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February National Multifamily Rents Unchanged–No Pain, No Gain

By
John Triplett
-
Yardi Matrix reports “no pain, no gain for multifamily in February” as national rents remained unchanged from February.

Yardi Matrix reports “no pain, no gain for multifamily in February” as national rents remained unchanged from February.

“Moderate absorption was matched by an increase in deliveries in some metros. All eyes are on the Federal Reserve and the impact of interest rate increases on job growth and multifamily demand,” Yardi Matrix writes in their February report.

“Multifamily rents are playing a waiting game, as rents have essentially leveled over the seasonal winter slowdown,” Yardi Matrix says.

Highlights of the February Multifamily Rents Report

  • Multifamily rents were flat in February, as U.S. asking rates averaged $1,702, unchanged from January. Year-over-year growth continued its downward slide, and is now 4.8 percent nationally, down 70 basis points from the previous month and the lowest level in nearly two years.
  • Asking rent growth remains positive year-over-year in almost every metro, but 23 of Matrix’s top 30 metros recorded negative growth over the last three months and 17 were negative in February. Affordability, household growth and deliveries of new stock are key rent drivers.
  • The story was much the same in the single-family rental market, as the average U.S. asking rent was flat at $2,071. The year-over-year increase fell by 80 basis points to 3.4 percent, far below the 14.8 percent growth rate a year ago.
  • National lease renewal rates fell to 64.0% in December, down from 65.6% in November. Renewal rates are low in metros with high rent costs, such as Los Angeles (43.3%), San Francisco (46.5%) and San Jose (46.5%), where renters are more transient and are shopping for better deals.

The report summarizes that rent performance in the coming months “will hinge not only on demand-supply dynamics at the local level but affordability and the economy.

“Although metrics such as the job market and consumer spending growth remain healthy, the Federal Reserve has resolved to induce job losses to reduce inflation, which will impact multifamily demand,” Yardi Matrix writes in the report.

“Multifamily owners must focus on operating more efficiently, while investors looking to deploy capital will find opportunities arising from distress.”

Please read the full report here.

About Yardi Matrix

Yardi Matrix researches and reports on multifamily, office and self-storage properties across the United States, serving the needs of a variety of industry professionals. Yardi Matrix Multifamily provides accurate data on 18+ million units, covering more than 90 percent of the U.S. population. Contact the company at (480) 663-1149.

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Multifamily Housing Construction Hot As Single-Family Sputters

By
John Triplett
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Permitting activity for new multifamily housing construction units is stronger than it has been in decades, while single-family building lags

Permitting activity for new multifamily housing construction units is currently stronger than it has been in decades, while single-family construction continues to lag, keeping homeownership out of reach for many younger Americans, Apartment List says in a new report.

As multifamily construction remains hot, the construction of new single-family homes has recently begun to sputter.

“As renters face a growing affordability crisis, it is critical that cities plan for new home construction that keep pace with population growth and housing demand,” housing economists  Chris Salviati and Rob Warnock write in the study.

Permitting activity for new multifamily housing construction units is stronger than it has been in decades, while single-family building lags

Salviati and Warnock say many Sun Belt markets “are doing a decent job of building enough new housing to keep pace with growth, but the nation’s most expensive markets are continuing to severely under build. An influx of new multifamily supply should keep rent growth in check in 2023, but the longer-term national picture is still characterized by shortage.”

“Over the past decade, many of the nation’s large coastal markets – including New York City, Boston, San Francisco, and Los Angeles – have not built nearly enough new housing to keep pace with local job growth, resulting in deep housing affordability crises. In contrast, Sun Belt markets throughout Texas, Arizona and Florida have experienced rapid growth in both jobs and housing.”

See the chart for Phoenix, Arizona metro multifamily housing construction below

Permitting activity for new multifamily housing construction units is stronger than it has been in decades, while single-family building lags

Highlights include:

  • Today’s high interest rate environment has slowed single-family home construction, but multifamily housing construction remains strong. Today there are nearly 1 million apartments under construction across the nation, more than at any point since 1970. An additional 679,000 were permitted for construction in 2022, an increase of 9 percent compared to 2021.
  • In Phoenix metro specifically, 20,541 new apartments and 26,828 new single-family homes were permitted last year. On a per-capita basis, this ranks #8 out of the nation’s 50 largest metros.
  • 31 percent of these newly-permitted homes are set to be built in Phoenix proper, while the remainder will be located in outer-lying suburbs.
  • In Seattle, 19,783 new multifamily homes were permitted.
  • In Portland, only 7,107 new multifamily units were permitted.
Permitting activity for new multifamily housing construction units is stronger than it has been in decades, while single-family building lags
Chart courtesy of Apartment List

Chart for Portland Metro Below

Permitting activity for new multifamily housing construction units is stronger than it has been in decades, while single-family building lags

Chart for Seattle Metro Below

Permitting activity for new multifamily housing construction units is stronger than it has been in decades, while single-family building lags

Read the full report here.

