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Property Owners hold all the cards in today’s Real Estate market – Emilio DiSpirito

By Emilio DiSpirito, co-owner of Engel & Volkers East Greenwich and Engel & Volkers East Bay Barrington

Rhode Island has entered a housing crisis. With lack of homes for sale, from affordable to luxury homes, prices have soared to record highs as demand continues to grow. For now.

Homeowners who intend to downsize, upsize or even relocate, have found that the housing stock, not only here in Rhode Island, but around the country, is for the most part, at an all-time low, leaving buyers with very few options, increased costs, having to pay over list price, while in many cases waiving inspections, appraisals, etc. just to have a fighting chance.

At the time of this article, Rhode Island has a nominal 554 single family homes, 126 multi-family homes and 180 condominiums in total, on the market for sale. A combined 6,400, give or take, active structures for sale, would be closer to a balanced market.

Properties are currently pending in under two weeks and selling at or above list price with very few contingencies. Open houses across the board are held to accommodate dozens of buyers who hope their offers get accepted.

With 483,474 households here in Rhode Island, according to the 2020 Census and roughly 40% of those households being rentals, according to a 2019 report by HousingWorksRI, leaves nearly 193,389 rental units in total. It’s safe to say that there are between 50,000 to 70,000 single family, condominium, and multi-family homes with absentee landlords. These properties are owned by landlords who claim their principal residence, elsewhere.

If 11 out of 100 absentee landlords placed their homes on the market for sale, we would see inventories hit a balanced number and pricing level off. That is not going to happen anytime soon. However, our savvy landlord clients who own and wish to continue to own passive income generating properties have found a way to truly capitalize on this market.

By taking advantage of the current market conditions grossly in favor of sellers and the fact that they do not have to worry about where they will live, absentee landlords can sell their current single family, condo, or multi-family homes for a premium, leverage the 1031 exchange, shelter their proceeds from capital gains taxes and double down on the number of units they own, while increasing their monthly cashflow and assets.

Let me break this down for you. Let’s say Tom owns a $200,000 1 bedroom home in Woonsocket. Tom paid $75,000 for this home 5 years ago, placed $10,000 into renovations and has been enjoying a monthly net income of $1,000 per month after expenses. When Tom decides to leverage the 1031 Exchange program, Tom will shelter roughly $90,000 to $100,000 in proceeds after expenses, in which he can then use as a down payment into a “like property “of higher value, within a given timeframe. Now let’s say, Tom finds a 3-family home in Providence for $350,000, places his proceeds of $100,000 from the sale of his 1-bed rental on his down payment, he will then purchase this property and be all in at $1,943 per month. Given the mortgage rate is 4%, taxes are $7,000, and insurance is $2,000 annually. Renting 3 units out at $1,300 each unit will leave Tom with roughly $957 additional, per month or $11,484 per year, with a larger appreciating asset to hang onto over the years.

Absentee landlords are holding all of the cards for early 2022.

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Emilio DiSpirito

If you would have asked me what I wanted to be growing up, little Emilio would have told you “an archeologist” or “an architect” despite the fact that at age 8 I had my first lemonade stand, landscaping business and was recording my first “news show” on my boombox!  Well, I never was much good at trigonometry and did could not see myself traveling for months and possibly years at a time, so becoming an architect or archaeologist clearly did not happen!

Fast forward 26 years later and I’m running a team of the finest residential real estate professionals, own a media company and host my very own radio news show about real estate!

For 7 years straight it seemed that I had put in more hours than the day had to give on my real estate business. 7 days a week, 14 to 16 hour days, without a break! Why? My friends and family did not understand the sheer magnitude of moving parts and services we offer to our clients during a transaction! One slip up or one missed call could mean make or break for someone’s dream home or even a lost deposit!

Running a team of like-minded, highly qualified and capable professionals has allowed me to offer a very streamlined, simplified and efficient approach to the sales process for our clients and allowed me to earn personal time again with my family while not missing a beat for my clients!

When I’m not working, I’m with family and friends, riding my mountain bike, eating at local restaurants, enjoying live entertainment, hiking, skiing or reading!