High Demand for Apartments

These are good times for U.S. landlords. For many tenants, not so much.

With demand for apartments surging, rents are projected to rise for a fifth straight year. Even a rise in apartment construction is unlikely to provide much relief anytime soon.

That bodes well for building owners and their investors. Yet the landlord-friendly trends will likely further strain the finances of many renters.

A 6% rise in apartment rents between 2000 and 2012 has been exacerbated by a 13% drop in income among renters nationally over the same period, according to a report from Apartment List, a rental housing website, which used inflation-adjusted figures.

“That’s what we call the affordability gap,” says John Kobs, Apartment List’s chief executive. “I don’t see that improving in the near future.”

Demand for rental housing has grown as the U.S. economy has strengthened since the end of the Great Recession nearly five years ago. Steady job growth has made it possible for more people to move out on their own and rent their own apartments. Yet rising home prices are preventing many from buying.

A combination of rising rents and sluggish pay gains will likely continue to weigh on the U.S. economy, which relies primarily on consumer spending.

Rental demand has risen in much of the U.S. since the housing market collapsed in 2007. A cascade of foreclosures forced many people out of their homes and into apartment leases. At the same time, construction of apartments was stalled until the last couple of years because many builders couldn’t get loans during the credit crisis.

Add to that several recent trends, from rising mortgage rates to stagnant pay, which have combined to discourage many people from buying homes. It’s resulted in fewer places to lease and a bump up in rents.

The national vacancy rate for apartments shrank from 8% to 4.1% from 2009 to 2013, according to commercial real estate data provider Reis.

As a result, landlords were able to raise rents in many markets. The average national effective rent rose 12% to $1,083 during those years, according to Reis, which tracked data for apartments in buildings with 40 units or more. Effective rent is what a tenant pays after factoring in landlord concessions, such as a free month at move-in.

Over the same period, the median price of an existing U.S. home has risen about 14%, according to data from the National Association of Realtors.

Among major U.S. markets, rents rose the most in Seattle in 2013, up 7.1% from the year before, according to Reis. The second-biggest increase, 5.6%, was in San Francisco. Nationwide, effective rent rose 3.2% last year compared with 2012. Rents rose even as the nation added about 127,000 apartments, the most since 2009, according to Reis. The addition of those apartments hasn’t been enough to absorb the surging demand for rentals.

The Picerne Group is among the apartment complex owners with buildings under construction. The company, which owns properties in California, Arizona, Nevada and Colorado, expects to break ground soon on luxury rental buildings in the Southern California cities of Cerritos and Ontario. The buildings, which have nearly 500 units combined, are due to open next year, says Brad Perozzi, managing director of the company, based in San Juan Capistrano, Calif.

“We definitely see demand improving, especially the younger demographic coming out of college and being in their prime renter years,” Perozzi says. “Even though the single-family home market is coming back, it’s still somewhat cumbersome to obtain a mortgage and come up with a down payment.”

Even with more buildings under construction, rising demand will push rents up in many markets. Reis expects a stronger job market to enable more people to start renting their own places instead of living with roommates or parents. As a result, the firm predicts that effective apartment rents will increase 3.3% this year to an average of $1,118 nationally.

Higher demand and rising rents, unwelcome as they are for tenants, will produce more income for owners such as apartment REITS. These real estate investment trusts operate buildings they acquire or build.

Steadfast Income REIT, based in Irvine, Calif., is counting on rental growth and demand to continue rising in Texas, Illinois, Kentucky, Oklahoma and the seven other states where it’s invested $1.6 billion to buy buildings with a total of about 16,000 units.

The company has avoided coastal markets, where apartment buildings for sale tend to command high prices, making it harder to turn a profit without charging rents that could price out many tenants. Steadfast likes to buy buildings where it can make money while serving tenants who earn between $45,000 and $75,000. On average, it charges $950 in rent, says Ella Neyland, Steadfast’s president.

Steadfast has 40% of its holdings in Texas, where an energy boom is creating jobs faster than the national average. Those jobs are luring people to cities like San Antonio and Houston and driving up demand for rentals.

“Every single day I have some apartment home in my portfolio that’s up for renewal,” Neyland says. “As the market improves, I increase the rents.”



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The Intenet of the Future

SAN FRANCISCO — Almost half a century after the first e-mail crashed the communication link between the computer science department at UCLA and the Stanford Research Institute, the Internet stands at a tipping point.

