Marterra Market Monitor

Year To Date Activity

Properties Sold (single and multifamily): 42

Sales Volume: $59,619,073

Cumulative Value of Fund Properties Sold: $6,433,500

Homes/Units Managed: 303

Properties Leased: 32

Gross Collected Rent: $6,475,044

Brokerage Listings

Property Management Rental Listings

California seems hell-bent on doing some very dumb things this year .In addition to the looming Billionaire Wealth Tax initiative heading to the ballot (asset seizure is a more appropriate name), state lawmakers just approved a massive structural shift: a sales tax expansion that will now include Software as a Service products (SaaS), alongside a separate health plan tax change expected to raise private insurance costs by approximately $100 per person.

The expansion of sales tax to include SaaS is crazy. SaaS is an input in virtually everything, and every modern business relies on dozens of subscriptions. In case you are having a hard time conceptualizing the impact of this SaaS tax, here is a list of some of the business subscriptions that I/Marterra pay that will now be subject to California's sales tax:

- Appfolio (this costs us THOUSANDS OF DOLLARS each month)

- Quickbooks

- Google (our business email infrastructure)

- Microsoft 365 (Excel, Word, Outlook)Adobe & Canva (our design and marketing tools)

- MLS (essential for our daily real estate operations)

- Dropbox & iCloud (our data storage and backups)

- Antivirus and Security Software

This is just what I came up with off the top of my head, not a comprehensive list for my business. All my vendors upstream are going to experience the same type of margin compression. This easily adds up to thousands of dollars in brand-new taxes for our business and every other business in the state. There is no way this does not increase overhead, drive up consumer costs and hurt affordability for all Californians. Furthermore, local cities will receive a cut of these proceeds from the expanded sales tax base, quietly padding local government revenue at our expense. What makes this incredibly frustrating is the political gymnastics involved. Because lawmakers framed this as an "expansion of an existing tax category" via a budget trailer bill (SB 122) rather than a brand-new tax type, it did not require a vote of the people. While the public gets to debate and vote on the billionaire tax in November, the state government quietly passed this multi-billion dollar SaaS tax behind closed doors, hitting everyday business owners without their input.

Costa Mesa, not to be outdone, is piling on as well. The city is looking to bring tax increases to the ballot this November. First is an increase in the transient occupancy (hotel) tax—even though our hotel tax is already higher than the City of Irvine's.

Even more concerning is the proposed overhaul of the City’s business license tax. Currently capped at a reasonable $200 per year, the city is studying a gross-receipts model that would raise the maximum cap to $15,000 per year. That represents an astronomical 75x increase for businesses at the upper end. For context, the City of Irvine caps their business license tax at $148, and Newport Beach caps theirs at $1,143 for sales-tax-generating businesses. Costa Mesa will become an absolute outlier in the local marketplace, actively disincentivizing companies from setting up shop here.

But hey, look on the bright side: at least our tax dollars are being carefully spent on high-priority, highly realistic endeavors...

As for my campaign for City Council, we are off to an incredible start, and I am incredibly grateful for all of your support and encouragement. We had a big fundraising filing date yesterday, and we broke all the records for the most amount of money raised for a Costa Mesa district race.

Our fundraising momentum has been primarily driven by a deep sense of frustration and urgency from residents and small business owners who feel their everyday needs have been overlooked by the City Council over the last few years.

Despite the incredible traction we have right now, the hard work is just beginning, and I am going to continue to need support from each of you. I am not a political insider, and I don't have a massive political machine behind me—I am just a local guy stepping up to help steer our city in the right direction.

We will be hosting several events over the next few months. If you are interested in attending, hosting a yard sign, helping us knock on doors, or contributing to the momentum, please sign up to get involved on our campaign website below.

Campaign Website

Residential Transactional Market: This market continues to be extremely challenging for sellers, especially, properties with high tax rates and HOAs. This market is probably the most challenging that we have witnessed since the GFC. However, home prices are staying somewhat stable because, a lot of sellers have low carry costs and are taking their homes off the market if they are not happy with the pricing. However, sellers who have to sell are generally selling for considerably less than comps. You know what sellers have to sell? Homebuilders. New homes generally sell for 10% more than resale comps, but right now new homes are selling at a discount to resale homes. In fact last month, Christine was able to help a client negotiate a great price on a home and a 6% credit that helped buy their interest rate down to 4.75%.

Residential Rental Market: As I discussed last week, there has been a bifurcation in the rental market, higher end single family homes are significantly outperforming and the apartment market is sucking wind.

When your head is on fire (single family homes) and your feet are on ice (apartment homes), on average you are fine (a 1.8% decrease doesn't seem that bad, for apartment owners, its way worse than 1.8%).

Macro Observations: We got a new Fed Chair.

