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  • Mortgage Rates Hit 7.28%. The Income You Buy Often Won’t Cover the Loan. The Income You Build Might.

    Mortgage Rates Hit 7.28%. The Income You Buy Often Won’t Cover the Loan. The Income You Build Might.

    Graphic reading 7.28%: the 30-year mortgage rate on October 1, 2026, the highest weekly reading since November 2023, with a note that Florida multifamily permits fell 31.2% year to date through July, citing Freddie Mac and NAHB, over a stylized city skyline at dusk.

    Mortgage rates are the highest in nearly three years. Here’s what that changes about buying a Florida rental building — in plain numbers.

    FL Real Estate Insider — Week of October 5, 2026
    By Luis Noronha

    7.28%. That was the average 30-year fixed mortgage rate on October 1, according to Freddie Mac, the government-sponsored company that buys home mortgages from lenders — up from 7.03% a week earlier and 6.34% a year ago. (Freddie Mac — Mortgage Rates Average 7.28%, October 1, 2026) The last week it was higher was November 22, 2023, at 7.29%. (Freddie Mac’s weekly rate history)

    The highest in nearly three years.

    One caveat: that’s a home-loan rate, and loans on apartment buildings are priced differently. I use it because it comes out every week, which makes it the easiest way to track borrowing costs since the Fed’s unanimous rate hike on September 16.

    Why expensive loans change the math

    Here’s the math with made-up numbers, so it’s easy to follow. This is an illustration, not market data.

    Say you buy a small rental building for $2 million. After all expenses except the mortgage, it brings in $120,000 a year. That’s a 6% return on the price.

    You put in $600,000 of your own money and borrow $1.4 million at 7%. To keep it simple, count only the interest: $98,000 a year. What’s left for you is $22,000 — a 3.7% return on your $600,000.

    You’d have earned more paying cash.

    That’s the trap. When a building earns less than its loan costs, borrowing doesn’t boost your return. It shrinks it. At 5%, the same loan would cost $70,000 a year and leave you $50,000 — 8.3% on your cash.

    Opinion, clearly marked: at today’s rates, buying a Florida rental just for the income it already makes usually means the bank earns more from the building than you do. So the better question this fall isn’t “what does this building earn?” It’s “what could it earn?”

    The income you buy vs. the income you build

    CBRE, one of the largest commercial real estate firms, measures a building’s return two ways in its twice-yearly survey. (CBRE — U.S. Cap Rate Survey H1 2026) In plain terms:

    • The income you buy: what the building earns running normally, before any improvements, divided by the price you pay.
    • The income you build: what it earns after you improve it, divided by the price plus what you spent improving it.

    The industry calls the second approach “value-add” — adding value by fixing things.

    Back to the example. Suppose you spend $200,000 fixing the building: rents raised to what similar units get, service contracts like landscaping and trash shopped around, empty units filled. Its income after expenses rises to $170,000. Now the math is $170,000 ÷ $2.2 million = 7.7%, above what the loan costs. Same building, run better. (Again: made-up numbers.)

    That’s the point of this issue. In my view, at today’s rates only the income you build can carry a loan.

    Prices are already moving. CBRE found that in the first half of 2026, the price paid for each dollar of a building’s income went up more for mid- and lower-tier buildings and fixer-uppers than for top-tier, stable ones. (CBRE) That covers all property types, not just apartments, and CBRE says it likely reflects ups and downs (volatility) for buildings with less certain income. Either way, my read is that fixer-uppers cost more per dollar of income than they did.

    Where the fixable buildings are

    Here’s the part I rarely see in the rate headlines: who owns the building.

    A 2024 government survey by HUD, analyzed by the National Multifamily Housing Council (NMHC), shows how ownership changes with building size. Individual investors — people, not companies or funds — own 19.2% of rental homes in properties with 5 to 24 units. In properties with 25 to 49 units, it’s 5.7%. In properties with 50 or more, 4.6%. (NMHC — Who Owns America’s Apartments?, March 24, 2026)

    Professional management shows a similar pattern. HUD’s 2021 survey found that about 22% of the smallest rentals (one to four units) are run by professional managers, compared with 84% of properties with 150 or more units. (HUD — 2021 Rental Housing Finance Survey findings) The survey’s headline numbers don’t cover the sizes in between, so I won’t guess.

