Some Home Sellers Look to Rent After Closing

The near-term peak in housing prices looks to me to be in, with several of the hottest markets seeing a much higher percentage of homes listed, listed homes sitting on the market for longer, and reductions in asking prices starting to become a pattern. The correction seems to be hitting San Jose, San Diego and San Francisco, CA, Seattle, WA, Boise, ID, Denver, CO, Phoenix, AZ, and Austin, TX, the hardest.

I think we can all agree that the culprit here is rising mortgage rates. According to Freddie Mac the average rate on a 30-year fixed mortgage was 5.54% as of July 21, 2022. While the current rate is down marginally from 5.81% a month ago, it is still significantly higher than 2.78% a year ago.

While the surge in mortgage rates is difficult for all buyers, I think it is especially difficult for first-time buyers trying to enter the market. Earlier this month The Wall Street Journal reported that in May the National Association of Realtors’ (NAR) housing affordability index hit its lowest level since 2006, with the typical monthly mortgage payment (assuming a 30-year fixed-rate and a 20% down payment) reaching $1,842, up from $1,220 in May 2021.

Other headwinds that may be affecting the ability of home buyers to afford higher prices include a stock market that has entered bear market territory, inflation that is hovering around 9.1%, but with some indications that it may begin to ebb, and an overriding worry that the economy may suffer from some degree of recession.

According to NAR, as of the end of June, existing-home sales have slid for five months straight as buyers have stepped back from the market, some of which no longer qualify for higher rate mortgages. Robert Dietz, Chief Economist at the National Association of Home Builders, told The Wall Street Journal: “we’re in a housing-affordability crisis right now,” and I totally agree. While current inventory for homes is still tight by historic standards, and so I think home prices may correct to some extent, it will not likely be because of oversupply issues; it’s more about affordability, especially with the Fed continuing to raise rates.

Another force in play that may be buoying prices is the number of homes that have been and continue to be bought by large investors, like Blackstone and Invitation Homes, which pay cash and turn those homes into income properties. Blackstone—the largest owner of commercial real estate in the world—is currently raising a $30.3 billion fund to take advantage of the recent market downturn and focus on opportunistic investments, including in the rental housing market. The presence of deep corporate pockets in the single-family residential market only raises the bar further for prospective buyers, many of which stand no chance of outbidding corporate capital.

I think one side effect of these trends is that when a nervous seller does close on a property, they’re not going to be in a big hurry to redeploy the proceeds of that sale into a new property, for fear of buying at the top. What’s more, first-time home buyers are facing hundreds of dollars per month in higher mortgage payments, payments that can break the household budget, and the cost of mortgages may continue to climb if inflationary data remains elevated.

On the other hand, these conditions can benefit the multi-family residential housing market. Sellers of properties and frustrated home seekers are driving up demand and rents for Class A full-featured apartments, which I think represent a prime alternative to managing the current situation. Such apartments afford a high-quality living arrangement until prices further settle out and mortgage rates decline back to levels that coincide with the affordability index normalizing.

For investors that want to capitalize on this trend, a publicly-traded multi-family residential real estate structure with diversified risk among several properties, professional management and maintenance of properties, significant economies of scale leading to lower operating costs during periods of inflation, no transaction fees and a management team that is focused on total return and shareholder value, may offer an attractive alternatives to other equities.

Belpointe PREP, LLC (NYSE American: “OZ”) is a Qualified Opportunity Zone Fund (QOF) that is developing and acquiring Class-A multi-family residential properties in some of the strongest job markets and in what we believe will be the fastest growing cities in the U.S.

In addition, sellers of properties that are sitting on capital gains and nervous about purchasing another like-kind property should also consider placing those capital gains into a QOF, like Belpointe PREP, LLC (NYSE American: “OZ”), which can defer the tax payment on capital gains out to December 31, 2026.

Moving real estate capital gains into a managed QOF, like Belpointe PREP (NYSE American: “OZ”), that includes tax benefits and the opportunity for tax-free growth and income, should have great appeal in the present environment among cash-rich sellers seeking a smart and potentially lucrative investment opportunity.

The chance to invest in opportunity zones—a government-created program designed to incentivize investing in some of the most essential segments of the broader real estate universe—is a generational opportunity that provides a legal alternative to the 1031 like-kind exchange, with its requirement to buy another physical property within 180 days.

Another investment proposition that Belpointe PREP, LLC (NYSE American: “OZ”) offers, that just might be the right fit for those seeking an alternative asset that is liquid: Belpointe PREP (NYSE American: “OZ”) is the first and thus far the only publicly traded QOF and it requires no paperwork and NO QUALIFIED INTERMEDIARY to invest. This option removes a ton of time pressure.

Very simply put, Belpointe PREP provides investors with the ability to pair off year-to-date 2022 capital gains, using a 180-day look-back window, and reinvest those capital gains to defer and possibly eliminate capital gains taxes, out to December 31, 2026, where all capital appreciation and the majority of pass-through income may be tax-free.

Download and read up on all of the incredible tax benefits that investing in Opportunity Zones provides from both the federal and state governments. The U.S. Treasury has certified 8,764 communities in all 50 states, the District of Columbia, and five U.S. territories as Opportunity Zones, where nearly 35 million people reside according to the U.S. Treasury. These Opportunity Zones represent communities in need of direct investment by private investors and where there is significant potential for income and growth.

