunters may have given them the wrong idea.   But all those episodes made home ownership look so great!  And anyone with a pulse could get a loan, even if they could only qualify for the teaser rate on an option ARM.  And surely home prices would continue to appreciate at 20% a year, and unicorns would prance, smiling, through your $50k back yard.

Despite what everyone always says, a home is not such a great investment.  I mean by the time you factor in the financing costs, insurance, property taxes, repairs and all the other unexpected joys of home ownership, even in a normal market, home prices historically appreciate at a whopping rate of 5% annually. You're lucky if you break even.  Don't confuse a home with an investment.  Buying a house just means you have a place to live, where you can paint the walls whatever color you like, but no one will come fix your plumbing problem for you in the middle of the night for free. 

So if the 50 thousand dollar backyard isn't a great investment, what should you do with that money?  Two words:  Data Centers.  Big buildings that house computer servers through which all our cyber stuff is shuttled and parked.  They're in huge demand.  All those little packets of data, including this blog, need a home.  Data Center are full of tenants before they're even built.  According to the LA Times article I just read, the tenants for a new data center they're currently building in Redondo Beach just signed a lease for $12 million.  Nice, huh?  I wonder what percent return the owner of THAT building is going to get.  And you know who some of their biggest tenants are? Media companies.  Like maybe… HGTV?   I wonder if these data centers store hundreds of episodes of Bang for your Buck…

Until now, these data centers were just chilly, dark bunkers, with massive security (entry granted by retinal scanners),  but now they want to make them more pleasant and homey for the customers and the employees.  This new one they're building offers Starbucks coffee, video games and big screen TV's in its lounge.  Hey, here's an idea:  A new show on HGTV where 3 data center developers each spend $50k to remodel their lounges and then the expert tells them what percent return they'd get on that investment.  89%? 39%?  Whatever, we can just make up numbers. They could call it "Divine Data Centers".  Can't you just see Vern and Genevieve and Candace all discussing their feelings about the furniture placement and color choice?  And the episodes would be filmed, and then stored in the data center, until such time as they became economically offensive.

See? That would be an investment.  But you probably wouldn't want to live there.    Although, maybe with the right staging….

Really, I think it's only a matter of time before we start seeing shows on HGTV like "Curb Appeal Your Data Center", or "Extreme Makeover; Data Center Edition".

And I want credit.