“Be fearful when others are greedy and greedy only when others are fearful.”
- warren buffet
After an amazing run, rental demand momentarily settles with the national vacancy having a 60 basis-point rise during the first half of 2022. Mortgage rates have climbed pass to a post-Global Financial Crisis high, exacerbating the affordability gap, or the difference between an average monthly payment on a median priced home and an average rent payment. The gap has now widened to over $1000 per month, providing demand support for rental units.
Increasing rents is simply an issue of supply and demand
Unless more inventory comes online in the multifamily sector, we will continue to see good growth in rental rates. Liquidity in the multifamily sector remains strong despite the market turmoil. Banks are over capitalized but have slowed down lending and tightened up the credit markets to brace for future downturn. Single family production has slowed down considerably, putting more upside pressure on the rental market. Multifamily new build starts were at all time highs this past summer but that is a 18 - 24 month lag until construction is complete and products are deliverable to the rental market. But given the rate environment, developers are less confident about new starts.
Blackwood Apartments (South Lake Tahoe, CA)
Units 5 and 7 were quickly rented after rehab was completed.
Unit 5 is a studio unit that costs $1,200 per month to rent.
Unit 7 is a two-bedroom apartment with a monthly rent of $1,950.
The average monthly rental rate at acquisition was $1,090 per unit.
These substantial increases will contribute to the property's long-term value.
Jose Figueres Apartments (San Jose, CA)
69 JoFig Unit 1 is successfully rented for $1,850 per month. This is an increase of $590 over the previous rent of $1,260.
81 JoFig Unit 2 was quickly rented for $1,850 per month. This is an increase of $590 over the previous rent of $1,260.
Leawood Apartments (South Lake Tahoe, CA)
Unit 6 (1/1) rents out at $1,545 per month (includes $50 per month for pets). This is a $645 increase over the previous rent of $900.
Unit 12 (1/1) rents out at $1,495 per month. This is a $695 increase over the previous rent of $800.
We are keeping a close eye on the labor market
We are keeping a close eye on the labor market, recognizing it strength in today’s economy but seeing cracks as company earnings start to compress and organizations contract to reduce future risk. Some companies have started the lay off process and we see the “work from home movement” getting pushback as companies look to retain employees who can come into the office and let go those that prefer to work from home.
This is a positive for the assets we hold in core markets, such as the San Jose and Redwood City.
For example, “Apple’s aim to have most employees in the office at least three days per week starting in September may be a catalyst for a broader workplace return among South Bay technology companies, but for the metro’s apartments, demand has already come back,” placing the vacancy rate at 3.8% this year (Marcus and Millichap).
Sacramento market has ramped up new multifamily construction with 2022 delivery volume on track to be the largest in more than 20 years, but with new starts slowing down in a rough environment, we still see vacancy rates near 3% levels.
The Deland Apartments
San Jose, CA - 6 units
The self storage market still exhibit strong growth
The self storage market still exhibit strong growth as robust investment demand generated record inflow of capital and cap rates compressed even further to the mid 5% range nationally, especially in core markets. Our 400+ unit at downtown Spokane, WA is leasing up at a good rate and slowly stealing market share from local competitors who provide a much more inferior product. We are looking at building out an additional 100+ units in the building to boost overall value of the property and desirability from potential buyers.
The Wall Street Executive Storage
Spokane, WA - 414 self-storage units & 7 office spaces
We remain very active in the market
We remain very active in the market, pursuing potential acquisitions in strong markets where there is a scarcity of inventory (both current and in the pipeline), essentially putting a "floor" on rental rates. Strong, existing relationships will play a role in the future growth of Flite and our investors during this uncertain period. A downturn in the economy can be stressful for many people, but as history has shown, it can also open up many opportunities for great investments.
1818 Apartments (Sacramento, CA)
Acquired with all units vacant.
All units are 90% complete!
The 1-bedroom units are expected to rent for $1,925 - $2,000 per month. The 2-bedroom townhomes rents are $2,395.
On the OM, our rent pro forma was $1,650 for a 1-bedroom and $2,650 for a 2-bedroom.
We will also charge $100 per space for secured parking and implement RUBS to generate additional revenue.
Harrison Apartments (Redwood City, CA)
Acquired with 60% of the units vacant.
All units are 90% complete!
We are looking list the 1-bedroom units for $2,595 per month and the 2-bedroom units rents at $3,195.
On the OM, our rent pro forma was $2,250 for a 1-bedroom and $3,100 for a 2-bedroom.
We are also considering charging $100 per space for secured parking and implement RUBS to generate additional revenue.
Spruce Apartments (South Lake, CA)
Acquired with all units vacant.
The exterior is currently being prepared for painting.
We've started putting up drywall after passing inspections.
Interiors are being prepared for new finishes.
All rehab work is expected to be completed in November.
We intend to visit the site in November to walk the building and address any last-minute concerns before listing for rent.
Real Estate Investing Real Talk - New episode
Here's a casual catch-up call between Sherwin and Tyler where they dive into a few interesting topics: 5 ways to lower your interest rate, the rising property taxes that Tyler is running into on his personal portfolio, and capital gains exemptions on single-family homes! Enjoy!
Link to EPISODE ► https://www.youtube.com/watch?v=od149RLAnuE
And don't forget to SUBSCRIBE ► https://www.youtube.com/channel/UCMAX-Jgb2MDMtj79QaC1hsw
At Real Estate Investing Real Talk our goal is to share our experiences to help as many people as we can.
Feel free to connect
We would like to thank our investors for their continued support and trust in us. Our investors can access their latest Flite Quarterly Investor Report on the investor portal.
If you want to catch up, talk about investing, or anything else, please don't hesitate to contact us.
Regards,
The Flite Team