Puget Sound MultiFamily Real Estate Blog

 

 

June 29, 2022

7 Reasons Why Home Values Won't Collapse

 

Half-full glasses and optimism are hard to come by lately and so often cynicism rules the day when it comes to economic forecasts for our country. Despite all that, I am choosing a set of rose-colored glasses for our outlook on the housing industry, and believe there is ample data to back an optimistic perspective. My brokerage has been closely tracking interest rates and economic activity all year, but two weeks ago when the biggest single day interest rate in decades took place, we dialed in. Our team signed up for every webinar and financing class possible, researched dozens of economists' opinions and sifted through all sorts of data. Here are 7 reasons backing our optimism, and why I believe home values won’t collapse and that this is a different rodeo than the 2008 crisis.

1. Supply outweighs almost every other point to be made.  We are still in a housing supply crisis and short by millions of units.  We have not built enough to keep up with the population and demand for all types of housing in almost all markets across the country.  Even if builders ramped up production now, the delay in those hypothetical units being delivered to market does not service the demand now and in the immediate future.  This was not the case in 2008 as new construction was over-built.

 

2. Millennials - in 2008 I was a 22 year old college student racking up a tab of student loans and looking at a dismal job market upon graduation.  Home buying was not an option or even a desire at that point in time.  Fast forward to now and there are 18% more people between the age of 25-34 since 2006, over 46 million strong- this is a huge crowd.  These millennials now want to, and are ready to buy homes.  Many of them need to as they get married, have kids and rent rates are becoming burdensome.  Millennials create the demand that was lacking in 2008.  

 

3. Home Equity - the last few years have created the greatest surge in home equity in history.  9.9 Trillion dollars or an average of $185k per household is the amount of equity Americans have in their homes.  Even if prices level out or dip slightly most homeowners have an ample cushion of equity.  Being “underwater” or “upside down” in their home was a common trend after 2008 where the margins for equity were very narrow (in part due to loose lending practices) and the housing bubble was the trigger for the recession not vice versa.  What we have now is much different. 

 

4. 4 Trillion Dollars is the amount of money that is sitting in consumer bank accounts.  Chalk it up to government handouts, wage increases, lifestyle shifts with less travel, home budget awareness etc… There is a lot of money out there.  We are a consumer driven economy which begs the assumption that that 4 Trillion will be spent on something, perhaps not in 2022, but in the near future it’s a safe bet that much of that money will find its way into the housing market.  

 

5. Migration has been a demographic trend since before Covid, but has persisted and strengthened as many folks migrate from the top 25 metro areas to the South and Middle regions of the Country.  In the Pacific Northwest this has also included an influx of California residents relocating up the coast.  Movement is good for the real estate market. 

 

6. Remote Work is a driving force impacting demand for larger square footage.  Covid ultimately showed us the value of home and shifted lifestyle trends in favor of staying home, working from home, and needing bigger or better square footage.  The ongoing risk of another potential shutdown keeps home top of mind for many Americans.  Many homeowners have taken the last few years to execute remodel and home improvement projects.  This feeds into the lifestyle shifts of emphasizing home, working from home, and ultimately adds to home values across the board.  

 

7. The Dodd Frank Act is also a game changer in the then vs now comparison.  Today’s homeowners are more qualified and at way less risk of default than two decades ago.  Lending underwriting requirements, 30 year fixed interest rates, mortgage payments that include interest and principle are just a handful of things that protect homeowners which in turn is a bulwark in housing values and the overall housing market. 

 

King County Apartment Values

 

My colleagues and I speak with investors everyday who are wishing and hoping for a housing market crash that would open the floodgates to mythical deals with excessive cash-on-cash and a guaranteed “buy low, sell incredibly high someday strategy.”  Our optimism in the housing market holding its value is often not welcomed by these folks, but that doesn’t phase us at Sound Realty Group.  There are always going to be good real estate deals out there; it just might take some ingenuity and a creative perspective to source them, and put them together - good thing we specialize in just that.  

 

By: Chelsea Shapiro, Sr. Broker at Sound Realty Group, Inc.



