All Forum Posts by: Scott Trench

Stuart - we do not identity check the people who are signing up to post to the forums. This used to be a near-impossible task for a company like BiggerPockets, but technology and 3rd party solutions are getting better. I will talk to the tech team to see what the cost to implement a solution like this on new arrivals could look like.

Seems pretty reasonable to me at first glance! Curious what others think. 

 Late to the party on this one. I agree with this advice - but only for millionaires. It does not apply to someone in the early stages of their wealth building journey. For the person with little to no wealth, just getting started, putting their eggs in one basket and watching it carefully makes more sense, likely up to the first $500K - $1M. 

At that point, with real wealth to lose, diversification begins to be come important. 

But, someone who has saved their first $25K on the road to becoming a millionaire ensures they go nowhere fast by attempting to allocate $2.5K across ten different investments. Stick it all in a rental, house-hack, index fund, or small business shot.

While personal circumstances can vary, it will be a unique situation indeed if $10K in debt should force you to declare bankruptcy. 

I bet that you can pay off this debt in 1 year or much less.

Here is a link to 100+ bartending jobs currently hiring in Toronto. The base is $17.20, plus tips. If you receive no tips and put in 100 5 hour shifts, you will be done. With tips, you could pay off the entire balance by March 31st. 

Then, you can save the next $10,000 for your down payment by June 30th. Or $30,000+ by EOY 2025.

If you don't like Bartending, how about being a waiter, busboy, driving for uber, or some other side gig? This is what I did when I was 23 and trying to save up my first down payment.

If you don't pay off the debt, and declare bankruptcy, good luck getting a loan. You won't be 6 months of hard work from buying, you'll be 6 YEARS. from buying a property. 

There are exceptions where bankruptcy can make sense, but this isn't one of them, in my view, based on what you've shared.

@Dave Meyer - is this something you can help with? 

Audrey - Dave might disagree or add more context, but I think that predicting 5-year rent growth is a bit like forecasting the stock market 5 years from now. It's a guess, and you should be conservative. 

However, with the disclaimer above, I'll, for entertainment purposes only, provide some thoughts on rents in the US for the next few years. 

Rent growth is a function of supply, demand, and interest rates:

- I'd ground any forecast by stating I expect national rents to rise on a pace more or less in line with inflation over any long time period. 2-3% per year. This will happen in a market with balanced supply and demand, in a monetary system like the US, with fiat currency targeting 2% inflation.

- In some markets, that are growing quickly, with great jobs and lots of inbound migration, this could be a little higher - like 4-5% per year over long time periods as demand outpaces supply. I'd expect for example, all else equal, for more rent growth in Denver, CO, than Memphis, TN, over the next 20 years, compounding from current rates. Some will disagree.

- If interest rates remain high, this is further upward pressure on rents in the near-term, as the alternative to renting - buying a home with a mortgage, is expensive - this should increase demand for rentals. 

- Rents are also a function of supply - 2024 saw the most new construction of multifamily units in American history (nearly 575,000 estimated 2024 deliveries of new multifamily inventory), and 2025, while not a record setting year, will see deliveries top 500,000 again - a huge supply increase. 

Thus, I'd expect something like the following for the next three years for US rents: 

1) 2025 will not see much national rent growth as we continue to deliver so much supply that prices remain largely flat. Markets with disproportionately high new construction, like Austin, TX, will see rent growth pace behind inflation or even (again) fall slightly on average. In markets like Chicago or Baltimore, where there is not much new construction, we will see rents rise faster than inflation. 

2) 2026 will see new multifamily deliveries slow to closer to historical lows, though not quite as low as what we saw in the great recession. We know this because starts are in the 240,000 unit range, and construction is a pipeline that takes time. Thus, I think that we could see national rents rising in the high single digits, or possibly surging as much as 10% in 2026 vs 2025, with some markets seeing rents rise even faster than that - Austin, TX regaining much of the lost growth in 2024 and 2025, for example. This could be a huge problem, as the "the rent is too damn high" people will be extremely upset with huge surges in the cost of living, felt acutely in some major metros.

3) 2027-2029 should see a return to a more normal inflation adjusted rent growth curve, with the caveat that if supply continues to remain relatively low, we could see national rent growth outpace inflation in these years as well, so long as interest rates remain high. 

