Month: August 2021

Housing Market Update: 5% of Home Sellers Dropped Their Price in Recent Weeks

As demand eases and sellers adjust their price expectations, the housing market is slowly aligning to typical seasonal patterns.

The average share of homes with price drops each week is rapidly climbing during a time of year when it is usually relatively flat. This measure has now passed 5%—its highest level since the four-week period ending October 10, 2019.

That said, home prices are still rising and homes are selling very quickly, just slightly slower than before. Homebuying demand remains strong and the market is tipped heavily in sellers’ favor. However, home sellers can still overprice their homes, and those that do are quickly getting the memo—a week or two on the market without any bids—and adjusting their asking prices accordingly.

“The housing market is less hectic than it was in early spring, but it’s still far from typical. The move to a less imbalanced market is happening slowly,” said Redfin Chief Economist Daryl Fairweather. “As we approach the beginning of back-to-school season, home prices typically cool, supply winds down, and homes take longer to sell. All that’s happening, just very slowly. I don’t think the housing market will return to a fully typical state anytime soon, but we are starting to trend in that direction.”

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    Apartment Construction Stays Steady, Despite Obstacles

    The pandemic, a shortage of workers and soaring materials costs have not deterred the apartment construction market, which has maintained a steady pace despite these challenges, according to a study from RentCafe.

    “The pandemic shifts and resurgence of the residential-rental market brings new residential supply into focus,” said Doug Ressler, manager of business intelligence at Yardi Matrix, in the report.

    “Lack of entry-level housing supply and rising home prices will show the multifamily rental market demand increasing as new renters enter the market and millennials extend their rental commitments,” Ressler said.

    “More precisely, 334,000 units are projected to be opened in the U.S. by the end of this year, according to Yardi Matrix estimates. These figures reflect the striking difference between the aftermath of the pandemic crisis and that of the housing crisis of 2008.

    “In 2021, there were nearly three times more apartments under construction than there were in 2011,” the report says.

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      Rent is about to go up again—here’s why

      Sorry to be the bearer of bad news. But if you’re currently renting your place, you might see the price tick up when it’s time to renew your lease.

      In fact, rent is forecast to be even higher this year than it would have been if the pandemic had not occurred.

      Throughout 2020, many renters were able to benefit from price reductions or even months of free rent as landlords struggled to fill empty units. But those concessions are more or less gone, and landlords are hiking up prices as Covid-19 restrictions end and housing demand spikes.

      Housing costs were rising before Covid, but the coronavirus exacerbated the problem: The national median rent has increased by 11.4% so far in 2021, compared with just 3.3% for the first six months of 2017, 2018 and 2019, according to a report from Apartment List, a rental listing site. Average rent growth this year is outpacing pre-pandemic levels in 98 of the nation’s 100 largest cities.

      Rent is surging for a number of reasons, including more certainty in the job market and young people moving out on their own as pandemic restrictions end, says Nicole Bachaud, a market analyst at Zillow. Many people left cities and others moved in with family members in 2020, but that’s reversing now.

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        Short Term vs. Long Term Rentals: Which is Better?

        When it comes to investment properties, there are a variety of options to choose from. But there are also a variety of conditions to think about prior to making your purchase. In the rental space, you basically have a choice between short term rentals and long-term rentals. There are other sorts of investments available, but these are the two basic types.

        Many investors own a combination of both. If you’re curious why they wouldn’t just choose one type or the other, you came to the right place. In this article, we will discuss the differences between them and why you might choose one or the other.

        Short Term Rentals

        Short term rentals are typically defined as rentals that last for a few days to a few weeks. They are also generally furnished and provide utilities, cable, internet, and other amenities for their guests. They are sometimes referred to as vacation rentals and serve as an alternative to staying in a hotel.

        Owning short term rentals can be extremely lucrative. However, it’s important to understand the pros and cons that are specific to short term rentals. Let’s take a look.

        Pros:

        Higher Income

        With short term rentals, you will almost always generate more revenue. This is because you have people circulating through the property on a regular basis, paying nightly rates while on vacation. Depending on the location, you can generally charge anywhere from $150-$350 per night. If the property is fully booked the majority of the time, you will generate a significant amount of income.
        These properties can be rented out on a variety of platforms such as Airbnb, Home Away, VRBO and more. The key to making them successful is to understand the market where your rental is located and which of these platforms is the most popular for that market. Believe it or not, different markets are more partial to certain platforms.

