End-of-Year Strategies for Multifamily Investors

Year-End Tax Considerations

‍While we focus on tax minimization for your investment, here are a few key considerations for your personal portfolio:

Depreciation and Amortization

• Maximize Your Deductions: Ensure you are taking full advantage of depreciation and amortization deductions. These can significantly reduce your taxable income and lower your tax liability.
• Consult Your Tax Advisor: Make sure to review your expenses with a tax professional to capture all eligible deductions.

1031 Exchanges

• Defer Capital Gains: While it may be too late for 2024, if you’re considering selling a property, a 1031 exchange can help you defer capital gains taxes. But remember, you must follow the strict IRS guidelines to qualify.

Operating Expense Review

• Optimize Costs: Review your operating expenses to identify areas where costs can be optimized. Efficient management practices, such as energy-efficient upgrades and streamlined maintenance, can reduce expenses and enhance property value.

‍Other Personal Strategies

• Donate to charity
• Tax loss harvesting
• Oil and gas investment
• Fully fund your retirement vehicle
• Fund your HSA account

Preparing for Loan Maturities

With $669 billion in multifamily loans maturing between 2024 and 2026, we believe there will be ample opportunity for long-term profit. It is essential to have a strategy in place.

Refinancing

• Interest rates: Carbon has a plan for each of the properties that are nearing refinance. While interest rates have not cooperated, early planning will maximize proceeds.

Distress Opportunities

• Acquire at Discounts: Properties with maturing loans are becoming available at discounted prices due to distress sales. These opportunities can offer higher returns for investors who are prepared. Carbon is prepared to seize these opportunities.

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Carbon’s Value-Add Strategy

We believe our value-add strategy positions us to take full advantage of the economic climate in 2025.

Renovations and Upgrades

• What Tenants Want: We focus on amenities and upgrades that align with tenant preferences, such as modern kitchens, energy-efficient appliances, new technology, and enhanced community spaces.
• Case Study: At Carbon, we’ve seen substantial value creation through targeted renovations and operational improvements at our portfolio properties.

Operational Improvements

• In-House Management: Transitioning to in-house management has produced higher occupancy rates and better tenant retention.
• Quick Response Times: Improve maintenance response times and enhance communication with tenants to boost satisfaction and retention.

Market Outlook for 2025

As we look ahead to 2025, here are some key trends and projections that indicate a favorable environment for multifamily investors.

Continued Demand

• Strong Absorption: According to Newmark’s 1Q24 Multifamily Capital Markets Report, 103,826 units were absorbed in the first quarter of 2024, the largest first-quarter total since 2000.
• According to CoStar, 290,000 units were absorbed in the first half of the year. Other than during the Covid-19 epidemic, this is the largest two-quarter absorption in history
• Q3 numbers show strong national absorption at 153,000.

Rent Growth Projections

• 2.0% Year-Over-Year Growth: Newmark forecasts a 2.0% year-over-year rent growth as new supply slows down in the latter half of 2024 and into 2025.

Supply-Demand Balance

• Slowing New Supply: In Q1 2024, 135,652 units were delivered, followed by 180,000 units in Q2, and 124,000 in Q3. This rate is anticipated to decrease in the coming year. This potential supply-demand rebalancing could create favorable conditions for well-positioned properties.

Economic Indicators

• Job Market Support: Employment growth is expected to continue, albeit at a slower pace than in previous years. This steady job market will support rental demand and stability in multifamily investments.

Key Takeaways

• Robust Demand: Continued strong demand driven by the gap between homeownership and rental costs.
• Declining vacancy: Vacancy has declined nationally in the third quarter to 5.3%. (GlobeSt)
• Rent Growth: Projected 2.0% year-over-year rent growth as new supply slows.
• Favorable Supply-Demand Balance: Slowing new supply could create favorable conditions for rent growth and occupancy.
• Steady Job Market: Employment growth will support rental demand and stability.

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Conclusion

At Carbon, we’re strategically positioning ourselves to capitalize on these trends:

As we close out 2024, it’s essential to be proactive in optimizing a multifamily investment portfolio. Here are some takeaways:

• Tax Planning: Maximize tax deductions and consider 1031 exchanges if applicable.
• Loan Maturities: Prepare for refinancing opportunities and potential distress sales.
• Value-Add Strategies: Implement renovations and operational improvements to enhance property value.
• Market Trends: Stay informed about the supply-demand balance and continued rental demand.

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