Sources - Guild Mortgage, BKCO Mortgage

Posted in Market News
June 23, 2022

Burien Fourplex :: Just Listed :: 13244 12th Ave SW, Burien

Solid, turn-key fourplex with plenty of room to add value. 5.6% Cap Rate, 6.4% Market Cap Rate. Or, possible condo conversion? All units are 2bed/1bath with private patio/balcony, upper units have Puget Sound views. New owner can add coin-op machines to the shared laundry room for additional income. Rents are currently below market rates and all tenants are month-to-month. Unit interiors have been updated within the last 8 years, newer windows, and newer roof. High-demand rental close to shops and restaurants, 15-minute drive to SeaTac Airport/20-minute drive to DT Seattle.

 

$1,100,000 |  13244 12th Ave SW, Burien

 

View On SoundMultiFamily.com 

Posted in Exclusive Listings
Nov. 19, 2020

Top 10 Misconceptions About 1031 Exchanges for 2020

For 2020, here are our latest top 10 misconceptions we’ve found that the public has about 1031 Exchanges.

    1. COVID-19 pandemic 1031 Extensions 
    2. Replacing Debt
    3. The Term Like-Kind
    4. Vacation and Second Homes Qualify
    5. Reverse Exchange
    6. Partial Exchange
    7. Qualified Intermediary Advice
    8. Identification Rules
    9. Timing Deadlines
    10. Loans, Equity & Tax Basis
  1. COVID-19 Pandemic 1031 Extensions

  2. IRS issued extensions that were granted for the 45 day Identification and 180 day exchange period for the COVID-19 pandemic are still in place
    FALSE
    IRS extensions granted due to the COVID-19 pandemic ended July 15, 2020.  Sign up here to be notified if the IRS grants further extensions.  Be sure to check out our Coronavirus 1031 Resource page for the latest news.
    Helpful link:  Covid-19 1031 Exchange FAQs

    Replacing Debt

    You must replace the debt that you had on the Relinquished Property with at least the same amount of debt on the Replacement Property
    FALSE
    Many taxpayers (and tax advisors) are under the misconception that the IRS mandates that they must have equal or greater debt on their 1031 Exchange Replacement Property (property they are purchasing). You do need to replace the VALUE of the debt paid off on the Relinquished Property. However, the debt does not have to be replaced with debt. The exchanger can always bring their own cash (from outside of the 1031 Exchange) to the closing table for the Replacement Property to offset any reduction in debt, or use other options.
    Helpful link: See examples at Replacing debt in a 1031 Exchange

    The Term Like-Kind

    “Like-kind” is restricted to the same kind of real estate which means I must exchange the same type of property, for example, an apartment building for another apartment building
    FALSE
    The term “like-kind” refers to the nature or character of the property, not its grade or quality. For this reason nearly all real property is like-kind to all real property, meaning that you can exchange an office building for an apartment complex, a strip mall, a warehouse, single family rental properties or even vacant land.
    Helpful linkSee what is qualified like-kind property?

    Vacation and Second Homes Qualify

    Vacation or second homes qualify for 1031 Exchange tax deferral 
    SOMETIMES
    You can sell your investment real estate and reinvest the gain, tax deferred, to purchase your vacation or second home, however the challenge is making sure it will qualify as a 1031 investment property. Certain requirements must be met. Click the links below for details.
    Helpful links:  Do Vacation and Second Homes Qualify?
    How to Buy Your Vacation Home with a 1031 Exchange
    Strategically Buying Your Dream Vacation Home with a 1031 Exchange

    Reverse Exchange

    In a Reverse Exchange, it’s as simple as buying new 1031 Replacement Property first, as long as my Relinquished Property is sold within 180 days 
    FALSE
    In concept the Reverse Exchange is simple, but in execution, there are details and rules that must be followed. In a Reverse Exchange, you cannot own your Replacement and Relinquished Properties at the same time. Many do not realize that that title to their new Replacement Property must be “parked” with an EAT (Exchange Accommodations Titleholder) until their old Relinquished Property is sold. It takes considerable time to properly structure and execute a Reverse Exchange. Before you close on any property sale, reach out to IPX1031, your Qualified Intermediary, to ensure your 1031 Exchange is properly structured, timed and executed.
    Helpful links:  Reverse 1031 Solutions
    How to Initiate a Reverse Exchange

