Inner SPARK October 2024
Spark Multifamily Investment Group
I help you achieve financial freedom and create the life of your dreams through passive real estate investments.
Hi Everyone,
Happy Halloween!
It's been a busy month for Laura and I.
First, we learned to adapt to the impacts of Helene early in the month - no power for 7 days, no internet for 10 days, and, if you can believe it, still no cable TV almost one month after Helene hit Greenville.
But we are fortunate, we were not hurt and there was no damage to our home - others suffered far worse - so we are thankful.
As an unexpected bonus, we both learned how to use a gas generator to provide electricity. :-) Thanks to Brian Walsh for lending us his generator once his power came back on.
A few days after the power came back on, one of Laura's girlfriends, Jill, and her husband came for a visit. Jill and Laura have been friends since middle school back in Kentfield, CA. It's wonderful to see how relationships can be maintained over the decades.
Over three days, we gave them a grand tour of Greenville SC - ate a lot of wonderful food and had some really nice conversations. Jill and Steve are at a similar life stage as Laura and I and it was fun to "compare notes" on our future plans.
Two days later, we were on the road (1000 mile round trip) to Space Coast - Melbourne Florida to watch Alex and his team play in a huge adult softball tournament that had 110 teams from all over the US entered.
The team did well going 4-2 finishing in the top 30 out of 110. It was a time warp for me as watching Alex at the age of 37 brought back memories of all those years I coached both Alex and Austin's teams in our home town of San Carlos, CA 25 years ago.
No matter how old our children get, they will always still be our kids.
Best of all, Alex brought his daughter - our granddaughter - Nathalia with him and we were really happy to spend some time with her.
We made an adventure out of this week long 1000 mile road trip with stops in Savannah, St Augustine, and the Kennedy Space Center before getting to Space Coast.
We are tired but happy and look forward to an extra hour sleep when we turn the clocks back an hour Sunday AM.
Rowley's Reflections
The Lazy 1031 Exchange: Thinking outside the box
For real estate investors, deferring taxes through a 1031 exchange has long been a popular strategy. However, the "lazy 1031 exchange" offers a clever workaround. It provides a flexible alternative for passive investors, allowing them to navigate tax deferral without the constraints of traditional property exchanges.
NOTE: I can vouch that this strategy really works. So far, I’ve sold 7 investment properties and exited several apartment syndications for which I paid no Federal capital gains tax, because I had accumulated enough ‘passive losses’ (from the depreciation/cost segregation studies) to offset the gains.
Unlike traditional 1031 exchanges that require swapping properties, the lazy 1031 exchange leverages passive losses to offset gains from the sale of a rental property. This method is particularly useful for investors whose stakes in SYNDICATIONS are classified as partnership interests rather than direct property investments.
To implement this strategy, start by reviewing Form 8582 on your tax return to identify any suspended losses from previous years. If these losses are sufficient to cover your gain from the sale, you’re in a good position.
If not, you can generate current passive losses by:
Investing in a rental property: Purchase a rental property in the same year you sell your previous property, utilizing cost segregation and bonus depreciation to create additional passive losses.
Investing in a SYNDICATION: Consider real estate syndications or private placement ventures (self storage, car washes, etc.) which can produce passive losses.
Disclaimer: Please consult with your CPA to get customized advice on your specific tax situation(s)
This Month’s Newsletter
Once again, we’re delighted to offer educational content about multifamily investing to you through Inner Spark. Much of this content deals with the ever evolving multifamily market. After several boom years, we are entering a new phase of the economic cycle. In this edition, you’ll find:
Spark on,
Strong Apartment Demand Persists in 3rd Quarter as Supply Hits 50-Year High
In the third quarter of 2024, U.S. apartment demand remained robust, absorbing nearly 193,000 units, while new supply reached a 50-year high with over 557,000 units delivered annually. Despite the supply influx, the occupancy rate held steady at 94.4%, and monthly rents averaged $1,838. Rent growth was notably stronger in Midwest markets, with cities like Kansas City and Detroit leading nationally, while high-supply markets such as Austin experienced the steepest rent cuts.
Looking forward, the construction pipeline is expected to empty rapidly, with most ongoing projects set to complete within the next year. After 2025, new apartment starts are projected to be significantly lower, a shift influenced by high interest rates that could see some relief if further rate cuts take place. Click the link to read the whole article.
MICRO-APARTMENTS ARE COMING. WILL THEY WORK?
A new proposal by Pew Charitable Trusts and Gensler suggests converting vacant downtown office buildings into affordable micro-apartments to address both the housing crisis and high office vacancy rates. Targeted at cities with severe affordability and homelessness issues, like Denver, Minneapolis, and Seattle, this plan envisions compact 120-208 square-foot units with shared facilities, renting for $500-$1,250 monthly—far below typical market rates.
The proposal leverages existing office infrastructure, such as central plumbing stacks, reducing construction costs by 25-35% compared to traditional office-to-residential conversions. This innovative approach could make affordable housing more accessible while giving new life to underutilized office spaces. If the model proves financially viable, it may spark a larger trend across urban centers, attracting impact investors interested in supporting both housing and urban revitalization. Click the link to read the whole article.
Rent Growth Steps Back For The Fall
Yardi Matrix's latest report shows that multifamily rent growth slightly dipped seasonally in September, with national average rent dropping $3 to $1,750. Year-over-year growth remained steady at 0.9%, with stronger performance in cities with lower supply, like New York City, which led with a 5.4% increase. In high-supply Sun Belt markets, rent growth was negative, especially in Austin, Raleigh, and Phoenix. Single-family rentals also saw a minor $3 rent decrease, with overall rent growth at 0.6%.
Despite this seasonal dip, the Fed's recent rate cut and strong economic indicators—3.0% GDP growth and 254,000 new jobs—are supporting multifamily demand. Since the pandemic's onset, absorption has surged, with over 300,000 new units taken up in Q1 2024 alone and high demand especially in the Sun Belt and Mountain West. Click the link to read the whole article.
?
Want to Invest with Us?
Whether you're a seasoned real estate investor or an intrigued novice, we're here to help you leverage real estate syndication opportunities to build your wealth. Getting started is easy! Register with the Spark Investor Club today to begin creating the life you've always wanted to live.