REI INK

Zombie Properties Slip Below 3 Percent of All Foreclosures Nationwide

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Today’s ATTOM Data Solutions’ fourth quarter Vacant Property and Zombie Foreclosure report reveals that more than 1.5 million U.S. single family homes and condos, representing 1.5 percent of all homes, were vacant in the fourth quarter of 2019. The report shows that during the fourth quarter of 2019, about 288,300 homes were in the process of foreclosure, with 8,535 (2.96%) sitting empty as “zombie” foreclosures. The percentage of zombie properties is down from 3.2% in third quarter 2019 and 4.7% in third quarter 2016. “The fourth quarter of 2019 was a repeat of the third quarter when it came to properties abandoned by owners facing foreclosure: the scourge continued to fade. One of the most visible signs of the housing market crash during the Great Recession keeps receding into the past,” said Todd Teta, chief product officer with ATTOM Data Solutions. “While pockets of zombie foreclosures remain, neighborhoods throughout the country are confronting fewer and fewer of the empty, decaying properties that were symbolic of the fallout from the housing market crash during the recession.” Here are some of the report’s highlights: A total of 8,535 properties facing possible foreclosure were vacated by their owners nationwide in the fourth quarter of 2019. Washington, D.C., continued to have the highest percentage of zombie foreclosures (10.5%). States where the zombie foreclosure rates were above the national rate of 2.9 percent included Kansas (7.9%), Oregon (7.9%), Montana (7.4%); Maine (6.7%) and New Mexico (5.8%). The lowest rates – all less than 1.2 percent – were in North Dakota, Arkansas, Idaho, Colorado and Delaware. New York had the highest actual number of zombie properties (2,266), followed by Florida (1,461), Illinois (892), Ohio (823) and New Jersey (398). Still, those numbers were lower than third quarter 2019. Among metropolitan areas with at least 100,000 residential properties, Peoria, Illinois, continued to have the highest percent of vacant foreclosures (zombies) at 13.5%, followed by Wichita, Kansas (10.2%); Lexington, Kentucky (9.8%); Syracuse, New York (9.3%) and Honolulu, Hawaii (8.6%). Among Zip codes with a population of 10,000 or more and least 1,000 vacant properties, the highest rates of zombie foreclosure properties were concentrated in the Midwest. Zip codes with the top percentages included the 48505 and 48504 Zip codes in the Flint, Michigan, metro area; the 46407 and 60426 Zip codes in the Chicago, Illinois, metro area; the 29928 Zip code in the Hilton Head, South Carolina, metro area; and the 46016 Zip code in the Indianapolis, Indiana metro area. The top zombie foreclosure rates in counties with at least 500 properties in foreclosure included Peoria County, Illinois (17.2%); Baltimore City/County, New York (11.5%); Broome County, New York (10.3%); Onondaga County, New York (9.7 %); and Cuyahoga County, Ohio (9.4%). The highest levels of vacant investor-owned homes were in Indiana (8.7%), Kansas (6.6%), Minnesota (6%), Ohio (5.9%) and Rhode Island (5.9%). The highest overall vacancy rates for all residential properties were in Tennessee (2.7%); Kansas (2.7%); Indiana (2.6%); Oklahoma (2.5%) and Mississippi (2.5%). The lowest were in New Hampshire (0.4%); Vermont (0.4%); Delaware (0.5%); Idaho (0.6%) and North Dakota (0.7%). The full report is available at https://www.attomdata.com/news/market-trends/q4-2019-vacancy-and-zombie-foreclosure-report.

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Third Quarter Foreclosure Activity at Lowest Level Since 2005

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A mid-October report released by ATTOM Data Solutions shows a total of 143,105 U.S. properties with foreclosure filings in third quarter 2019. That’s down 6% from the second quarter and 19% from a year ago, marking the lowest level since the second quarter of 2005. U.S. foreclosure activity in the third quarter was 49 percent below the pre-recession average of 278,912 properties with foreclosure filings per quarter between first quarter 2006 and third quarter 2007—the 12th consecutive quarter in which U.S. foreclosure activity has registered below the pre-recession average. Still, Todd Teta, chief product officer at ATTOM Data Solutions, said: “This is not to say that everything in the latest foreclosure picture is rosy. Some states have seen their foreclosure rates increase this year, which could cause some concern. But overall, the foreclosure numbers reflect a market in which buyers can afford their homes and lenders remain careful in loaning to home buyers who have little chance of repaying.” During the third quarter, lenders began the foreclosure process on 78,394 U.S. properties, down 8% from the previous quarter and down 15% from a year ago. The 14 states posting year-over-year increases in foreclosure starts in third quarter 2019 included Montana (up 33%); Georgia (up 32%); Washington (up 16%); Louisiana (up 15%); and Michigan (up 12%). Several metropolitan statistical areas also countered the national trend. Of the 220 metropolitan statistical areas analyzed in the report, 66 posted a year-over-year increase in foreclosure starts in the third quarter. Those markets with at least 1 million people that posted year-over-year increases included Atlanta, Georgia (up 37%); Columbus, Ohio (up 27%); San Antonio, Texas (up 24%); Portland, Oregon (up 22%); and Tucson, Arizona (up 21%). The states with the highest foreclosure rates during the time period analyzed were Delaware, New Jersey, Maryland, Illinois and Florida. Among 220 metropolitan statistical areas analyzed in the report, those with the highest foreclosure rates in the third quarter were Atlantic City, New Jersey; Trenton, New Jersey; Rockford, Illinois; Fayetteville, North Carolina; and Peoria, Illinois. Lenders repossessed 34,432 U.S. properties through foreclosure (REO) in the third quarter. That’s up 6% from the second quarter but down 33% from a year ago. Properties foreclosed in the third quarter had been in the foreclosure process an average of 841 days, up from 716 days in the second quarter and up from 713 days during the same period a year ago. View the full report here.