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The Effects of Drugs on Your Rental Properties

By
By The Editors
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The effects of drugs on your rental properties can cause many problems for both landlord and tenant so here are some tell-tale signs

The effects of drugs on your rental properties can cause many problems for both landlord and tenant so here are some tell-tale signs of the residual effects of drug manufacturing or use on your property.

By Scot Aubrey

If you ‘ve ever been on a boat, you are familiar with the wake that is left behind on the water.  Regardless of the boat’s speed, it is impossible not to disturb the pristine glassiness of even the most still water.

The same concept applies to your properties when someone has used or manufactured drugs on the premises; there is always an impact, large or small, on the condition of the property, and that impact can be as far-reaching as the ripples of a passing boat.

A client recently called in to our offices to explain that she had been suffering some rather serious health problems since moving into a new property.  After multiple doctor visits and testing for mold, they hired a professional to come in to see if the property had been used for drugs.  Results came back that the kitchen held extremely high levels of methamphetamine residue while the common areas and bedrooms of the home also showed significant levels.  Mystery solved, but that was just the beginning for this unfortunate tenant and for the unknowing landlord and the effect of drugs on their rental properties.

For landlords, the legal standard of “what you knew or should have known” is critical when applying it to a situation like the one described above.  Here are a few practical applications for you to consider while your properties are occupied, but especially after the tenants move out and you are doing your post-occupancy inspections.  There are always tell-tale signs of the residual effects of drug manufacturing or use on your property.

  • Inspect anything porous; drug residue can find its way into many parts of your property, but especially any porous areas. Pay special attention to rugs/carpets, exhaust fans, HVAC vents and returns, and even plumbing.  The P-traps in plumbing are notorious for being a place for drug residue to hide and wreak havoc.
  • Yellow residue around the roof vents is one place even the most meticulous drug manufacturers overlook. Bring binoculars to inspect closely without having to climb up on the roof.
  • Foil over the windows is one way that paranoid users and manufacturers try to hide their illegal behavior. Inspect each window for any left over foil that may remain.
  • If the property smells like dirty socks, dirty diapers, or even ammonia, this can be a clue to illegal drug use and manufacturing taking place in your property.
  • A high volume of visitors to the property, usually taking place during irregular hours and for short-term visits, could be a sign that your property is being compromised. Being friendly with the neighbors of your properties can be beneficial as they can be the eyes and ears that you need for regular oversight of activities on your property.
  • Drug users or manufacturers rarely, if ever, leave a property in good condition. The importance of having a consistent and timely move-out inspection will almost always give you hints as to how your property was used (or misused).

If you find any of these things, or if a tenant complains about any of these things, you have a duty to take those findings or complaints seriously.  Again, the standard of “what you knew or should have known” about drugs on your rental properties comes into play.  It is bad enough that your property may have been damaged by drugs; don’t double down on the problem by trying to ignore or hide it from the next tenant, or, if selling the property, the next owner.  You are obligated by law to remediate the property to a safe and habitable state, regardless of the expense.

The best way to avoid the “wake” of a bad tenant is to properly onboard the tenant, use in-person inspections of the property during tenancy, and perform a move-out inspection with the tenant prior to them leaving the property.  There are no guarantees, but using these tools will help create a process that results in smoother sailing during your journey as a property owner.

About the author:

Scot Aubrey is vice-president of Rent Perfect, a private investigator, and a fellow landlord who manages short-term rentals.  Subscribe to the weekly Rent Perfect podcast (available on YouTube, Spotify, and Apple) to stay up to date on the latest industry news and for expert tips on how to manage your properties.