As of today (6/27), the market is pricing in roughly one 25 basis point rate increase.

I am taking the under, with one very big caveat, we get resolution on the conflict in Iran (or the Strait of Hormuz otherwise finds a way to stay open). While history would suggest the conflict will be protracted (Middle East conflicts have never been expeditious).

Bear with me for a second, while I pretend to be a geopolitical expert and embarrass myself by saying something that potentially very dumb.

this time it's different

I know, famous last words. But hear me out. This time it's different. Why? As Billy Bob Thornton's character in Landman explains (I am imagining the eye rolls from readers as they internalize that I am, with straight face, making economic predictions, dependent on geopolitical events, and using TV show quotes as the basis of my analysis. Look, I never claimed this was a serious newsletter. You are reading it, so maybe question your judgment before you roll your eyes at me).

Unfortunately for your grandkids, we have a 120-year petroleum-based infrastructure. Our whole lives depend on it. And hell, it's in everything... that road we came in on, the wheels on every car... tennis rackets, lipstick, refrigerators, antihistamines... plastic, cell phone case, artificial heart valves.

And that isn't just true for the US, that is true for every country in the world. The Strait of Hormuz controls roughly 25% of all seaborne oil trade and 20% of global petroleum consumption. Every single day, an astonishing 20 million barrels of crude and refined petroleum products flow through this narrow waterway. Inflation is bad for governments, a closed down strait is inflationary, so I am anticipating governments to do what they do best, which is to act in the interest of their self preservation, and that means working together to find a solution. I'm not sure what the solution is, I'm not sure if it is a good solution, or a bad solution, but when there are a lot of motivated powerful entities all trying to make a thing happen, that thing often happens.

Mortgage Market: Over the past several months, mortgage rates have experienced more volatility than many buyers expected. At the end of February, rates were moving in a very favorable direction before geopolitical tensions in the Middle East, rising oil prices, and renewed inflation concerns reversed much of that progress. More recently, easing tensions overseas have helped improve market sentiment, and investors are beginning to focus once again on the longer-term outlook for inflation and economic growth. Combined with the appointment of new Federal Reserve Chair Kevin Warsh, who has spoken about creating an environment that supports lower interest rates over time through stronger productivity and moderating inflation, many market participants are cautiously optimistic that the next 18 to 24 months could present a more favorable interest rate environment- even though no one can predict exactly where mortgage rates will go.

That uncertainty is one reason we're having more conversations about 2-1 rate buydowns. Rather than waiting on the sidelines for rates to reach a specific number, many buyers are taking advantage of today's market by negotiating seller credits to temporarily reduce their interest rate during the first two years of homeownership. This can provide meaningful monthly payment relief today while preserving the flexibility to refinance in the future should market conditions become more favorable.

For example, consider a buyer purchasing a $770,000 home with 20% down at a 6.50% note rate. If the seller agrees to fund a 2-1 buydown through negotiated seller credits, the buyer's effective payment rate would be reduced to approximately 4.50% during the first year and 5.50% during the second year, before returning to the original note rate in year three. Rather than using seller concessions solely to reduce the purchase price, this strategy can improve monthly cash flow during the early years of homeownership - often when buyers appreciate it most.

It's also worth remembering that many homeowners don't keep the same mortgage for the full 30-year term. Historically, many refinance or move within five to seven years, whether because interest rates change, their financial situation evolves, or they purchase another home. While no one can guarantee future interest rates, a temporary buydown can help bridge today's affordability gap while preserving the opportunity to refinance if market conditions become more favorable down the road.

Every buyer's financial situation and long-term goals are different, which is why we believe financing strategy is just as important as finding the right home. Whether it's evaluating seller concessions, comparing buydown options, or understanding how different loan structures affect long-term affordability, our goal is to help clients make informed decisions based on today's opportunities - not simply wait for tomorrow's market.

Co-Mike Simmons

Founder / CEO of Qoru Capital

NMLS 892271

(o) 949.208.8025

[email protected]

Project Updates: We have several projects going on, here is an update on one of them.

Bucknell, Costa Mesa: We have passed our first few rounds of inspections and are gearing up to pour the foundation on the addition. We should be able to start pouring foundation next week. There is almost nothing as satisfying as watching concrete get poured.

Thanks again for reading, and I would like to thank our agents and property managers who provide valuable insights from their day-to-day in the field. Without them, this email wouldn't be very useful or interesting.

If there is anything you need: vendors, lenders, or others, please let me know. We have an extensive network of the best and brightest in the industry.

I geek off this stuff; if you want to grab a coffee or chat about anything related to real estate, the market, or investing, please do not hesitate to reach out.

If you don't want to receive these updates in the future, please smash the unsubscribe button below. No hard feelings; I do it ruthlessly. Lastly, if you found the above informative, please share it with a friend or drop me a line.