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Announcing . . .

You’re Invited . . . To Receive Advance Access to New Listings REI INK magazine is excited to announce the launch of the REI Referral Network. Real estate investors and service providers are invited to join this membership platform to connect with real estate agents who are active in the investment space. For our inaugural launch, we are offering FREE memberships for the first 500 investors who enroll. Your complimentary membership is good through March 2020. There are associations that connect lenders with investors, but none that connect investors with real estate agents and brokers. Our network of real estate agents and brokers are well versed in the business of real estate and are fluent in the criteria investors use to analyze their asset acquisition and disposition strategies. As a member, among other benefits, you will learn how regional markets are performing, receive localized information that will help you expand your portfolio and have access to a database of Real Estate Professionals listed by state and by county to accurately align with your industry focus.  We understand the investor arena and believe our referral network members will help you develop strategies to meet and exceed your ROI projections. We look forward to working with you and assisting in your ROI performance.

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Mom-and-Pop Investors Fueling Foreclosure Auction Market

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According to the 2019 Buyer Insights Survey Report, released this week by Auction.com, more than half of foreclosure auction buyers are mom-and-pop investors who are purchasing between one and five properties a year. The survey found that 51 percent of foreclosure auction buyers plan to purchase fewer than five properties in 2019, and 22 percent plan to purchase more than 10 properties for the year. Only 2 percent of buyers said they plan to purchase more than 100 properties in 2019. “Foreclosure auctions are no longer dominated by larger investors able to navigate what was an opaque process of purchasing a property at the courthouse steps or from a hard-to-find REO asset manager,” said Jason Allnutt, Auction.com CEO. ”The majority of foreclosure and REO auction buyers are now smaller, mom-and-pop investors who are taking advantage of a much more accessible buying experience.” Among the report’s additional highlights: 73 percent are purchasing properties in the South region of the country, the highest share of any region. Other regions of the U.S. came in at Midwest (39%), Northeast (22%) and West (13%). 24 percent said their local housing market is overvalued, with a correction possible. 33 percent expect to see home price appreciation between 3 and 5 percent over the next 12 months. Novice investors were identified as the biggest competitive threat to buyers surveyed. Rehab-and-flip was the most popular investing strategy. 49 percent budget at least 20 percent of the property purchase price for rehab costs. The Auction.com 2019 Buyer Insights Survey Report is based on a survey sent to more than 4,700 buyers who had purchased at least three properties on the Auction.com platform. The survey was conducted between June 6 and June 20, 2019, with 197 buyers responding.

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The Hidden Weapon: Property Managers