 

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Why I Like My Rental Properties’ Nosy Neighbors

Three Steps to Becoming a Successful, Lazy Landlord

Why Preventative Maintenance Looks Different In The Age Of Technology

By
By The Editors
-
Using technology to raise the alarm as problems occur is the preventative maintenance essential that modern property managers are adopting. 

Using technology to raise the alarm as soon as problems occur is the preventative maintenance essential that modern property managers are adopting.

By Mike Branam
Head of Multifamily
PointCentral

Preventative maintenance has long been one of the secrets to a successful multifamily enterprise.

Efforts that go toward maintaining a high standard for each apartment unit can help create both trust and loyalty from the resident perspective, and can help lead to positive reviews which help attract new residents.

If quality maintenance standards and expectations are not met, the consequences can be damaging to the asset and the resident base.  Even small issues can cause thousands, if not hundreds of thousands of dollars in damage, and the associated ripple effect on resident retention also carries significant financial consequences.

A comprehensive preventative maintenance program does have a lot of moving parts and it can be tempting to leave some out to save a few hundred dollars — but it’s never worth the risk over the long term.

The traditional take on preventative maintenance has also recently given way to a totally different approach in today’s multifamily assets. In the past, it meant an effort to carry out maintenance to stop small problems getting worse. Now, the focus is on using technology to raise the alarm as soon as problems occur. Preventative technology tells property managers what maintenance is needed and when.

This is what really characterizes modern preventative maintenance. Smart home technology can spot problems sooner, leading to overall savings and preventing inconvenience for residents when major problems need resolving. It lowers costs for operators while giving residents a superior experience.

It also has a positive environmental impact, producing energy savings of between 9 percent and 23 percent. All this is extremely attractive in an economic climate where demand has softened and rent growth has slowed. A reduced carbon footprint and a lighter, cheaper maintenance schedule are attractive to residents, who are becoming more discerning. Meanwhile, the resulting lower operating costs support operators’ bottom lines, helping them to compete in a crowded marketplace.

Some up-front investment is required, but operating costs come down long-term, helping owners and operators to optimize revenue. Operators are doing this alongside other strategies such as repurposing or centralizing staffing models.

What follows are the tech-led preventative maintenance essentials that modern property managers are adopting. They represent the biggest threats to your bottom line and sustainability credentials. The last isn’t a solution in itself but is an approach that means operators get a superior return on their initial investment in technology.

 Water management & leaks

Water leaks can be devastating and have the potential to cause extensive damage to multiple units, the costs of which can run to hundreds of thousands of dollars.

The multifamily sector is still adopting the right technology to solve these problems, and not all operators are yet making the most of the best-in-class preventative maintenance technology solution to this problem. Many asset managers have installed leak detection, but the gold standard, which is well worth the investment, is the automatic shut-off valve that instantly responds to serious leaks. This feature minimizes damage to almost nothing and prevents the serious damage that can occur in the time it takes an engineer to arrive. The consequences of not having automatic shut-off valves are even more extreme when properties are empty, as there is no one to raise the alarm.

Water management systems are smart enough to spot when water flows for longer than a normal shower or when unusually large volumes of water begin flowing through the pipes.

The alerts themselves aren’t just for serious defects. The system can recognize excessive water usage, dangerous temperature drops that may freeze pipes, dripping faucets and toilets that are running continually. Most importantly, the shut-off valve doesn’t activate in all circumstances to avoid inconveniencing residents over minor faults. The ability to spot and resolve even minor water leaks can save up to 90 gallons of water a day, further bolstering an operator’s environmental credentials and lowering running costs. It can also dramatically reduce insurance premiums — a PointCentral study established that a multifamily operator could save $2,000 each year in insurance fees by fitting smart water management technology to a main serving 30 units.

It’s not widely known, but obvious water damage to expensive electronics and furnishings aren’t necessarily the most expensive to rectify. One of the worst after effects of water damage actually relates to mildew and mold, which establish themselves quickly and can be almost impossible to eradicate.

 Heating, Ventilation And Air Conditioning

Homeowners are now very familiar with the sort of HVAC system monitoring sold for domestic use, but these solutions started life in professionally managed rental businesses, where the technology has continued to evolve. In this kind of setting, these systems don’t just spot serious heating and cooling malfunctions, they report on minor faults that can turn into bigger problems through accelerated wear and tear. These issues normally reveal themselves to residents on the first really hot or cold day of the year – just when they need everything to be working perfectly. This results in elevated reputational risk for the operator when things go wrong, which can ultimately affect resident retention.

