All Forum Posts by: Brian J Allen

There has been significant discussion regarding former President Trump’s statements about deporting illegal immigrants, particularly those with criminal records. While the feasibility of such mass deportations remains uncertain, it is worth considering how such actions, if implemented, could impact Worcester’s rental real estate market.

The Current Housing Landscape in Worcester

Governor Maura Healey has recently reduced state spending on housing assistance for migrants, though it is unclear whether these cuts affect documented or undocumented individuals. The state is working to transition migrants from motels to apartments, which has freed up some temporary accommodations but increased demand for rental housing. Local social service agencies have already reported heightened demand, reaching out to landlords in search of available apartments.

The Three-Tiered Deportation Impact

If a large-scale deportation initiative were to occur, its impact on the Worcester rental market would depend on three primary factors:

1. Deportation of Criminal Illegal Immigrants: While deporting undocumented individuals with criminal records might be a priority, the actual number of such individuals is likely small. This means the overall impact on rental demand would be negligible.

2. Voluntary Departures: Some undocumented immigrants may choose to leave voluntarily to avoid forced deportation and potential future entry bans. While this could lead to some vacancies, it is unlikely to cause a significant drop in overall housing demand, as these units would likely be filled by other renters.

3. Mass Deportations: If aggressive enforcement led to a large-scale removal of undocumented immigrants, there could be a more noticeable impact. However, Worcester’s housing market is already under pressure due to high demand, and other populations—including legal immigrants, students, and lower-income residents—could quickly absorb the vacant units.

Other Factors to Consider

- Labor Market Effects: Many undocumented immigrants work in essential industries like construction, food service, and cleaning. Their removal could lead to labor shortages, potentially increasing costs for landlords and indirectly pushing rents higher rather than lower.

- Local Enforcement Challenges: Worcester’s schools, churches, and even police departments do not have strong incentives to actively assist in mass deportations. Without local cooperation, large-scale removals may be difficult to implement effectively.

- Substitution of Tenants: Given the ongoing demand for housing in Worcester, vacant apartments are unlikely to sit empty for long. Instead, other renters—including displaced residents from Boston’s higher-priced market—could take their place.

Conclusion

While a hypothetical mass deportation effort might free up some rental units in Worcester, the effects on rent prices would likely be gradual and relatively minor. Worcester’s rental market is shaped by broader factors such as migration trends, economic conditions, and state housing policies. Unless there is a dramatic shift in these areas, landlords and investors should not expect a major decline in rental demand or prices due to immigration enforcement alone.

i am looking for help to find properties in the area and get an idea of pricing.  All markets are local and I'm smart enough to know what I don't know

My son is graduating from Seton Hall, and we are looking for a Multi or maybe a large SF house to purchase for him to live in.  Hoping to either find some investors or an investor focused realtor.  I am a realtor myself in MA.  Let me know if there are some folks out there in this area.

Sadly as they say "nothing is certain but death and taxes" and sadly death solves all the problems.

Most investors I have worked with share a common vision of the 1031 Exchange and its practical applications. The law allows an investor to defer paying capital gains taxes on the sale of an investment property if the proceeds are reinvested into a more expensive asset within specified timelines.

Real estate investors benefit from numerous incentives, one of the most significant being the depreciation deduction. This allows property owners to depreciate a building's value over 27.5 years, helping to offset rental or earned income. Many investors actively seek additional properties to maximize depreciation deductions against their earned income. Over time, however, as properties appreciate and have been significantly depreciated, investors often look to leverage the 1031 Exchange to upgrade to larger or more valuable properties.

The Traditional 1031 Strategy

A typical investor might sell a three-decker that has been owned for years and, rather than paying capital gains taxes, use a 1031 Exchange to purchase a larger or more expensive property—or even multiple properties (up to three). This strategy is particularly beneficial for those in high tax brackets who want to continue expanding their portfolios while deferring taxes.

A Different Approach to the 1031 Exchange

At some point, however, investors may find themselves less interested in acquiring more properties and managing a large portfolio. If you have been successful and no longer need the cash flow but want to reduce management and maintenance burdens, there are alternative strategies worth considering.

Renting to Family Members
One creative approach is to use a 1031 Exchange to buy single-family homes and rent them to your children. The law does not require that an investment property be highly profitable—only that it be an investment and more expensive than the relinquished property. If you pass away, your heirs can inherit the properties on a stepped-up basis, effectively eliminating the deferred taxes.