    Partial Exchange

    It’s not possible to do a partial 1031 Exchange
    FALSE
    A 1031 Exchange does not need to be an all or nothing scenario. You can do a partial 1031 Exchange which qualifies for tax deferral under Section 1031 of the Tax Code. If you purchase property lower in value or take a portion of the cash from the closing of the sale and only invest a portion of your proceeds towards a 1031 Exchange, you will have a partially tax deferred transaction rather than deferring all of your taxes. You will pay taxes on those funds not reinvested (commonly referred to as boot).
    Helpful linksPartial 1031 Exchange
    Boot in a 1031 Exchange

  1. Qualified Intermediary Advice

    A Qualified Intermediary gives tax and legal advice as part of their role
    FALSE
    While a Qualified Intermediary (QI) like IPX1031 is generally needed to create the “exchange of properties” and safeguard the exchange funds, QIs cannot provide tax or legal advice. IPX1031 cannot act as your advisor to structure your exchange transaction. While IPX1031 provides tools like our Capital Gains Estimator, always talk to your legal and tax advisors to determine what is best for your individual situation.
    Helpful link:  How Important is Your Qualified Intermediary?

  1. Identification Rules

    I can change my identification after day 45 if that property has been sold to someone else and if needed, I can buy other 1031 Replacement properties that I didn’t identify
    FALSE
    The 1031 ID rules are strict and very important. We’ve seen many exchanges fail due to exchangers not following these 1031 Exchange identification rules. From the day your Relinquished Property closes, you have 45 calendar days to identify potential replacement property using the 3 Property Rule (most common), 200% Rule or 95% exception. You can change your identification at any time prior to the expiration of the identification period. If you did not identify a property in the proper time period, that property does not qualify for 1031 treatment. In the case of an identified property no longer for sale, if you have no other identified property and it’s after day 45, your exchange will fail. Remember to start your search for identification property early – even before your Relinquished Property closes – so you have a head start in the identification process.
    Helpful linkDeadlines and Identification Requirements
    Video link:  1031 Exchange Identification Requirements 

  1. Timing Deadlines

    I have 45 days to identify then an additional 180 days to close
    FALSE
    The 45 and 180 day periods are not separate time periods. All must happen within a total of 180 calendar days. From the time your Relinquish Property closes, you have 45 calendar days to identify your Replacement Property. Then you must buy and close on any identified Replacement Property(ies) that you want to purchase in your exchange within a total of 180 calendar days. Timing rules are strict and cannot be extended even if the 45th day or 180th day falls on a Saturday, Sunday or legal holiday. They may, however, be extended by up to 120 days if the Exchanger qualifies for a disaster extension under Rev. Proc. 2018-58.
    Helpful linkDeadlines and Identification Requirements
    Disaster Extensions
    Video link:  1031 Exchange Time Constraints 

  1. Loans, Equity & Basis

    Loan balance or equity increases tax basis in a 1031 Exchange
    FALSE
    The term “basis” is the cost of a property for tax purposes. When you sell a property, the difference between the sales price and the adjusted basis in the property will determine the amount of capital gain which is taxable. Loans or equity are typically not relevant and do not factor into basis. Click below to learn which items increase basis and the equation to determine adjusted basis:
    Helpful linkWhat increases tax basis in a 1031 Exchange?

Information Provided by:

Kyle Williams
Vice President - Account Executive
IPX1031
kyle.williams@sis.ipx1031.com
(425) 582-3487 - Mobile
www.ipx1031.com/williams

 

 

Posted in Market News
June 17, 2020

Inslee extends eviction moratorium

Update August 2020: Governor Inslee announced on 7/24/2020 an extension of the evictions ban in place across the state through October 15, 2020.

 

Gov. Jay Inslee extended protections for renters today as COVID-19 continues to impact the finances of Washingtonians statewide.

The governor first proclaimed a moratorium on evictions in mid-March, then extended and expanded the moratorium in mid-April. 