 Alongside periodic reminders to replace things like filters, clues picked up by modern HVAC monitoring systems include small differences between the desired and actual temperature of a home, or irregular delays in arriving at the target temperature. They will tell you when large temperature differences suggest a more serious problem requiring a quicker response, and alerts like this can be sent straight to an HVAC engineer, not just the property manager.

A unified solution

 There are a number of preventative maintenance technologies on the market but they don’t all talk to each other. This creates an operational headache for property managers which, on the ground, makes it much more likely that they will not be able to respond fast enough. Some property managers are monitoring systems across thousands of units, and only a unified solution will make it cost-efficient to monitor units on that scale. So, while there are a number of ‘point solutions’ available that operate independently, it’s better to adopt a unified technology platform that automates and controls aspects of a larger, centralized technology plan.

 About The Author:

Using technology to raise the alarm as problems occur is the preventative maintenance essential that modern property managers are adopting. 

Mike Branam is the Director of Multifamily Sales at PointCentral, a property automation platform for apartment owners & operators. PointCentral is a wholly owned subsidiary of Alarm.com, the leading platform for the intelligently connected property. Millions of consumers and businesses across 50+ countries depend on Alarm.com’s technology to manage and control their properties from anywhere in the world. www.pointcentral.com

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Why I Like My Rental Properties’ Nosy Neighbors

Three Steps to Becoming a Successful, Lazy Landlord

Arizona AG Says Source-of-Income Ordinances OK

By
John Triplett
-
The Arizona attorney general has reversed an opinion by her predecessor and says source-of-income ordinances are OK in Arizona.

The Arizona attorney general has reversed an opinion by her predecessor and says source-of-income ordinances are OK in Arizona, according to her opinion.

Attorney General Kris Mayes said “legal errors were made” and reversed a decision by previous Attorney General Mark Brnovich in December 2022, which had said the source-of-income ordinance passed by Tucson violated state law.  Mayes said the city of Tucson’s ordinance does not violate state law or the Arizona Constitution

Tucson’s ordinance barred discrimination against renters and prospective homebuyers based on their source of income, such as those who use Section 8 housing vouchers or foster-care subsidies

“The source-of-income protection is one of the solutions for the housing crisis in Arizona,” said Tucson Mayor Regina Romero in a release. “I applaud Arizona Attorney General Mayes for reversing the opinion of the previous AG and recognizing that the city of Tucson has the authority as a chartered city to make the decisions that protect our most vulnerable residents.”

The Phoenix City Council also passed a similar source-of-income ordinance and the city was waiting on Mayes’ approval before enforcing the ordinance.

“Discrimination has no place in Phoenix, especially as we continue taking on the challenge of creating affordable housing options for our residents,” Mayor Kate Gallego said in a statement.

“The source-of-income ordinance we passed will help us move closer to our goal of housing more residents with an eye towards equity. I want to thank Attorney General Mayes for her thoughtful and quick work to correct the course on this issue, and I look forward to the positive impact it will have on thousands of Phoenicians,” Gallego said.

In the opinion, Mayes said, “Among other things, these legal errors would discourage cities and towns from amending their fair-housing ordinances to reflect changes in state and federal fair-housing laws, and would undermine all post-1995 amendments made to those ordinances even if the amendments brought the local ordinances into compliance with federal and state law. These legal errors and their concerning consequences necessitated reconsideration” and reversal of Brnovich’s opinion.

Read the full attorney general’s opinion here.

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Tenant Background Screening Checks Under Federal Scrutiny

By
John Triplett
-
Two agencies have asked for comment on tenant background screening issues, especially use of criminal and eviction records and algorithms.

The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) have asked for comment on tenant background screening checks especially use of criminal and eviction records and algorithms, according to a release.

The FTC and CFPB are working closely to identify practices that may unfairly prevent consumers from obtaining and retaining housing

The FTC and CFPB are asking current tenants, prospective tenants, advocacy groups, commercial and individual landlords, property managers, background screening companies, other consumer reporting agencies, and others to weigh in on a wide array of issues that affect tenant screening such as:

  • How criminal and eviction records are used by landlords and property managers in making housing decisions.
  • How potential inaccuracies in criminal and other records affect rental housing decisions.
  • Whether consumers are informed about the criteria used in tenant screening or notified about what information in their background check led to their rejection.
  • How landlords and property managers are setting application and screening fees.
  • How algorithms, automated decision-making, artificial intelligence, or similar technology are used in the tenant screening process.
  • Whether there are ways to improve the current tenant screening process.