        Ability to Adjust Pricing

        Unlike long term rentals, the owner of a vacation rental has the freedom to adjust pricing as they see fit. If inventory is filling up quickly, the owner can choose to raise the rent in order to maximize their profits. This works really well in markets that have busy tourist seasons. You can charge more during the busy season simply based on the supply-and-demand principle.

        Ability to Use Them

        The beautiful thing about owning a short-term rental is that you have the ability to use it whenever you want to. You can simply block the dates so that they are made unavailable on whatever website you rent it out on. This is important to many investors because it gives you a place to go on vacation without the added expense of hotels.
        If you really love a particular city and you visit often, you should consider looking into the rental market in that area. If you find that the short-term rental market is healthy, that might be a great place for you to purchase a short-term rental. Then you can fully book it when you’re not using it, but can also visit whenever you want!

        Better Maintenance

        You’ll find that maintenance is also listed in the “cons” section, so let’s look at both sides of the coin. The good thing about short term rentals is that they have to be cleaned frequently and you can often pass the cleaning and maintenance fees on to the renter. Because someone is in the property several times per month, cleaning and resetting the space, you are likely to find any maintenance concerns long before they become serious problems. This allows you to address them in a timely manner and protect the integrity of the property.

        Diversified Risk

        When it comes to risk of receiving your rental payments, you’re definitely in a better spot with a short-term rental. This is because you have lots of people coming through the property on a regular basis. If renters book your property online, they will pay the online portal directly and the portal will deposit the money into your account after the stay. This is cool because you don’t have to worry about chasing people around to collect rent payments, which can be really stressful.

        Cons:

        Heavy Management Needs

        You already know that a short-term rental needs to be cleaned and reset multiple times per month for the next renter to come in. It’s almost like running a bed and breakfast. It requires cleaners, handymen, maintenance crews, landscapers, and more. Of course, you can pay people to do all of these things, but that will take away from your total income on the property.
        Generally speaking, the maintenance and management fees for a short-term rental are much higher than for a long-term rental. Since it requires more work, the property manager will require more pay. If you’re a hands-on owner and you want to do all the work yourself, you can save on these fees, but be aware that it can quickly become a full-time job.

        More Rules and Regulations

        As we discussed earlier, short term rentals are basically like running a business. As such, there are rules and regulations that must be followed. Every city, state, and community will have different policies around operating a short-term rental. Some will allow it, some won’t, and some will just make it really difficult on you as the property owner.
        This is because the short-term rental business through portals like Airbnb, VRBO, and others, are bringing revenue into various markets. As soon as the local government learns about a new business, they will generally want their cut! Conversely, cities who risk losing money as a result of vacation rentals outside of the downtown area, often impose strict guidelines on such businesses.

        Long Term Rentals

        Now let’s talk about long term rentals. These are generally unfurnished spaces that are rented for periods lasting 6 months or more. They serve as the full-time residence for the tenant during the period of the lease.

        Pros:

        Consistent Income

        Your income is not likely to fluctuate very much with a long-term rental. Your tenants should be paying a monthly rate that you both agreed upon when you signed the lease. This is great for budgeting purposes because you know exactly how much is going to come in and when it’s going to come in.
        The main caveat to this scenario would be if your tenant doesn’t pay their rent. That causes a whole other set of problems! But if you’re screening your tenants well (hint hint), you hopefully won’t have to deal with this situation very often.

        Less Management

        With a long-term rental, you generally will have a lot less to worry about on a daily basis. This is because you have one tenant paying their rent once a month. It doesn’t get much simpler than that. Moreover, many long-term renters will stay in the same place for long periods of time. If you have a family renting one of your properties on an annual basis, they may stay there for several years!
        Another great piece of the management puzzle is that property management for a long-term rental is usually much less expensive than it is for short-term rentals. Since tenants are usually in the space for an extended amount of time, there is less of a need for ongoing maintenance, cleaning, and marketing fees.

        Tenant-Paid Utilities

        Another great thing about long-term rentals is that the tenants pay for the utilities. When a new tenant moves into the property, it is customary for them to setup their own water, electric, cable/internet, etc. There is no need for you to worry about these utilities unless the property becomes vacant, at which time you’ll need to turn them on to get the property ready for the next tenant.