So how did it get there?

The first time I heard about the world wide network was back in 1986, from an instructor in an undergraduate elective course I took called Introduction to COBOL Programming.

The instructor had been a systems analyst in the U.S. Air Force, and it was there that he’d learned about a research project begun in the late 1960s by the Advanced Projects Research Agency, a skunkworks unit of the U.S. Department of Defense.

The goal of that project was to build a redundant, decentralized data network that could survive multiple points of failure in the communication infrastructure over which it ran.

While it was first used by computer science academics to send each other code and e-mails — and soon of interest to military leaders worried about an enemy nuclear missile strike — it wasn’t long before a much wider swath of people realized it could do much more.

One day during that elective course, as I was waiting for one of my programming projects to print out from a machine that was about the size and shape of a small kitchen stove, my instructor said something interesting.

“The universities have the Internet now, but eventually it will be controlled by AT&T,” the late Paul Hewitt said then, as we sat near a corner of a sealed room on the top floor of the St. Mary’s University academic library.

That conversation took place four years after the U.S. Supreme Court had broken up AT&T’s monopoly on American data communication services, creating seven regional U.S. rivals, dubbed the Baby Bells.

And it was a few years before Tim Berners-Lee, Marc Andreessen and others developed key software breakthroughs that gave birth to a commercial, consumer World Wide Web running over the Internet.

Now, after a wave of telecom consolidation at the turn of the 20th century, only two of those original seven Baby Bells remain, in the form of Verizon and the reconstituted AT&T.

Along with a handful of giant cable providers and satellite giants, less than a dozen companies control the overwhelming majority of U.S. Web traffic.

In the fourth quarter of last year, the number of TV-style commercials on digital entertainment delivered to U.S. high-speed Internet subscribers of those companies roughly equaled the number of pieces of content they appeared next to.

Moreover, Web-based video ads, and the TV shows, live events and movies that they are paired with, are growing in lock step at roughly 30% a year.

In other words, a network that began as a way for computer scientists to communicate is already half-commercialized, as Hewitt predicted to me 28 years ago.

With both business and consumers willing to pay for a broad array of products and services, the Internet has become the world’s first global medium for delivering news and entertainment.

Not surprising, then, that it’s started to look a lot like television — a medium that in the U.S. is overwhelmingly commercial (save for PBS and local public access channels, home of the original video bloggers).

Soon, it will likely be far more so.

A U.S. federal court ruling in January, which struck down rules concerning how Web traffic and capacity are priced, has already begun spurring a new wave of telecom consolidation, such as Comcast’s $45 billion bid for rival Time Warner Cable.

The Internet, already half-commercialized, has just been further deregulated.

Given its history and current data traffic trends, if there are going to be public spaces on the Internet of the future, online consumers may have to work hard indeed to find them.

John Shinal has covered tech and financial markets for 15 years at Bloomberg, BusinessWeek, the San Francisco Chronicle, Dow Jones MarketWatch, Wall Street Journal Digital Network and others. Follow him on Twitter: @johnshinal.


5 Facebook Tweaks

Facebook has been in the news a lot recently. Mark Zuckerberg bought the What’s App company in February for a staggering, mind-blowing, huge – I’m running out of adjectives here – $19 billion. Then the company bought a little-known virtual-reality headset maker, Oculus VR, for $2 billion.

Those high-profile deals shouldn’t distract us from the fact that Facebook’s main business is selling advertising based on the mountains of information it’s got on its user base. And when I say “user base,” I mean me and you.

The targeting practices going on behind the scenes are both deep and complex. We the consumers have to stay on our toes to protect ourselves. It’s sad to say, but a lot of privacy violations occur just because people don’t know how to protect themselves.

These are great tips for you – and for your family. If there are kids in the house, make sure they understand the importance of these privacy protections early. And if there are less tech-savvy folks around, go over these tips with them, too.

So let’s get started.

First, you need to clear out your Facebook search history. Yes, it keeps track of all your searches. That’s the reality of the world we’re living in.

On your Facebook home page, click the down arrow in the upper right-hand corner, and select Activity Log. In the left-hand column where it lists Photos, Likes and Comments, click the More button below those. Then at the bottom of the list click Search.

Once you’ve clicked on that, you’ll be able to see everything – and everyone – you’ve search for on the site. (It’s kind of disturbing!) Up at the top of the page, click on Clear Searches, and then again in the dialog box to confirm.