    My interpretation, not data: the smaller the building, the more likely its owner runs it personally. That doesn’t mean badly. But it’s where you’re most likely to find rents below market, bills nobody has shopped around in years, and repairs that keep getting put off. That’s exactly what a good manager can fix.

    To be fair, the NMHC author, Chris Bruen, is careful here. On whether the type of owner changes rents, he writes that “relatively little empirical research has been conducted on this topic to date” — in other words, it hasn’t been studied much. My read goes further than the evidence, and I’d rather say so.

    Florida is permitting fewer new competitors

    In August I argued that the housing shortage favors new construction, and last week I said I still do. Here’s what the same shortage means for a building that’s already standing.

    First, almost all new homes in multi-unit buildings go into big buildings. Of the 608,000 new homes the U.S. finished in 2024 in buildings with two or more units, 90.1% were in buildings with 20 or more units and 2.7% in buildings with two to four. (NMHC) That leaves 7.2% for everything from five to 19 units — my math, not NMHC’s.

    Second, Florida is pulling back. In the first seven months of 2026, the number of new homes permitted in Florida in buildings with two or more units fell 31.2% from a year earlier, while nationally that number rose 6.3%. (NAHB Eye on Housing, September 15, 2026) And building costs more: prices of residential building materials, not counting energy, were up 5.1% from a year earlier in August. (NAHB Eye on Housing, September 10, 2026)

    My view: fewer new buildings, and higher costs to build them, both help a well-run existing building. Neither guarantees higher rents. A drop in permits today shows up as fewer finished buildings only later, and a weak rental market can outlast a building slowdown.

    Four ways I think a fixer-upper deal goes wrong

    This is not free money.

    You overpay for the upside. If sellers already price in what the building could earn, you’ve paid for the improvement before you’ve done it.

    The sale price can move against you. In CBRE’s survey, its own real estate professionals were gloomiest about lower-quality (class C) buildings: they expect buyers to pay less for each dollar those buildings earn over the next six months. They were also most pessimistic about “infill” apartments, in areas that are already built up. (CBRE) A plan that assumes you’ll sell at today’s prices is assuming that risk away.

    Fixing takes time and money. Every month of renovation is a month of loan payments.

    Some costs aren’t yours to fix. Insurance, property taxes and major repairs don’t care how well you run the building. The income you build has to cover those bills too.

    And, in my view, taxes won’t rescue a bad deal. As I wrote last week, a tax rule called 100% bonus depreciation is now permanent. It lets you write off certain parts of a building right away instead of over many years, and it can apply to existing buildings. My rule hasn’t changed: it makes a good deal better. It doesn’t make a money-losing deal work.

    My five questions before you buy a small Florida rental building

    These are my questions, not investment or tax advice.

    1. Does the building earn more than the loan costs? If not, the loan is shrinking your return until you fix something.
    2. What exactly is broken? Rents, expenses, empty units, unpaid rent, management — list it line by line. “Upside” isn’t an answer.
    3. What will it earn after the fix? Divide that by the price plus what the fix costs — not by the broker’s number.
    4. Does the deal still work without the tax break? If not, you’re buying a tax break, not a building.
    5. What will a buyer pay you when you sell? If you’re assuming today’s price, ask why.

    From the Developer’s Seat

    Opinion from here down: how this looks from where we build.

    At Lana we build homes to sell, and I’ve always started with what a buyer will pay for the finished home, not with the interest rate. That same habit is why we’re now looking at existing apartment buildings of up to 100 units, where the return comes from fixing what’s broken inside. At today’s rates, heavy borrowing works against you, so the gain has to come from running the building better, not from the fee playbook regulators accused the largest Wall Street landlord of running, which I wrote about in May. That suits patient investors who don’t need much debt, like families and family offices (firms that manage the money of one or a few wealthy families). A fix takes months, and a building without a big loan on day one can afford to wait for it. So, on the last rental you looked at: was the return coming from the income you’d buy, or from what you’d fix?

    If you’re weighing a building like this, send me a DM on LinkedIn. I’m always glad to compare notes or answer questions.

    Until next week,
    Luis

    Sources

  • 100% Bonus Depreciation Is Now Permanent. Here’s Who Gets to Use It Before December 31.

    100% Bonus Depreciation Is Now Permanent. Here’s Who Gets to Use It Before December 31.