“No one should be shut out of housing because of inaccurate or unfair background screening practices,” Samuel Levine, Director of the FTC’s Bureau of Consumer Protection, said in the release. “We are proud to be part of a whole-of-government effort to ensure fairness and equity in the rental market, and we are looking forward to hearing from the public on this vital issue.”

“Error-ridden background checks are increasingly used by corporate landlords to deny housing to Americans,” Rohit Chopra, Director of the CFPB, said in the release. “We will continue to work together to protect the integrity of our credit reporting system from sloppy background check companies.”

The public will have 90 days to submit comments at Regulations.gov. Once submitted, comments will be posted to Regulations.gov.

Late last year 17 Democratic members of the U.S. House of Representatives sent a letter to the Department of Justice and the Federal Trade Commission asking the agencies to investigate RealPage’s rent-setting software, according to ProPublica.

RealPage has said the data fed into its pricing tool is anonymized and aggregated. It said the company “uses aggregated market data from a variety of sources in a legally compliant manner.”

ProPublica is reporting that RealPage, a Texas-based real estate tech company, is facing a new barrage of questions about whether its software is helping landlords coordinate rental pricing in violation of antitrust laws.

In an Oct. 15 story, ProPublica detailed how RealPage’s pricing algorithm uses competitor data to suggest new prices daily for available apartments. ProPublica raised concerns that the software, sold by RealPage, is potentially pushing rent prices above competitive levels, facilitating price fixing or both.

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Bill Passes Requiring Landlords To Substantiate Damage Claims

By
John Triplett
-
The Washington House has passed a bill requiring landlords to substantiate damage claims by tenants in order to retain security deposits

The Washington House has passed a bill requiring landlords to substantiate damage claims by tenants in order to retain security deposits, according to reports.

The bill also extends the timeline landlords in the State of Washington have to provide documentation showing that they are right in retaining all or part of a tenant’s deposit. That timeline would be extended from 21 days to 30 days.

Additionally, landlords must provide documents or receipts to substantiate damage costs withheld from a tenant’s deposit. It also prohibits landlords from keeping a deposit in certain instances, such as normal wear and tear, or replacement of fixtures, appliances and equipment if the condition of those items was not documented during the tenant’s move-in.

The bill, House Bill 1074, is sponsored by Rep. My-Linh Thai, D-Bellevue, and was passed with a 57-40 vote. It will now head for the Senate.

“Tenants continue to tell us they are being denied deposit refunds due to unsubstantiated damage claims. This bill doesn’t deny landlords the ability to recoup their expenses for damages, it simply ensures fair treatment of renters,” Thai said in a press statement released after the bill passage. “As a landlord myself, this is about setting a precedent for landlords to stop charging tenants thousands of dollars in uncorroborated damages.”

Many lawmakers who also are landlords argued against the bill requiring landlords to substantiate damage claims in order to retain security deposits, including Rep. Andrew Barkis, R-Olympia.

Barkis said amendments were offered that could have gotten the bill to a place that was agreeable to landlords. “The intent of this policy is good — most housing providers are already doing most of everything that’s in here, and with a few tweaks, all could have done this policy better,” he told The Olumpian. But, Barkis said, the power dynamic is shifting out of the landlord’s favor, and “thousands” of rental housing units are being lost.

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One In Three Small Portfolio Owners Say They Are Profitable

By
John Triplett
-
The majority of rental owners surveyed in 2022 said that they’re struggling to stay in the black, especially small portfolio owners

The majority of rental owners surveyed in 2022 said that they’re struggling to stay in the black, Buildium says in a new survey.

And, just one in three small-portfolio rental owners report that their properties are consistently profitable.

“They need the professional services (and expertise) of property management companies. But that’s not all our research shows,” Buildium says in the report titled Opportunities for Property Managers in Rental Owners’ Shifting Needs. The study was done by Buildium and Propertyware, both RealPage companies, and the National Association of Residential Property Managers (NARPM).

More small-portfolio owners are turned to professional property management going from 55 percent using professional management before the pandemic to now 63 percent.