The search area should now be empty. You can’t turn this feature off, however, so you will have to come back and do this regularly.

Did you know Facebook’s Graph Search system can expose your past posts to everyone? Learn how to keep strangers out of your posts.

Second, you want to make sure Facebook won’t use your picture to endorse or sell products. Believe it or not, Facebook’s terms of service allow your image to be automatically used if you’ve said you “liked” a particular product, or “checked in” at a particular store or restaurant.

To stop this, let’s go back to the Activity Log page and, again on the left-hand side, click on the Likes link. You’ll see all your likes listed.

It’s smart to go down the list looking for companies that might advertise on Facebook. If you see one, go to the little pencil icon on the right, click on it, and select Unlike. Learn more settings to stop Facebook from using your name and face in ads.

Third, we need to dive into privacy settings. We all have to take responsibility for our online privacy.

I liken Facebook posts to a sign in front of your house. You think you live on a cul de sac, and the fact that the sign says, “Hey, we’re on vacation,” or “Hey, my daughter June just got an after-school job at the local Applebee’s” really isn’t that big of a deal.

We have to realize that with the wrong settings you’re living on Main Street, and just about anyone can see your Facebook posts. Learn four ways burglars use what you post on social media to target you.

So go to the padlock icon in the upper right corner of your profile and under “Who can see my stuff?” set “Who can see my future posts?” to Friends. And if you’re been loose about friending everyone who asks, you might think about weeding out your friends list.

You can also create a custom list of “Close Friends” – click here to learn how – and set your posts to be visible only to that list. The option to select a list is in the same place you select Friends.

Fourth, I have a tip for parents. Facebook originally didn’t let the Facebook pages for kids be viewable by the general public – just their friends. That’s changed. If your kids are minors, it’s a good idea to go in and adjust their privacy settings to make sure they are set to “Friends.”

You should also go to the down arrow in the upper corner, select Settings and in the left-hand column choose Privacy. Then click the Limit Past Posts link and set that to Friends as well.

And finally, this is a tiny bit sobering, but if Facebook and your Facebook profile is a big part of your life, you should start thinking about what you want to happen if you were to pass away.

Facebook rules decree that the status of your page will remain the way you had it in life; it will be “memorialized,” as the company puts it, when they are presented with evidence of your passing.

On the Kim Komando Show, the nation’s largest weekend radio talk show, Kim takes calls and dispenses advice on today’s digital lifestyle, from smartphones and tablets to online privacy and data hacks. For her daily tips, newsletters and more, visitwww.komando.com. E-mail her at techcomments@usatoday.com.

Saving for Retirement

College graduates who are about to begin their careers will face an overwhelming number of financial choices, including how best to save for retirement. Consider: The newly employed have one or more retirement account options from which to choose, including Roth IRAs, traditional IRAs, and traditional 401(k) plans, that may or may not have a Roth 401(k) option, say the authors of a new paper on the subject. What’s more, many young workers likely have employers that provide a matching contribution, according Gregory Geisler, an associate professor of accounting at the University of Missouri Saint Louis and Jerry Stern, a professor of accounting at Indiana University-Bloomington.

So what’s the most tax-efficient way for those starting their work lives to build the biggest nest egg possible?

Well, there’s a three-step decision-making hierarchy to follow, according to Geisler and Stern’s paper, Retirement Account Options When Beginning a Career, which appeared in the May issue of the Journal of Financial Service Professionals. “And this hierarchy is what will make the individual wealthiest after considering taxes,” says Geisler.

Step 1. The best option for recent graduates is to contribute to a Roth 401(k) (or Roth 403(b)), at least enough to get the maximum matching contribution from your employer, according to Geisler and Stern.

If you don’t have the Roth 401(k) opportunity, Geisler and Stern recommend contributing to a traditional 401(k) up to the company match. To be sure, the maximum employer match varies widely, but the most common match is 50 cents for every dollar you contribute up to 6% of your salary. “Contribute enough to receive the maximum employer match,” Geisler and Stern wrote in their paper.

The authors note that contributions to Roth 401(k)s and Roth IRAs are made with after-tax dollars, that is, the contributions do not generate a tax deduction or exclusion. However, the big benefit to Roths is this: qualified withdrawals are not subject to tax — neither the contributions nor the earnings are taxed.