    Graphic reading 100%: bonus depreciation, now permanent for property acquired after January 19, 2025, with the note that it offsets passive income and, for real estate professionals, active income too, citing IRS Notice 2026-11 and IRS Publication 925, over a stylized city skyline at dusk.

    Anyone with passive income can put the deduction to work against it. Real estate professionals can put it to work against almost everything else. With 93 days left in the tax year, here’s how.

    FL Real Estate Insider — Week of September 29, 2026
    By Luis Noronha

    100% bonus depreciation is back, and this time it has no end date. Section 70301 of the One Big Beautiful Bill Act gave taxpayers “a permanent 100 percent additional first year depreciation deduction” for qualified property acquired and placed in service after January 19, 2025. That’s the IRS’s own wording, in the interim guidance it issued this year. (IRS — Notice 2026-11)

    No phasedown. No sunset.

    In my view, for real estate investors this is one of the most useful provisions in the tax code — and it reaches more of your income than its reputation suggests. So the question for this issue is simple: have you planned to use it this year?

    What actually changed

    Under the 2017 tax law, bonus depreciation was phasing down 20 points a year. OBBBA replaced that phasedown with a permanent 100% for property acquired after January 19, 2025 — “acquired” meaning the written binding contract was signed after that date. (IRS — Notice 2026-11)

    It applies to property with a recovery period of 20 years or less. (26 U.S.C. § 168(k)(2)(A)) The apartment building itself is depreciated over 27.5 years, and land isn’t depreciable at all. (IRS — Publication 527) The opportunity is in everything inside and around the building that wears out faster: Publication 527 lists appliances, carpets and furniture at 5 years, and roads, shrubbery and fences at 15. (IRS — Publication 527)

    A cost segregation study is how those components get identified — and once they are, bonus depreciation writes them off in year one instead of over decades.

    Two details widen the opportunity:

    • Used property qualifies, not just new. Used property can qualify as long as the buyer hadn’t used it before and the purchase meets the related-party and other acquisition rules. (26 U.S.C. § 168(k)(2)(A)(ii), (E)(i)) The short-lived components of a 1980s apartment building qualify just as they would in a new one.

    • Leverage multiplies the deduction. Depreciation runs on basis, and basis includes what you borrowed. The IRS’s own example: buy a building for $20,000 cash, assume an $80,000 mortgage, and “your basis is $100,000.” (IRS — Publication 551) The deduction is computed on the bank’s money too.

    Who benefits: anyone with passive income

    Rental real estate is a passive activity by default. (IRS — Publication 925) That sounds like a limitation. For a lot of investors, it’s the opportunity: a passive loss offsets passive income — and passive income includes more than rent.

    Here’s the part that widens it. Publication 925 says passive activity income “includes all income from passive activities and generally includes gain from disposition of an interest in a passive activity or property used in a passive activity.” (IRS — Publication 925)

    That covers:

    • Net rental income from buildings you already own.
    • Rental income passed through on K-1s from other real estate partnerships where you’re a limited partner.
    • The gain when you sell a rental property or a passive deal interest.

    That last one is the year-end play. If you’re selling a rental or exiting a passive investment in 2026, bonus depreciation from a new acquisition placed in service this year can offset the passive gain from that sale, as long as you also hold the new property as a passive investor.

    Gains on stocks and bonds are a different category — the IRS treats them as portfolio income — so the real estate gain is the one to pair with the deduction. (IRS — Publication 925)

    And the loss you can’t use this year isn’t lost. It carries forward to future years and is generally allowed in full in the year you dispose of your entire interest in a fully taxable sale to an unrelated party. (IRS — Publication 925) My read, and it’s opinion: for a limited partner, that makes bonus depreciation a deduction you bank now and spend against the passive income your real estate holdings produce later.

    Who benefits most: real estate professionals

    For people who qualify as real estate professionals, the same deduction can reach wages, business income and other nonpassive income, up to the limit below.