        No Furnishings

        With a long-term rental, you also don’t have to worry about furnishings. They typically come completely empty and it’s up to the tenant to bring in their own furniture and décor. As the landlord, you will usually be expected to provide appliances, but that tends to be pretty simple to do.

        Cons:

        Screening Tenants

        This isn’t necessarily a con, but it’s definitely something that could be more difficult than you might think. Finding good tenants is critical to being successful with long term rentals. Since your tenants will likely be with you for a long time, it’s helpful to have good ones!
        There are a variety of tools available online to help you understand how to screen your tenants and what to look for. Getting this process nailed down before signing your first lease is a great strategy for success right out of the gate. Investors often make the mistake of being a little loose with their first rental, which has the potential for disaster.

        Evictions

        One of the most difficult things to do as a landlord, is evict someone from your property. Not only is it a complicated legal process, it’s just not fun. You’ll need to send an eviction notice, file a complaint with the city clerk, go to the court hearing, etc. Like I said – not fun. The best thing you can do to protect yourself from this is to screen your tenants! Have an excellent screening process and evictions will be a lot less likely.

        Less Revenue

        Long term rentals generate less revenue than short term ones. This is because you are only able to charge the amount that you agreed upon in the lease. You are further limited by what the rental market in your area can handle. That means if all of the comparable rentals around your property are going for $2,000 per month, it’s gonna be really hard for you to charge $3,000 per month and actually secure a tenant.

        You Can’t Use It

        Last, but not least, there’s the obvious factor that you can’t use the property whenever you want to. If you have long term tenants in your property, you can’t just pop in for the weekend and ask them to leave. You have a contract that says they will live in the property full time in exchange for “x” amount of dollars. You’ll be better off purchasing long term rentals in an area where you don’t necessarily want to visit on a regular basis, and short-term rentals somewhere that you’d love to vacation.

        Making Your Decision

        Now that you know a little bit more about short term and long-term rentals, you can start to build a plan based on your needs and what you’re interested in doing. There’s no right or wrong answer when it comes to which type of property to invest in. Only you know which of these items are the most important to you.
        Here are some additional tips and tricks to consider when making this decision.

        • Ask your realtor to help you investigate the regulations on rental properties in the area that you’re looking for a property. They will have access to this information and can help you make an informed decision.
        • Follow the regulations in your area once you purchase a property. Getting caught violating them can have severe penalties that are rarely worth the risk.
        • Choose your marketing platform wisely. Many new investors will put their property on multiple listing sites to make sure it gets booked. This is great in the beginning, but once you find a platform that consistently books your property, you can probably discontinue using the others and have one less thing to worry about!
        • Screen your tenants and your property management company REALLY well. These two things can nearly make or break your rental business.

        Real estate is a fantastic way to build wealth over time, but it will take some education and planning to get started. Working with a real estate professional whom your trust is an important piece of the puzzle. Make sure your realtor is doing his/her homework and helping you make the best decisions for your long-term goals.

        Image: Pixabay

        ORA Scores: What They Are and How to Improve Them

        Find out how to boost your property’s NOI by increasing its online reputation assessment score.

        Consumers often rely on online reviews before purchasing products or trying new restaurants.

        Online reviews are perhaps even more important to multifamily owners and managers. That’s because the online reputation of an apartment community impacts not only whether prospective tenants visit and tour it but also leasing rates, rents, tenant retention and valuation of the property.

        That’s why owners and managers need to pay close attention to Online Reputation Assessment (ORA) scores, an industry standard that measures a property’s online reputation. Created by Houston-based J Turner Research—an online reputation management firm that monitors the online ratings and reviews of over 126,000 properties nationwide—ORA scores establish a score for each apartment community that’s an aggregate of that property’s ratings across various review sites. The scores are based on a scale of 0 to 100 and are updated every month.

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          2021: A Rental Season Like No Other

          Renters are starting to return to big-city apartments, as high-income earners were most active and among the most likely to switch apartments in 2021, according to a study from RentCafe.

          The report says the peak rental season started out twice as strong as usual, with 45 percent more renters applying for apartments in March than in February. By comparison, during the same time period in 2018 and 2019, applications rose by an average of just 23 percent.

          RentCafé surveys show the main reason for the move to new rentals was the opportunity to get good deals after the pandemic as well as the need for more space for working from home.

          High-income renters most likely to move

          Renters earning upwards of $100,000 were the most active this rental season – 34 percent more than last year.