In contrast, contributions to traditional 401(k)s and deductible contributions to traditional IRAs are made with before-tax dollars and the contribution amounts are not taxed until they are withdrawn. What’s more, all of the earnings of traditional 401(k)s and traditional IRAs are subject to tax at withdrawal.

The reason for contributing first to a Roth 401(k) vs. a traditional 401(k) has to do with your current and your future tax brackets. “At the beginning of most white-collar careers, the individual’s marginal tax rate is significantly lower, for example the 15% federal tax bracket, than it will be when they are retired if they have consistently saved for retirement over their careers,” says Geisler. “Such an individual will probably be in the 25% rate bracket or higher when they are retired and are collecting Social Security and are taking distributions from their retirement accounts.”

In other words, distributions from your traditional 401(k) would be taxed at 25% while distributions from a Roth 401(k) won’t be taxed at all.

Assuming a $3,000 annual contribution by the employee and a matching $1,500 by the employer (which must be made to the employee’s 401(k)) that grows at 7% annually over the course of a 30-year career, the authors noted that a person would accumulate $416,926 after taxes if employee contributions were to a Roth 401(k) vs. $397,975 if to a traditional 401(k), assuming one’s marginal tax rate rises from 20% to 25% over their lifetime.

Step 2. Now, if there is no employer match or if you still have funds available after deferring enough of your salary to get the maximum 401(k) match, you should invest the maximum possible into a Roth IRA. For 2014, the maximum is $5,500 or $6,500 if age 50 or older.

Why do this? In short, you’ll have more investments from which to choose. “Even if there is a Roth 401(k) option, the reason for choosing a Roth IRA instead of unmatched contributions to a Roth 401(k) or traditional 401(k) is the availability of a wider variety of investment choices for a Roth IRA,” the authors wrote. “Thousands of mutual funds are available to an IRA investor.”

For instance, unlike most 401(k) plans, the authors say the money in an IRA can be invested in publicly traded stocks or bonds or exchange-traded funds (ETFs). Plus, there are no required minimum distribution (RMDs) with Roth IRAs. By contrast, RMDs must start by April 1 of the year after turning age 70½ for traditional IRAs, traditional 401(k)s, and Roth 401(k)s.

Step 3. And, lastly, if you have any money left to sock away for retirement, contribute as much as possible to your Roth 401(k). If you don’t have a Roth 401(k), invest whatever you can in a traditional 401(k).

According to the authors, one reason for setting aside money in Roth accounts has to do with what they call tax rate risk. “For Roth investments, regardless of whether tax rates are rising, falling, or remaining constant over time, employees can depend on their annualized after-tax rates of return and future after-tax values to be unaffected by changing marginal tax rates,” the authors wrote in their study.

Read full article at Saving for Retirement

On the Road with McAfee

SOMEWHERE IN THE BLUE RIDGE MOUNTAINS, Tenn. — John McAfee’s distinctly British accent is on the other end of the cell call — and his instructions are precise.

“Sir, upon your flight’s arrival, text me, and my people will coordinate their pickup of you,” he says. “We will determine our rendezvous point.”

Several hours later, after a circuitous journey from Memphis, I encounter McAfee sitting on the back porch of a remote farmhouse nestled deep in Tennessee’s Blue Ridge Mountains. He is chain-smoking in a semicircle of weapons. McAfee travels with 10 guns — a Beretta .40 is hidden in the small of his back and a Ruger .380 is in his right front pocket. Often, he cradles a rapid-fire Kel-Tec shotgun as one would a newborn. A pit bull patrols the 40-acre spread, always keen to strangers.

It all sounds so LeCarre, but these are things one comes to expect from a rattled, sleep-deprived McAfee, who is convinced someone has put out a $650,000 contract on his life. He insists the initial hit was for $2 million, “so my value dead is in steep decline,” he jokes.

McAfee is considered a legend in the computer industry for creating and popularizing antivirus software for the masses. But he cemented his place in the American zeitgeist with a murder mystery in Belize — he was named a “person of interest” in the case — and his desperate flight to freedom. That international adventure led to McAfee’s claims of widespread corruption in the Belize government and, he insists, a contract on his life by a drug cartel. He and his wife, Janice, have been on the run in the USA for several months.

Authorities haven’t called him a suspect in the murder. Raphael Martinez, a spokesman for the Belize police, says McAfee has not been charged and there is no plan to extradite him. U.S. authorities have made no effort to question McAfee since he returned in December 2012


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