Why the change?

The pandemic-era rental market has complicated the business of owning rental property, from increased regulations to inflated costs, supply chain delays, and labor shortages, Buildium says.

As a result, rental owners of all experience levels are turning to property management companies for assistance with regulatory compliance, resident management, maintenance and repairs, and more—which makes particular sense when you consider that nearly two-thirds of owners don’t live near their rental properties.

What Type Of Landlord Hires A Property Manager?

Today, 76 percent of rental owners consider themselves investors, while just 24 percent identify as accidental landlords.

However, accidental landlords may appear to be more prevalent within property managers’ client base because they’re still the most likely to seek out their services: 71 percent of accidental landlords currently have a property manager, in comparison with 62 percent of Intentional Investors and 59 percent of unintentional investors.

The majority of rental owners surveyed in 2022 said that they’re struggling to stay in the black, especially small portfolio owners
Charts courtesy of Buildium

What Are The Three Types Of Rental Property Owners?

  1. Intentional Investors acquired their rental property as an investment from the start. They represent 52 percent of today’s rental owners—an increase of eight percentage points since 2018—marking a high point for this type of investor within the population of small-portfolio rental owners.
  2. Unintentional Investors came to own rental property due to circumstance, but they now consider themselves investors. They comprise 24 percent of small-portfolio rental owners—a number that’s stayed relatively stable over time—but 2022 is the first year in which this group is as prevalent within the rental owner population as Accidental Landlords.
  3. Accidental Landlords came to own their property due to circumstance, and they don’t consider themselves investors (though some make the transition from Accidental Landlord to Unintentional Investor). They represent 24 percent of today’s rental owners—a decrease of eight percentage points since 2018, and five points in the last year alone.

The Stress of Rental Property Ownership

Rental property owners who work with a property manager to run their rentals are less stressed than owners who attempt to do so on their own by a full 16 percentage points, the survey says.

The majority of rental owners surveyed in 2022 said that they’re struggling to stay in the black, especially small portfolio owners
Chart courtesy of Buildium

Another one in four owners with a property manager report that they didn’t experience any stress related to their property in the last year, in comparison with just  one in 10 owners who run their properties on their own.

Read the full report here.

The majority of rental owners surveyed in 2022 said that they’re struggling to stay in the black, especially small portfolio owners

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Four Ways to Use Delaware Statutory Trusts for Your 1031 Exchange

By
By The Editors
-
Four ways to use Delaware Statutory Trusts for your 1031 exchange as they provide real estate investors four timeless benefits

By Dwight Kay
Founder and CEO
Kay Properties & Investments

Key Highlights:

  • How DSTs help investors successfully complete a 1031 exchange
  • Can DSTs potentially provide investors greater diversification?
  • How DSTs are utilized to help investors easily replace debt for their 1031 exchange
  • DSTs can provide investors a good back-up option for a 1031 exchange

Regardless of what economic trends are taking place, Delaware Statutory Trusts provide investors four timeless benefits for their 1031 Exchanges including deferring capital gains taxes, eliminating the headaches of active management (think the Three T’s: tenants, toilets, and trash), and the ability to create a more diversified* portfolio. Additionally, DSTs have the potential to provide investors potentially consistent and durable income streams with the ability to achieve modest appreciation potential**.

Understanding how to best utilize DSTs for 1031 exchanges can be an important ingredient to maximizing the potential benefits DSTs can potentially provide investors. Here are four specific strategies real estate investors can leverage DSTs for their 1031 exchanges.

 Delaware Statutory Trusts can be used by 1031 Exchange Investors in these four ways:

  1. Debt Replacement
  2. Cover Strategy
  3. Diversification and Passive Investing
  4. Back-Up Option

If you are considering a 1031 Exchange, here are four ways you can use DSTs as a strategic tool for today’s challenging real estate market:

  1. Debt Replacement.

One of the most popular uses of DSTs for a 1031 Exchange involves not having to secure financing. For example, if you are in the midst of a 1031 Exchange in today’s unstable debt market, you are likely having a difficult time finding a mortgage to satisfy your 1031 exchange requirements. DSTs, however, are designed to make it easy to invest in without having to deal with qualifying for and taking on a mortgage on own’s own . That’s why many investors find DSTs also make a suitable primary investment option for 1031 Exchanges. Kay Properties has a variety of leveraged DSTs that are pre-structured with non-recourse debt already built-in typically ranging from 30% to 70% offering loan to value (LTV). Because DSTs typically do not require you to have to qualify for a loan or even fill out loan documents, DSTs can create a reliable tool for you to access high-quality real estate investments without having to jump through the hoops of getting approved for a loan.