          Meanwhile, interest in big-city apartments is surging, and rental applications rose in all of the nation’s 30 largest cities.

          “New York City saw the most spectacular comeback, leading the trend, with double its rental activity compared to last year, while San Francisco had the second-highest increase in renters moving in,” the study said.

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            Lumber executive says drop in prices has reignited demand for building projects

            Sherwood Lumber executive Kyle Little told CNBC that the lumber industry is now rebuilding its inventory to match renewed product demand.

            Kyle Little, chief operating officer at New York-based wholesale distributor Sherwood Lumber, told CNBC on Thursday that the recent slide in lumber prices has rekindled demand after a massive runup earlier this year challenged the affordability of building projects.

            “Over the last three weeks we’ve seen renewed interest,” the industry veteran and former lumber trader said on “The Exchange.” “Our renewed interest is now turning into actual orders and people placing business here for the second half of this year, most notably in the commercial segment and into the multifamily unit segment.”

            Little’s comments Thursday came as lumber hit a low of $480.40 per thousand board feet, its lowest level since July 8, 2020, when lumber traded as low as $465 per thousand board feet. Lumber prices are on track for their 13th consecutive weekly loss after falling by more than 9%.

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              National Multifamily Report – July 2021

              Rent growth keeps rising, including in gateway metros, according to Yardi Matrix’s monthly survey of 140 markets.

              The national multifamily market continued to post remarkable performances, with asking rents marking another record increase, up 8.3 percent year-over-year through July, to $1,510. According to Yardi Matrix’s July survey, 50 markets had double-digit rent growth. Gateway metros also posted a steady comeback, with substantial month-over-month gains: San Jose (3.6 percent), Boston (3.2 percent), New York (3.0 percent), Miami (2.7 percent), San Francisco (1.8 percent), Chicago, Washington, D.C. (both 1.5 percent), and Los Angeles (1.2 percent).

              Nationally, Lifestyle rent growth (9.5 percent) continued to outpace Renter-by-Necessity growth (7.0 percent). The trend was mirrored by occupancy: In June, the overall occupancy rate in stabilized properties increased by 60 basis points to 95.2 percent, led by Lifestyle (up 1.1 percent), while Renter-by-Necessity rose 0.3 percent. However, the expiration of the federal eviction moratorium at the end of July raises the question of whether evictions are imminent. Phoenix remained the poster child for rent growth, both for Lifestyle assets (20.7 percent) and overall rent (18.9 percent). Tampa (16.4 percent) and Las Vegas (16.1 percent) rounded out the top three.

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                How the Biden Administration’s Proposed Tax Plan Could Affect Real Estate

                There’s no telling what policies from President Biden’s new tax plan will pass through Congress, but what we do know is that there are some key items you should be aware of if your business is in the real estate industry.

                President Biden’s $1.8 trillion “American Families Plan” (AFP) proposal presents tax policy changes that will greatly affect the real estate industry, including an increase in the capital gains tax rate and limits on the use of 1031 like-kind exchanges.

                To understand the gravity of the impact these proposed tax changes will have on the real estate sector, it is important to understand the Tax Cuts and Jobs Act (TCJA). In 2017, the real estate industry caught a much-needed tax break when the TCJA was signed into law. The new bill unlocked various benefits and substantial savings for the real estate industry, including, but not limited to, a decrease in the corporate tax rate, a 20% income exclusion for owners of flow-through entities, a decrease in the highest personal marginal tax rate, and that income earned on carried interest held less than 3 years was taxed as short-term capital gains.

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                  Renters are behind $3,700 in rent, on average. This map shows a state breakout

                  How much renters were set back by the pandemic varies sharply between states and counties.

                  More than 11 million Americans continue to report being behind on their rent.

                  How much renters owe varies greatly from one state and county to the next, according to data provided to CNBC by Surgo Ventures, a nonprofit organization focusing on health and data.

                  Across the country, the average renter household in arrears owes $3,700. The typical debt in Alabama is $2,700. In California, meanwhile, it’s closer to $5,300.

                  In some areas, renters face an even larger debt. In San Mateo County, California, the typical renter who’s behind is $8,700 in the hole. Struggling renters in Bergen County, New Jersey, owe an average of $6,400. A study earlier this year by New York University found that thousands of renters in New York City have debts over $10,000.

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