Proclamation 20-19.2 extends the prior eviction moratorium for 60 days (through August 1), and makes modifications to the prior moratorium. The modifications include, but are not limited to:

  • Prohibiting retaliation against any tenant who invokes rights or protections under the proclamation;
  • Permitting eviction based on property damage, except for damage that is not urgent in nature, including conditions that were known or knowable to the landlord prior to the COVID-19 crisis;
  • Establishing a defense to any lawsuit for tenants if a landlord fails to offer a reasonable repayment plan;
  • Establishing a minimum of a 14-day length of stay at a hotel, motel or at other non-traditional dwelling situations in order to trigger the application of this proclamation to those dwelling situations; and
  • Allowing owners to evict tenants if the owner plans to occupy or sell the property, after providing at least 60 days’ notice; and
  • Exempting commercial property rent increases that were executed in a rental agreement prior to the date the state of emergency was declared, on February 29.

Other restrictions, including the prohibition on assessing late fees or other charges, are continued in this order.

The proclamation also encourages landlords and tenants to communicate in good faith with one another, and to work together on the timing and terms of payment and repayment solutions.

Read full proclamation HERE

Posted in Market News
April 29, 2020

Fourplex for sale in Tacoma | 3302 N 26th St, Tacoma

*PENDING INSPECTION*

 

Classic fourplex located in the highly desirable North Tacoma/ Proctor District w/ Value-Add Potential. Unit count consists of (2) 2bed/1bath, (1) 1bed/1bath, & (1) studio. Tons of upside in rents; market cap rate=8%! Large basement(1000SF) could potentially be converted to 5th unit or storage for add'l income. Most plumbing & electrical has been updated, new water heaters installed Oct '18. Coin-op washer/dryer. Excellent rental property within walking distance of University of Puget Sound.

>>CLICK HERE<< to search all Fourplex for sale in Tacoma

Posted in Exclusive Listings
April 23, 2020

Landlord Tips for COVID19

So much of real estate feels like a moving target in the era of COVID19.  Just this week Gov. Inslee extended the moratorium on evictions until June 4, and also enacted a rent freeze. To help navigate the changes and assist landlords in protecting their investments we’ve assembled a few tips and best practices for landlords and investors amidst COVID19.

Rent Collection:

As more tenants find themselves in a financial bind and unable to pay rent, here’s a few ideas on mitigating the loss of income.  

  • Convert all or part of the security deposit into rent
  • Offer a weekly payment program (some tenants might have an easier time breaking the rent into smaller chunks)
  • Offer a later payment date.  Perhaps they can pay by the 10th or the 15th and your mortgage payment isn’t due till after that. 
  • Offer tenants incentive to pay rent up front - for example: offer a 30% discount on rent if they pay all rent for the rest of the year
  • Create a payment plan, here’s one idea:
    • Allow month of April/May to be delayed and paid over the course of a 10 month period - for example, 1 month rent = $1000… if not paid for month of May then payments made June - March 2021 could be $1100 
  • Offer a pay by credit card option and waive any credit card fees associated with that

We also recommend some amount of screening before offering any rent abatement or forgiveness.  Creating some kind of simple application for tenants to describe exactly how COVID19 has impacted them could ensure that you are helping actual hardships, not just handing out discounted or free money to tenants who might not need help right now.  Also remember to get any agreement or plan in writing and signed by all parties!  

 

Mortgage Payments: 

More Resources: 

https://www.rhawa.org/covid-19## Rental Housing Association of Washington has great resources, webinars, and support for both tenants and landlords.

April 15, 2020

Duplex for sale in Lake Stevens | 9004 10th Pl SE Lake Stevens

*NEW LISTING*

 

Prime West Lake Stevens duplex right by some of the highest rated schools in the region. Nestled in a quiet cul-de-sac with easy access to Highwys 9, 2, Boeing, Everett & Paine Field. Well cared for & separately metered. Townhome-style units with desirable floor plan:2 bed/1.5 baths, attached garages & large individually fenced yards. Tons of off-street parking. Long term tenants are month to month w/ huge upside in rents. Median rent for neighborhood $1600 puts pro forma cap 6.6% Never a vacancy. DO NOT DISTURB TENANTS! 