If interest rates come down, then we should see more demand for homes, which will increase prices, and have a modest dampening effect on rent growth. 

Hope that helps!

The concept is that property is passed to heirs at a stepped up tax basis, that, if sold, will not result in depreciation recapture, or capital gains taxes for your heirs. 

If you plan to own real estate for a lifetime, this can be a huge benefit to your heirs. 

However, I also think that a lot of people who set out to pursue this strategy miss the fact that it is literally a lifetime commitment to deferring taxes, which by definition means not realizing the gains. It's hard to harvest equity on these plays, unless you commit, long-term, towards very light leverage, as the only practical ways to benefit from the equity in your portfolio, if you plan to never sell it, only exchange it, for a lifetime, are to spend the cash flow, or cash out refi. As rates go up, cashing out and refinancing is very unappealing. Might be a decade or two before that becomes fun again. 

I love my daughter very much, and want to make sure she has every opportunity. But, I am not willing to commit to 50 years (if I am lucky) of never harvesting material equity from my rental properties at this time so that she can inherit potentially millions or tens of millions of 2074 dollars at stepped up basis.

I plan to pay the tax man and spend some of my money at some point. But, will probably also set things up so that one day, some part of my portfolio is passed to my heirs at a stepped up basis. I just won't overdo it. It will be a byproduct of investing, not the primary purpose.

If the interest rate are close, then you should pay off the primary. 

Unless you are itemizing your tax return, the interest on the primary is not tax deductible. The interest on the rental is an offset to rental income, and is by definition deducted from your taxes.

A 4% interest rate on a primary is like a 4.88% after rate for a taxpayer in the 22% federal tax bracket, or higher if in a state with state income taxes. 

A lot of people negatively arbitrage their 30-year mortgage, after taxes, if they keep money in a high yield savings account instead of prepaying their mortgage, because the savings account pays 4.25%, and their mortgage rate is 3.75%. This is bad math, once most people factor in their income tax bracket. 

At first, the idea of building smaller, dense, housing, and attempting to make it affordable appeals. It, in theory, makes a lot of sense! 

If we build more, dense, "dormitory-style" housing or similar, we can more efficiently house people, bring down costs, and everybody wins. 

The problem with that is this:

- It just doesn't make economical or practical sense for the newest housing to be the cheapest. 

Any new housing that is constructed reduces the cost of all housing downstream from it. 

Cheap housing only reduces the cost of other cheap housing. 

I am not going to move into a dormitory style house and raise my two year old in a location with poor schools and incredibly dense housing, unless I have no other option. 

If I have the option, I am going to move into a nice house, in a nice school district, with a yard, a couple of bedrooms, and the space to set things up the way I want them. 

When a builder builds a new house that meets my requirements, in my price range, I move out of my duplex and into that new house. 

This event is the act of making housing more affordable. 

Now, the older, house-hacked duplex comes on the market as a rental, lowering rental prices as another option available.

Someone else moves out of their rent by the room unit, and upgrades to the duplex. The unit they vacate unit goes on the market, giving the next person an opportunity to move out of their parent's basement, or get their first apartment. 

The nicest, most expensive housing should almost always be new construction. And, capitalism works to lower housing prices when this process is allowed to go into effect. 

Austin, TX is the poster child for capitalism working to this effect. 

Most new construction in Austin are luxury new apartments. As folks move from older buildings to these swanky new apartments, their old units come on the market. Austin, TX rents are down nearly 12% YoY. VERY little of that new construction is affordable housing. 

It's the building of the nice, new stuff, that makes the older stuff affordable. 

And so the cycle continues, and the standard of living in capitalist societies steadily improves... at least in markets where new construction is allowed.

Every year, I post a macro analysis/predication for the upcoming year for multifamily real estate. If curious, here are the last two: 

Jan 2023: Multifamily Real Estate is At Risk of Crashing

Feb 2024: Multifamily is at High Risk of Continuing It's Historic Crash

I think that the title for my 2025 analysis (likely Jan/Feb publication will be something more like:

Multifamily is Finally Going to Hit Rock Bottom in Q2/Q3 2025 - Get Ready to Buy a LOT of it

As usual, I like to publish my draft thoughts here to get input from key players in the space and these forums, especially folks like @Brian Burke, to see if I am missing any high level areas, before I get into the weeds and look at the data more deeply and regionally. 

