March update: Interest rates going up, renters coming back

According to research calculating top market rents (Yardi Rent metrics), rents are rebounding back up to pre-pandemic levels. San Francisco has the highest “rent rebound” in the country. Many workers are being required to come in 2-3 days per week. For Berkeley property owners, the college students will be searching for the next academic year starting this May, and there should be a very high level of demand.

 

It appears Oakland is lagging behind a bit. We just had a vacancy near Lake Merritt, and it took a few weeks and lots of appointments to get it rented. Gave the new tenants free parking for 6 months. Their lease is at full market rent.

 

This is probably a reflection of the fact that rents in San Francisco had severely diminished during CoVid, and rents in Oakland didn’t drop nearly as much.

 

Much of the current research is showing that May will be a very “hot” month with many renters searching and demand will exceed current inventory.

 

With the Federal Reserve raising interest rates and projecting to raise rates 2-3 more times this year, lending rates have gone up in the last 30 days. At some point, this will have an effect on how much buyers are willing to spend for an investment. With many more units getting rented, and at higher levels, we may see some cooling of prices, or just a brief pause in escalating prices.

 

We have all seen during Covid that the Bay Area is still a very good place to own multi-unit properties. Overall, buildings are still getting very strong offers at valuations that are still very high.

 

Whether we use CAP rates, GRM (Gross Rent Multiplier), or price per unit, we are seeing very strong numbers that reflect the at East Bay apartment buildings are continuing to be a very desirable asset.

 

Buyers are very motivated to purchase now, and soon, as the Federal reserve bank will be raising interest rates 2-3 times this year.

 

As mentioned above, between the demand for student housing in Berkeley for the next academic year, and Oakland’s proximity to high paying jobs, we are expecting to see high demand and an uptick in rents! With a lot of companies offering “hybrid” flex work schedules, tenants are still looking for a “Work From Home” layout, if possible. This may be a permanent change, but we will see.

 

If you are having trouble getting a vacancy filled or have questions, please reach out. Remember that it is better to do a “temporary rent reduction” rather than lowering the rent. This is true for existing tenants and new tenants.

 

If you are thinking about selling in the next 6-12 months, then starting the process now would be a good idea. The market is strong, as buyers are still paying prices based on income that is similar to Pre-Covid.

Also, current interest rates for loans are so low that buyers are being aggressive.

 

Then the issue that has come up is: How do I defer the capital gains taxes.

 

 

1) Delaware Statutory Trust. Click DST Tax Deferral,

 

2) Doing a 1031 tax deferred exchange.

 

With regards to doing an tax deferred exchange, I have spent some time searching in solid markets (Seattle, Austin, and Reno) for both commercial Triple Net (NNN) opportunities and multi-units that are all delivering at least a 5% CAP rate return.

 

Click: 1031 Exchange Opportunities

 

I did a presentation on increasing your rental revenue at the East Bay Rental Housing Association in last year. Click Here: Maximizing the Return on your Investment for the highlights.

 

Please reach out if you are interested in getting more information on the DST option or 1031 exchange.

 

My most recent transaction, a duplex in Berkeley, went into contract at $50,000 over list price, very short closing and no issues. If priced right and marketed fully, sellers are getting very strong offers.

Current Market For Building Sales

For example, if you want to sell your apartment at this time, I can help you with an evaluation and guidance. I have spoken to two of the top lenders for East Bay multi-units and they are working on, and closing transactions at this time. I can forward their contact info if you want to speak with them.

 

Right now, If buyers have a good down payment they can get a loan and I can navigate you through the process.

 

It is always important to get guidance and advice from experienced multi-unit brokers who will market your property extensively to all potential buyers and brokers. Posting a new building on all websites and sending out emails blasts gives the property visibility to literally tens of thousands of potential qualified buyers.

 

Looking forward a strong year and a great 2022!