    A rental activity stops being passive when you “materially participated as a real estate professional.” (IRS — Publication 925) To qualify, more than half of your working hours must be in real property businesses where you materially participate, and those hours must exceed 750 a year — and you must also materially participate in the rental itself. Developers, builders, brokers and full-time operators are the most likely to clear it, though an employee’s hours count only if they own more than 5% of the employer. On a joint return, each spouse’s hours count separately for the test, but your spouse’s participation does count toward material participation in the rental. (IRS — Publication 925)

    Short-term rental operators have a second route. An activity where “the average period of customer use of the property is 7 days or less” isn’t treated as a rental activity at all, so the ordinary material-participation tests apply instead. (IRS — Publication 925)

    How much can it offset? For 2026, net business losses can offset up to $256,000 of other income — $512,000 on a joint return (IRS — Rev. Proc. 2025-32, § 4.31), with anything above that carrying forward.

    The Florida angle

    Florida “does not impose personal income tax.” (Florida Department of Revenue — Tax Information for New Residents) For a Florida resident, the federal return is the whole calculation — no separate state depreciation schedule to reconcile.

    Depreciation is also part of why the largest allocators are paying attention. U.S. family offices have doubled their real estate allocation to 20% over three years. “There is just not enough supply, especially in multifamily housing,” UBS’s Daniel Scansaroli told Modus, which added that depreciation and U.S. tax benefits have made the asset class even more attractive. (Modus — UBS 2026 Global Family Office Report) I wrote about that divergence in August and argued both reasons favor new construction. On supply, I still think so. On tax, my updated view is broader: bonus depreciation reaches the short-lived components of an existing building just as it does a new one.

    Plan the exit, too

    One thing to build into the model from day one. When you sell, gain on the personal-property components — appliances, carpets, furniture, which are § 1245 property — is taxed as ordinary income up to the depreciation taken (IRS — Publication 544), and depreciation on real property comes back largely as unrecaptured § 1250 gain at a maximum 25% rate. (IRS — Topic 409)

    Randall Weaver, a CPA at Trout CPA who has worked with real estate investors and developers for more than 20 years, frames it well: cost segregation “changes when depreciation deductions are claimed,” and it “can be useful from a cash flow perspective.” The question he poses is whether “the earlier deduction is worth more than the later tax cost.” (Trout CPA — Cost Segregation Is a Timing Strategy, Not a Tax Loophole, September 14, 2026) In my view, for an investor with the income to absorb it, it usually is — a dollar of tax deferred for years is capital working in the meantime.

    The December 31 checklist

    None of this is tax advice. Take it to your CPA before you act on any of it.

    1. Confirm the acquisition date. Acquired after January 19, 2025, under a binding contract signed after that date.
    2. Get it placed in service. Depreciation starts when property is “ready and available” for its use. (IRS — Publication 527) Closed but not rentable until January means a 2027 deduction.
    3. Commission a documented study. The IRS audit guide tells examiners to “view this approach with caution” when a study rests on industry averages rather than documentation. (IRS — Cost Segregation Audit Technique Guide, Publication 5653) Ask for a study built on documentation, not averages.
    4. Match the loss to your income. Passive gains or rental income this year? Real estate professional hours? Short-term rental? Know which bucket you’re in before you invest.
    5. Log your hours now. The IRS accepts “an appointment book, calendar, or narrative summary.” (IRS — Publication 925) Hours written down in October are far easier to defend than hours rebuilt in April.
    6. Model the exit. Recapture belongs in the return from day one.

    From the Developer’s Seat

    This section is my position as an operator. The sections above are the IRS’s.

    The homes and townhomes Lana builds to sell are inventory, not rental property, so they produce no depreciation — which is part of why we’re now exploring a second lane: existing apartment buildings of up to 100 units, buildings that are already rentals, where the opportunity is operational. I think about those deals through five levers that compound: monthly cash flow, depreciation, principal paid down by rent, appreciation from fixing what’s broken operationally, and leverage — none guaranteed, and leverage cuts both ways at today’s rates. Bonus depreciation is the lever that works from year one, and my rule is that it strengthens a deal that already works on its operations rather than rescuing one that doesn’t; “value-add” should mean better operations, not the fee-and-eviction playbook I wrote about in Wall Street Landlords. Which brings me back to the question I opened with: have you planned to use this benefit this year — and what passive income or gain on your 2026 return could it shelter?

    If you’re an accredited investor, how we think about underwriting deals like these — the levers, the assumptions and the downside cases — is laid out in the Lana Investor Memo.

    → Request access at coastal-living-collection.com (accredited investors only).

    Until next week,
    Luis

    Sources