Here are the key themes I'm seeing get set up for 2025: 

Interest Rates Will be Holding Steady or going up: The yield curve (finally) uninverted this week, when the Fed signalled they will be more cautious about raising rates. But, to normalize, the 10-year will eventually trade at a 100-150 bps spread to the FFR. I am unconvinced that the new administration will meaningfully address the deficit and US credit will continue to erode gradually, contributing to rising rates. Further, long-term upward pressures on inflation remain, and will cause the Fed to be cautious with interest rates. 

Supply will be a Tale of Two Halves: 

In the multifamily sector, we will see another year of near-record setting supply hit the US. But, this will be front-end weighted and gradually slow towards the back half of the year. Expect another brutal year for investors in the South and Southwest, particularly in Texas and Florida, and particularly in Austin, TX - perhaps the worst positioned market in the United States for returns in year 2025. 

In the second half of the year, market by market, the supply will slow to near record lows, which will be a key theme in 2026. Expect YoY rents to stay flat or decline slightly in the first 6-9 months of 2025, and for them to start growing YoY materially in Q4. 

2026 will see rents explode - I think they could even grow as much as 10% YoY. We will only see ~240,000 units delivered in 2026, a much more moderated level. If interest rates stay high, and I think they will, we will see huge tailwinds for rent growth - to the point where "the rent is too damn high" people will begin to get extremely disgruntled and rowdy over the course of 2026. 

No trigger will materially change demand: 

What's notable about the last two and a half years is that rents have largely stayed flat. This is not normal in a rising interest rate environment. When interest rates rise, in a balanced market, rents should rise, as the alternative to renting - buying a home - becomes that much more expensive. We have not seen rents rise because of the above discussion on new construction. Demand for multifamily has been going up. It's just been met, or more than met, by the new construction. When new construction slows, demand will continue to remain strong, and that is what will drive rents up in 2026 and maybe Q4 (possibly Q3 in some markets) in 2025. 

Expenses will level off: 

Multifamily operators have been plagued by expense increases in the form of taxes and insurance, for the last few years, especially in the south, and especially in Florida and Texas. These increases will likely slow to pace more in line with inflation. Operators who were able to kick the can down the road may see huge increases with this year's insurance renewal or property tax bill, but there's no reason to expect another year of massive surges in operating costs. 

So What: 

So what do we do with the above, if you agree with my analysis? 

If you invested in large multifamily 3-4 years ago via syndication in the South, Southwest, or other boomtown: You are cooked. You've likely seen a 30-40% decline in asset value that could decline another 5-10% by end of year 2025. From the now, much lower, valuation, you have a path to recouping your capital over the next 5-7 years, but this is a disaster. It's also possible that you may be forced to sell by your lender. Buckle up, and prepare for total loss, or an additional capital call or two in 2025. This is especially true for investors in large Texas and Florida markets, with Austin, TX, perhaps being the worst positioned market for 2025 in the country. Consider petitioning your GP to stop their side business of disseminating long-form life, parenting, and fitness advice on Twitter and focus on salvaging what can be salvaged of the current portfolio.

If you are considering buying: Squirm a little longer. Sit on your hands a little longer. The market, if I'm right, may bottom out in Q3 2025. The folks who bought 3-5 years ago, as discussed, are cooked, and the market is likely to be ripe with many, many deals. Cash will be king, and buying in the 2H of 2023, particularly in late Q3 and Q4 has a reasonable shot at being at the bottom, or close to it, of this cycle. There is every reason to believe in strong rent growth in 2026, and those who can stockpile cash and go in with reasonably low leverage have a great shot at seeing high returns in the first year of their hold. 

I believe that those who buy multifamily in late 2025 and early 2026 have a chance at amazing returns relative to most other asset classes over the back half of the 2020s. 

Let me know what thoughts/reactions you have here, and I will incorporate into my more detailed blog publication coming in a few weeks.

FYI - the App launched today. @Patrick Shep

@Patrick Shep Look for it in the App Store in the next 24-48 hours.