While there are multiple QOFs to choose from, none are publicly listed and traded on a national securities exchange other than Belpointe PREP (NYSE American: “OZ”). And with Belpointe PREP, there is no risk of future capital calls, as spelled out in Belpointe PREP’s prospectus and SEC filings. Most other QOFs are illiquid or require early exit fees and can require investors to add additional capital to cover unexpected costs in the projects that they sponsor. At Belpointe PREP we are fully aware that life happens and plans change. As noted, if at any time an investor in Belpointe PREP (NYSE American: “OZ”) units needs access to their funds before December 31, 2026, they can simply look to sell the stock.

Belpointe PREP is building Class-A full-featured multi-family residential housing communities in markets that it believes have strong macroeconomic fundamentals, such as Nashville, TN, Tampa-St. Petersburg, FL, and Sarasota, FL, while targeting the Research Triangle, Boise, ID and Austin, TX.

In addition, Belpointe PREP’s management team is actively seeking to acquire other QOFs that have stabilized their properties, where there are some clear benefits to acquiring seasoned properties in lieu of new construction with all its attendant risks. Our acquisition team is actively looking for sellers of properties within Opportunity Zones. Belpointe PREP has cash and currency in the form of its Class A units “OZ” that provide the kind of liquidity that some selling parties may desire.

Belpointe PREP commenced trading on the NYSE American on October 18, 2021, at $100 per Class A unit. As of July 27, 2022, units of OZ were trading around $98.75, a slight discount to NAV. Inflation-sensitive, income-generating multi-family residential real estate is, I believe, a necessity and revitalizing cities with the blessing of federal and state mandates, laws and tax provisions is, in my mind, a worthy purpose-driven endeavor to improve the lives of millions of people while also giving those that invest in these communities the opportunity for stable income, long-term growth and multiple tax advantages.

At Belpointe PREP (NYSE American: “OZ”), we’ve made it very easy to buy as much tax shelter as one needs, and with no penalty, if you want to add to or trim from your position at any time. In our view, with a stock market in full correction mode, liquid real estate funds targeting essential housing in markets with bullish migration trends coupled with tax benefits in this stubbornly high period of inflation is a compelling alternative.

Cody H. Laidlaw
Editor-in-Chief
Belpointe OZ
255 Glenville Road
Greenwich, CT 06831
T: (203) 883-1944
E: IR@belpointeoz.com

Disclosure: Cody H. Laidlaw is the Chief Investor Relations Officer. Cody is also an investment advisor representative with Seaside Advisory Services, Inc. (d/b/a Seaside Financial & Insurance Services), a SEC registered investment adviser offering advisory accounts and services, and holds a long position in Belpointe PREP, LLC’s Class A units.

Important Information and Qualifications

Belpointe PREP, LLC (“Belpointe PREP”) has filed a registration statement (including a prospectus) with the U.S. Securities and Exchange Commission (SEC) for the offer and sale of up to $750,000,000 of Class A units representing limited liability interests in Belpointe PREP. You should read Belpointe PREP’s most recent prospectus and the other documents that it has filed with the SEC for more complete information about Belpointe PREP and the offering

Investing in Belpointe PREP’s Class A units involves a high degree of risk, including a complete loss of investment. Prior to making an investment decision, you should carefully consider Belpointe PREP’s investment objectives and strategy, risk factors, fees and expenses and any tax consequences that may results from an investment in Belpointe PREP’s Class A units. To view Belpointe PREP’s most recent prospectus containing this and other important information visit sec.gov or belpointeoz.com. Alternatively, you may request Belpointe PREP send you the prospectus by calling (203) 883-1944 or emailing claidlaw@belpointe.com. Read the prospectus in its entirety before making an investment decision.

This communication, including any links embedded herein, may not be distributed in any jurisdiction where it is unlawful to do so. Nothing in this communication is or should be construed as an offer to sell or solicitation of an offer to buy Belpointe PREP’s Class A units in any jurisdiction where it is unlawful to do so.

Neither Belpointe PREP nor any of its affiliates provide investment or tax advice and do not represent in any manner that the outcomes described herein will result in any particular tax consequence. Prospective investors should consult their own investment and tax advisers concerning the U.S. federal, state and local income tax consequences, as well as any tax consequences under the laws of any other taxing jurisdiction, in relation to their personal tax circumstances, which may vary for prospective investors in different tax situations.

This communication may contain estimates, projections and other forward-looking statements, typically identified by words and phrases such as “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” or the negative of such words and other comparable terminology. However, the absence of these words does not mean that a statement is not forward-looking. Any forward-looking statements expressing an expectation or belief as to future events is expressed in good faith and believed to be reasonable at the time such forward-looking statement is made. However, these statements are not guarantees of future events and involve risks, uncertainties and other factors beyond Belpointe PREP’s control. Therefore, we caution you against relying on any of these forward-looking statements. Actual outcomes and results may differ materially from what is expressed in any forward-looking statement. Except as required by applicable law, including federal securities laws, Belpointe PREP does not intend to update any of the forward-looking statements to conform them to actual results or revised expectations.

©2022 Belpointe PREP, LLC. All rights reserved.