  1. Cover strategy.

Another popular use of DST investments comes in the form of providing a cover strategy for left over equity. Let’s say you sell one property and cannot find a suitable replacement property that uses the full exchange proceeds, and you now have leftover equity you need to place.  One of the benefits DSTs can provide you in this situation is the ability to enter one without investing a lot of money.  Because DSTs require a low minimum investment amount (typically $100k), they can be a good way for you to use any extra 1031 Exchange proceeds to avoid having a “boot” to pay taxes on. Placing the leftover exchange proceeds into a DST property can potentially allow you to achieve full tax deferral for your 1031 exchange.

An Example of How DSTs Can Provide Cover for a 1031 Exchange

Here’s an example of how DSTs can provide a cover strategy for your 1031 Exchange:

Let’s say you need to replace a $3,000,000 purchase price for a 1031 Exchange, but your real estate broker finds a property for $2,700,000. By investing the leftover $300,000 in a DST, you could successfully avoid the taxable boot. In this way, you could successfully complete your 1031 Exchange by acquiring both a real property investment and a DST investment with an aggregate value of $3,000,000.

  1. Diversification* and true passivity.

You have probably heard the expression, “why put all your eggs in one basket?” If you decide to invest in one single tenant net leased property or one multifamily apartment building for your 1031 Exchange, that’s exactly what you could be doing. However, DST properties can potentially allow you to achieve a level of diversification that you would not be able to achieve if you only bought a single NNN asset or multifamily building on your own. By investing in a DST, you have access to a diversified* portfolio of properties that are often high-quality real estate offerings with very large tenants that are professionally managed and potentially provide monthly cash distributions. In addition, you can also achieve a truly passive management structure, eliminating the headaches of the Three T’s: “tenants, toilets, and trash.”

Investing in a single-tenant property, on the other hand, means you are relying heavily on the quality of a sole tenant. If that tenant fails to pay rent or even files bankruptcy, your income could likely be reduced or even completely eliminated. Similarly, would you invest all of your 401k into one company’s stock, even if that company is Amazon or Apple? Your answer is probably No. No matter how great a company is, you probably do not trust it with all of your family’s wealth. In the same way, there is no perfect investment property. You may be able to mitigate your potential exposure to the various risks of real estate by diversifying*. DSTs allow for diversification* amongst a number of different income producing properties.

  1. Back-up option.

One of the many reasons investors should consider DSTs is as a back-up option for their 1031 Exchange. Why is this an important factor to consider? Let’s say that you have successfully sold your investment property and are now proceeding to search for replacement properties that you can manage on your own. In today’s market, you may discover that identifying and closing on high-quality “like-kind” assets within the specified timeframe is not as easy as it sounds. This is when DSTs can be used as a backup option. The reason for this is because DSTs are pre-packaged specifically for 1031 Exchanges, so they can potentially be a very helpful tool to have in the bag in case your primary real property option falls through and you’re facing a failed exchange. In addition, because of the turnkey nature of DSTs, you can often close on them within just 3 -5 days to give you a strategy to successfully complete your 1031 Exchange.

DST properties continue to be one of the most popular passive investment option for 1031 Exchanges. Knowing how to best use DSTs to avoid common 1031 Exchange challenges, you will be better situated to potentially complete your exchange and avoid the expensive taxes that could accompany a failed exchange.

Kay Properties team members are always available for in-person meetings, zoom meetings and conference calls with investors to educate and explain various DST options, strategies, and potential benefits and risks.

For a complete list of current 1031 eligible exchange DST properties, use the convenient QR code below and receive your FREE DST 1031 Exchange Toolkit.


Ask Bill Exeter

Ask Bill Exeter and his team your questions about 1031 exchanges and he and his team will get back to you.

