The Autumn Audit

Trees drop their dead weight before winter. Smart move. Most real estate portfolios? Not so much. Too many are hauling dead deals and wealth-draining holdings into 2026. November is pruning season — time to cut what’s not working before the tax bill lands.

Nature knows survival means knowing what to let go. People don’t shed assets that way. That “investment” beach house? The cash-bleeding rental with heroic assumptions? Portfolio bloat is real. Your job: hand clients the pruning shears, and a simple checklist.

In today’s email:

• Q3 Reality Check: When 5% is a Win

• Rates vs. Reality: Why Mortgages Shrugged  

• Advisor Tips: The Portfolio Pruning Protocol

Let’s dive in!

Industry Insight: Q3's Reality Check — When "Good Enough" Isn't

Remember when a 5% return on real estate felt disappointing? Those were the days. Now your clients are thrilled if their properties are breaking even. Q3 2024 data shows residential sales fell 5% year-over-year, and the cracks are showing everywhere.

Cap rate spreads are finally widening compared to bond yields, which sounds like good news until you realize it's because property performance is lagging — not because bonds got worse. Translation: that "diversified" real estate portfolio isn't diversifying anything if it's all moving in the same downward direction.

The regional divergence is brutal. While the Midwest is seeing stronger rent growth, the Southeast is facing lagging performance due to an influx of new inventory. Your clients with properties scattered across markets? They're discovering that geographic diversification only works when you pick the right geography.

Here's the kicker: The industrial real estate sector, which saw sharp growth during the pandemic, is now reverting to more normalized levels. Those warehouse investments that looked genius in 2021? They're coming back to earth. Hard.

Single-family housing starts dropped 3.4% in Q3 2024 from the previous quarter. Builders are pulling back. Inventory's still tight. But somehow prices aren't falling. It's the worst of all worlds — low activity, high costs, and zero liquidity when you need it.

The Audit Question: Which properties in your clients' portfolios are actually performing, and which are just expensive hobbies?

Macro Watch: The Fed's Confusion Is Your Problem

The Fed cut rates twice — 50 basis points in September and 25 in November. Great news, right? Wrong. Despite the cuts, the average 30-year mortgage sits at 6.19%, barely budging from summer highs. 

Why? Because mortgage rates don't care what the Fed does — they follow the 10-year Treasury. And the Treasury's spooked about deficits, inflation rebounds, and whatever chaos 2026 might bring.

Powell admitted there were "strongly differing views about how to proceed in December". Translation: even the Fed doesn't know what the Fed's doing. Meanwhile, your clients are trying to make 30-year financial decisions based on monetary policy that changes every six weeks.

The labor market's sending mixed signals. Inflation's "defeated" but somehow everything still costs more. And the bond market's acting like rate cuts are already over before they really began.

Strategic Reality: Stop waiting for rates to "normalize." This IS normal now. Plan accordingly.

Advisor Tips: The Portfolio Pruning Protocol

Time to identify the dead weight. Here's your diagnostic framework:

The Property Tax Time Bomb Detector 

Property tax bills climbed an average of 27% from 2019 to 2024. But that's the average. Some counties that lagged are now catching up with massive reassessments. 

Ask: "When was your property last reassessed, and what's your county's reassessment schedule?"

Properties bought in 2020-2021 at peak prices? They're sitting ducks for reassessment shock. California counties saw increases up to 7.11% in single year roll values. That "affordable" rental property might not be so affordable when the tax bill doubles.

The Insurance Reality Check 

Homeowners saw average rate surges of 17.4% for new policies in 2024. But here's what's worse: Deductibles increased 24.5% from 2024 to 2025.

Calculate: "What percentage of rental income goes to insurance, and how much cash would you need if you had to pay the deductible tomorrow?"

33 states had double-digit insurance increases in 2024, with Nebraska up 22.7%. If insurance is eating more than 15% of gross rental income, that property's a liability, not an asset.

The Liquidity Trap Identifier 

Simple question: "If you needed $100K in 30 days, which property would you sell?"

If the answer is "none of them" or involves a lengthy explanation about market timing, your client has a liquidity crisis waiting to happen. Properties that can't be sold quickly aren't investments — they're anchors.

Ready to audit your clients' real estate portfolios before 2026?