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The Projected Rents Theory
By Francyne Shapiro-Faraone


Many apartment houses are being marketed using the theory of projected rents, which is projecting rent levels that are higher than the rents currently being received. The reality of actually receiving these rents still remains to be seen. The vacancy factor for apartment rentals remains higher than it was last year with units remaining vacant for longer periods of time than these high rental projections take into consideration.

Interest rates are continuing to drop and the prospective tenants who are profiled to bring the upside in income to these vacancies are purchasing property and paying a mortgage instead of paying these “projected rents.”

A property being actively marketed showing a “projected rent roll” and using a sales price based on that projected rent roll is really a question of ethics. When purchasing a property use the actual rent roll and rental history of that property. Don’t be lured by the new buzz word “added value” when the value is being determined by a savvy marketing program.
The market is still a very strong seller’s market and it’s not a question of “if” the market turns, the true question is “when” and that still remains to be a great uncertainty. As interest rates keep dropping, it’s a wonder that a 12-step program has not started for the addict who keeps refinancing to get that even lower interest rate.

The Tax Relief Reconciliation Act of 2003 has made it more realistic to be a seller in this ripe market and not take such a big tax hit. The dust is beginning to settle and the lure of selling at these high prices is becoming still more attractive. Long-term capital gains have been reduced to 15% for property sold after May 6, 2003 that has been held for at least one year. Remember to do your tax planning before you sell. It is prudent to seek your tax consultation from a seasoned tax adviser who knows real estate (not just a numbers cruncher). Have the relief benefits applicable to your tax bracket outlined and take into consideration this act is in effect until 2008. Also consult with a seasoned real estate broker who actively works in the area where your property is located (not a marketing maven who’s simply going to buy your listing and later tell you that it’s overpriced.)

It’s sad to say that the human condition of greed remains so prevalent in this market and can interfere with simply doing good business where all parties benefit. In lieu of all the constant hype, the hip buzz words and the projected rents, remember that in real estate you still make your money when you buy. The cycles will continue to cycle and what goes around comes around.