October Update: Rising interest rates will affect prices, but inflation may push up rents

September Highlights

Current listings of multi-unit sales are showing higher returns:

This is due to higher interest raises pushing up monthly mortgage costs.

Going forward, if inflation and rent control rules continue to allow 3% increases year over year, this could even out the valuation drop of multi-unit buildings.

If you are considering selling your property, there is one scenario that would make this a great time.

Example: If you are selling your property at $1.8 million, and it was valued at $2 million in April.

That is a $200,000 loss of value.

But if you are doing a 1031 exchange, and the upleg property you were considering has also gone down 10% (for example from $4 million to $3.6 million) you will actually be getting a better deal at this time. Your cash flow would be the same albeit with a higher interest on your loan.

Over time, this could be a good scenario for a long term investor.

If you have questions or want an evaluation on your property, please reach out.

Rent Updates

We got a vacancy filled quickly with slightly higher rent than current tenants. As I talk to owners, it seems that it really depends on the locations and amenities at this time. New renters are still picky and many of them want a “WFH” or work from home space.

Please click East Bay Apartment Advisors , for the updated website. Any feedback is greatly appreciated!

Below is a recap of allowable rent increase:

Rent increases are allowed as of August 1, 2022.

Oakland is 3% and Berkeley is 2.1%.

To compare, Santa Monica’s allowable rent increase is 6% and city of Los Angeles is 5%. City of LA includes Venice, Westwood, and Hollywood.

Regarding the allowable rent increases, we will only be raising rent in units that are well below market rent. With units that are at, or near market rent, we won’t be doing a rent increase as that may put them over market rent and encourage tenant turnover.

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.

Current Sales Market

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. The recent rise of interest rates is having some effect on pricing/values.

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

Two ways:

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 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 building 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!