>>CLICK HERE<< to search all Duplex for sale in Lake Stevens

Posted in Exclusive Listings
April 6, 2020

Pick of the Week: 10-Unit for sale in Tacoma | 6801 Pacific Ave, Tacoma

Pacific Square Apartments is a 10-unit multi-family building in the South End of Tacoma. Turn-Key & spacious 1 bed, 1 bath units with solid cash flow and low maintenance requirements. Half of the units have been fully updated with stainless steel appliances, LVP flooring, white shaker cabinetry & quartz cabinets. Centrally located - easy access to I-5, bus-lines and shopping/dining. Ample off street parking for tenants and on-site laundry room for additional income.

March 27, 2020

6-Unit Apartment for sale in Seattle | 5602 30th Ave NW, Seattle

Rare opportunity to claim a legal four-plex on a peaceful, 4850 sq ft corner lot w/ alley, convenient to bus lines and the amenities of Ballard. With three 2-bed units & a 1-bed unit (in-unit laundry), this well-maintained property also features a carport, fenced yard, shared laundry room, & bonus storage space in the basement. LR3 zoning provides maximum flexibility, initial feasibility study complete w/details available on request.

>>CLICK HERE<< to search all 5-9 Multi-family properties for sale in Seattle

 

 

Posted in Exclusive Listings
March 27, 2020

Sound Market Thoughts During COVID19

In 2005 Hurricane Katrina devastated the infrastructure, economy and every aspect of normal life in the New Orleans and gulf region.  Currently the world is experiencing a similar interruption and catastrophe with the COVID19 pandemic. The virus has made landfall in Washington State (and most of the US), and we don’t yet know how long the surge will last or how far reaching the devastation will be.  Here’s a few miscellaneous thoughts from Sound Realty Group on how and what the aftermath of CoronaVirus will look like in real estate in the Puget Sound region, and specifically the multi-family scene.  

  • Economists are projecting this recession to have a V-Shape rather than a U or L shape which have defined other recession patterns- we will quickly hit a low, but bounce back forcefully and fast.  
  • We are simultaneously experiencing 2 different economies right now.  One being the hard-hit sectors including service/hospitality where many Americans are jobless and financially hurting.  Also - with the stock market fluctuations many Americans have seen their retirement and/or savings wiped out. The other economy is still robust and includes certain businesses and parts of the tech industry that are thriving right now due to lifestyle shifts and new consumer demands.  America needs these two different economies to come back in alignment, but that will not be an immediate process.  

  • At SRG we have seen how real estate overlaps both of these economies with the stock market being so volatile right now, real estate is becoming a more desirable asset to many investors..  In several asset classes the real estate market is still robust, hot and strong!  We’ve seen fierce competition in the residential and multi-family arenas. Here’s a few projections on how that will play out in the immediate and near future: 
    • Short Term Multi-Family: rent rates will flatline (we’ve experienced rapid appreciation over the last several quarters in the greater Seattle area).  With the Government’s moratorium on evictions and enhanced guidelines for landlords we can count on rents to stay where they are at for the next few months.
    • 6-9 months: We’re predicting vacancy rates to tick up some amount as the ripples of this disruption cause some tenants to move due to altered financial situations.
    • Competition is still strong suggesting that values might hold steady.
    • Multi-Family inventory has ticked up in the last few weeks, but it's too early to tell if this is a solid trend that will continue.
  • Different asset classes will respond differently.  
    • Hospitality and brick and mortar retail are taking a huge hit and recovery will probably be slow. 
    • Office Space: in the greater Seattle area demand was high before COVID19, we have yet to see if all of that demand will return as many sectors/businesses learn to work from home.  
    • Senior Living is already taking a huge blow from COVID19, expect more regulations in the future, and consumer apprehension as a repose to the senior living facilities playing a role in the pandemic.
    • Residential/Single Family Housing: currently residential construction is deemed non-essential so many projects are halted.  This is cause for concern since inventory and supply was already limited before COVID 19. If these projects continue to be delayed we will continue to see an unbalanced seller’s market and lack of inventory.  
    • Multi-Family Housing is predicted to hold steady through this crisis.  Rent rates and vacancy rates will probably fluctuate so an investor’s business model will need to shift, and we will see some fluctuation in cap rates, but this will remain a sought-after and stabilized asset class.  

 

Want to discuss real estate investing and the economy more?  Contact us to talk through your investment strategy amidst COVID19!