Investing in Vacation Rentals
Another option is purchasing vacation homes and renting them out. The IRS allows personal use for up to two weeks per year. This strategy offers tax deferral benefits while providing a lifestyle upgrade. Additionally, if structured correctly, an investor could sell their primary residence, take the capital gains exemption for living there for two of the last five years, move into a vacation home, and then after another two years qualify for another exemption.

Maximizing Long-Term Benefits

By thinking creatively about real estate and tax strategies, investors can find ways to minimize tax burdens while aligning their portfolios with evolving personal and financial needs. Whether transitioning into easier-to-manage investments or structuring purchases to benefit family members, there are many ways to use the 1031 Exchange to achieve long-term financial advantages.

@James Hamling Perhaps I am too lengthy in my response.  I believe the government needs to get out of housing and let things be as they may.  

The issues are not caused by the 80 year old lady, she is just acting rationally based on the information provided to her. Most of the issues that we see are caused by intervention by the government.  By the government trying to "nudge" us to do certain things.  They may be good intentioned, but good intentions do not necessarily create good outcomes.

My mom derives great pleasure from having the choice to keep her big house and look out at the water.  But she gets greater pleasure by not paying the taxes.

I do not champion anything.  I am simply pointing out that the government and its tax code has caused these issues.  I don't think additional changes will make things better.  

@James Hamling I feel you on this.  I still believe in my premise that taxes are Limiting Housing Inventory.  I will try to flesh this out a bit.  First, my mom lives in a 6BR 3 BA house with 1 person.  I realize if she "downsizes" that is a 1 to 1 with a net zero increase in supply.  However, as you mention we need more supply.  As you are likely aware it is much easier to produce small houses on small lots then larger houses.  You likely also agree that builders would rather build a big house then a small house as they typically make more money.  

Imagine that there is now an increase in the supply of big houses, builders would likely turn to building something else say smaller houses.  Is this good, or is this bad?  The reality is that 1 generation ago it was easier to trade up and trade down in house size in the same community.  That is not as easy to do anymore.  Many communities see folks tear down the small houses, and replace them with larger ones, as it is ultimately the land that has the value no necessarily the house.

I'm sure we could go much deeper into this scenario, and maybe get more good ideas, but the reality is that every time grandma stays in a large house by herself, and a family looks for a bigger house that is not there, the market says to build bigger houses. 

If grandma had a good place to go, maybe a small house village, over 55 community in the same town/area, it frees up those existing larger houses for those who need(loaded word)/desire them.

But the way the market has gone, people see the leverage they can get on the big house and decide to buy the most expensive house they can buy (say $1mm) because a 10% annual increase on $1mm is much more than 10% increase on $500k (the size house they may have been happy with).  

It is time for houses to be houses, but they are seen by many(most) as an investment vehicle.

More to come

@John Clark I hear you, and i think the tax laws are all messed up and they have created perverse incentives for folks.  There is talk to increase this "tax loophole" is that good or bad?  Perhaps we should stop incentivizing home ownership, perhaps not.  I think just like any other tax policy it makes people do odd things.  Should we have the 1031 exemption either?  Should we be able to deduct the interest on our houses and second homes?  Should we be able to take depreciation on an asset that is likely going up in value?  Maybe it is time to re-evaluate these breaks, as I do think they are having an adverse impact both on the housing market in general, and the young as well.  Many of you out there who have kids are likely saying you need to get more houses for your kids, since it is so hard for them to get them for themselves.  Another sob story in Boston if you make $400k and want to get a $1mm house you end up with an 1600 SF 3 BR 1 BA 1960s house with no renovations if you want to be less than a 35 minute drive to work.  But you can make $400k!  So what do these folks do?  Sometimes they buy a much more expensive house then they can afford(why not) and that "takes away the cheaper houses from those who don't make as much money".  Not sure if it is right or wrong, but it is the cards that we have been dealt, and people are playing the game with the rules they are given until they change.

@Don Konipol sadly the taxes are quite burdensome in MA, need to find my next landing spot, still waiting for my kids to settle down, right now i have NJ, MD and FL, we will see where we end up.  For the normal people out there, the key is to keep track of all improvements on your primary so you have a higher basis.