Name

About the author:

Four ways to use Delaware Statutory Trusts for your 1031 exchange as they provide real estate investors four timeless benefits

Dwight Kay is the Founder and CEO of Kay Properties and Investments, LLC. Kay Properties is a national 1031 exchange investment firm. The www.kpi1031.com platform provides access to the marketplace of 1031 exchange properties, custom 1031 exchange properties only available to Kay clients, independent advice on sponsor companies, full due diligence and vetting on each 1031 exchange offering (typically 20-40 offerings) and a 1031 secondary market. Kay Properties team members collectively have over 150 years of real estate experience, are licensed in all 50 states, and have participated in over $30 Billion of 1031 investments.

About Kay Properties and www.kpi1031.com

Kay Properties is a national Delaware Statutory Trust (DST) investment firm. The www.kpi1031.com platform provides access to the marketplace of DSTs from over 25 different sponsor companies, custom DSTs only available to Kay clients, independent advice on DST sponsor companies, full due diligence and vetting on each DST (typically 20-40 DSTs) and a DST secondary market.  Kay Properties team members collectively have over 150 years of real estate experience, are licensed in all 50 states, and have participated in over $30 Billion of DST 1031 investments.

*Diversification does not guarantee returns and does not protect against loss.

** Past performance does not guarantee or indicate the likelihood of future results. No representation is made that any DST investment will or is likely to achieve profits or losses similar to those achieved in the past or that losses will not be incurred on future offerings.

This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please read the entire Memorandum paying special attention to the risk section prior investing.  IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your situation.  There are material risks associated with investing in real estate securities including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed.

Nothing contained on this website constitutes tax, legal, insurance or investment advice, nor does it constitute a solicitation or an offer to buy or sell any security or other financial instrument. Securities offered through FNEX Capital , member FINRA, SIPC.

2-1-23 KPI_ToolKit_Jan2023_RHJ_9.75x15.5

 

 

National Rent Growth Turns Positive In February

By
John Triplett
-
After months of decline, national rent growth turned positive in February, up by 0.3 percent Apartment List says in the 2023 March report.

After months of decline, national rent growth turned positive in February, up by 0.3 percent, according to the March report from Apartment List.

“This month’s increase is of a similar magnitude to the typical February price change that we saw in pre-pandemic years. After a few months of record-setting price declines, it appears that rental demand is rebounding in line with the usual seasonal trend,” the Apartment List research team writes in the report.

After several months of rent declines, the year-over-year rent increase number now stands at 3 percent.

“Year-over-year growth is now pacing just slightly ahead of the average rate from 2018 to 2019 (2.8 percent), and is likely to decline further in the months ahead,” the Apartment List report says.

After months of decline, national rent growth turned positive in February, up by 0.3 percent Apartment List says in the 2023 March report.

Property Owners May Soon Be Competing For Renters

As apartment construction continues, and more and more new multifamily apartments are completed, this additional new supply of housing will cause more new supply to become available to renters.

With more options then available to renters, “2023 could be the first time since the early stages of the pandemic that we see property owners competing for renters, rather than the other way around,” the research team writes.

The national rent growth turned positive and the report says rents increased in February in 62 of the nation’s 100 largest cities.

After months of decline, national rent growth turned positive in February, up by 0.3 percent Apartment List says in the 2023 March report.

Vacancy Index Highest In Two Years

The report says it took ten months for the vacancy index to increase from 4.1 percent to 5.1 percent, but just six months for it to jump from 5.1 percent to 6.4 percent, where it sits today.

This month’s reading is the highest since February 2021, and is just barely below the 6.6 percent average rate from 2018 to 2019.

After months of decline, national rent growth turned positive in February, up by 0.3 percent Apartment List says in the 2023 March report.
Charts courtesy of Apartment List

With more apartments under construction than at any point since 1970, the vacancy rate could continue to increase.

“As this new inventory hits the market over the course of the year, we could begin to see property owners competing for renters to fill their units, a marked change from the prevailing conditions of the past two years, in which renters have been competing for a limited supply of available inventory.”

Conclusion: A Year of Modest Rent Growth

Rent prices may not fall further, but they are also unlikely to increase significantly.

“This month’s data suggests that we’re beginning to see a mild rebound in rental demand, following a particularly slow off-season to close out 2022. That said, the surging rent growth that we saw in 2021 and the first half of last year should still be solidly behind us.

“Even if demand continues to strengthen, a robust supply of new inventory hitting the market this year should keep prices in check. It looks like 2023 is shaping to be a year of modest positive rent growth,” the Apartment List research team says.

Read the full Apartment List report here.

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