Property managers can be the difference makers for profitable portfolios. Owning rental properties can be an outstanding investment. But managing and growing a portfolio is also full of inherent challenges and risks. Managing tenants, rehab and general maintenance, vacancy cycles, and even legal and code-related responsibilities can be complicated and challenging—often requiring a range of specialized skills, strategic vendor partnerships and operational capacity. Property managers can identify trends across your portfolio that you might not see. Trends they may identify in preventive maintenance, tenant screening and so on can help you to proactively make your portfolio more profitable and create a better experience for your tenants. Enhanced Tenant Experience Tenants are often a real estate investor’s primary revenue source. They can also be the cause of some of your biggest business risks, which is why creating and managing a tenant experience is one of the most important functions of a property management company. Working with a property manager who enhances a tenant’s renting experience can ultimately result in longer leases, fewer vacancies and your ability to maximize rents. A property manager will be available to your tenants 24/7 to handle emergency maintenance repairs, rent collection and move-ins/move-outs. They can also ensure that any damage is handled quickly, so that a small problem doesn’t become a big disaster. Better Operational Practices Property managers should have the resources to facilitate online payments, present key performance indicators and other data, eliminate extended vacancy and provide access to qualified and competitively priced maintenance/repair services. Property managers’ knowledge of local, state and federal landlord-tenant laws will ensure that all practices are in compliance. They should also have adequate processes in place to ensure proper record retention. In addition, property managers are experienced in recovering NSF checks (checks returned for “not sufficient funds”), collecting debts and evictions. Outsourcing these activities removes the burden from your operation and helps to insulate you, the investor, from having to carry out potentially difficult tasks. Property managers can also streamline tenant screenings and enhance due diligence, including checking credit reports, past evictions and criminal history. All of these help to ensure that only desirable tenants rent your properties. The Right Tenants Unfortunately, not all tenants are equal. Putting the wrong tenant in your investment property can significantly affect both short- and long-term profitability. Tenant screening goes beyond the basic credit check. Be sure you have a thorough understanding of the property management company’s tenant selection criteria. In a market with greater than 95% occupancy, it is an opportune time to charge your property manager with finding the optimal tenant. Finding the right tenants and keeping them happy increases the likelihood of lease renewal. A property manager should also look to increase profits by increasing rent at renewal. They will be able to gauge what a reasonable—but also profitable—increase should be, while also staying compliant with landlord/tenant laws. The Upside of Upkeep Most property management firms have standing relationships with a range of contractors from plumbers and roofers to HVAC technicians and excavators. Those relationships can mean less costly and faster repairs. Speed is a critical factor for many reasons, most notably tenant convenience and alternative living expenses. Routine maintenance, upkeep and upgrades increase the value of your property. According to data surveyed by PropertyMeld from  5,800 units across three markets examined over 18 months, preventative maintenance and overall upkeep can also reduce tenant service requests by 38%, thus cutting down on unexpected expenses. Regular inspections will ensure the property is kept in good condition and that the fire alarms are fully functional, while also verifying that all individuals living in the property have been screened and are listed on the lease. At time of move-out, the property manager should conduct a thorough inspection of the property and provide a report of all required and recommended repairs. Property managers can also help enforce that your tenants maintain an active renters/tenant liability insurance policy. Such a policy will help preserve the stability of your primary property and casualty coverage. According to a recent study by SES Risk Solutions, over 55% of all fire losses were tenant-induced—losses that would have been largely recoverable via subrogation, if a renters/tenant liability coverage were in place. Most importantly, a  property manager takes the burden of the day-to-day operations off the investor, allowing the investor to focus on growing the portfolio. A trusted property management firm can also allow investors to expand their holdings beyond a tight geographical area. Finding the Right Property Manager Property management companies often focus on specific property types (single-family dwellings, multifamily dwellings, condominium units, etc.), so it is critical that your property manager has the specialized experience to handle your unique needs. Property managers should be an expert in their respective field and be quick to adapt to changes in the market and industry (i.e., marketing approach, tenant communications, etc.). Select a property manager that wants to establish trust and offers consultative services, such as through a dynamic Not to Exceed (NTE) amount for repairs and maintenance. Additionally, look for property managers that have policies and guarantees that protect you if they are unable to place a new tenant within a reasonable time. Marketplaces (such as Roofstock), and property managers will sometimes waive fees, cover rent and offer one-year guarantees on repairs and maintenance. Several industry events provide great access to property managers, including IMN’s Property Manager Forum. Online searches are also another great place to start. Here are key search terms to use: <Your City> Property Managers <Your City> Property Management Rental Property Management Rental Management Property Management Companies Near Me Ask for recommendations from your local chamber of commerce or property manager associations such as the National Association of Residential Property Managers (NARPM), read blogs and network with fellow investors. It’s also a good idea to talk to your insurance carrier or other risk management specialists to find out if you’re fully covered and to ensure your prospective property management company carries the right insurance.

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Cyberattacks: The Quiet ROI Killer

Tips for minimizing risk in today’s digitally reliant world By Zach Fuller Market shifts, tenant issues, lawsuits and maintenance expenses are risks we think about and plan for regularly in our investment endeavors. Proper planning and safeguards help you keep the returns you’ve built, both in your business and investment portfolio. However, there is a “ROI killer” that happens quicker, hits harder and is more elusive than perhaps any of the others—a cyberattack. We hear about cyberattacks on Fortune 500 companies almost daily, leading many people to believe that big brands are the primary targets. But, most people do not realize that for every breach mentioned on the news, there are thousands more that go unannounced around the U.S. Victims range from mortgage companies to venture capital groups and, yes, even technology service providers. Small Targets, Big Payoffs The real estate industry is made up primarily of smaller organizations without significant IT budgets and rarely with an in-house cybersecurity team. As a result, these companies are easy targets for cybercriminals. Whether you have a personal portfolio of properties, are a regionally recognized title company, or are a nationwide lender, you are the perfect target for financially motivated cybercrime organizations around the world. You may ask, “Why would they want to come after me?” The answer is simple: You deal with sizable assets, are involved in complex transactions and rely on some level of trust in other parties to run your business. Most of all, technology is a required part of your daily operations. Cyberattacks are financially motivated and often successful in extracting significant amounts of money from the victim. For the individual investor, an attack may be escrow funds unknowingly transferred to an account controlled by a criminal rather than the escrow account. For the title company or lender, attacks can range from theft of large amounts of personal and financial records, to stopping business operations in their tracks until a large fee is paid to the attacker. Reduce Your Risk Knowing that most cybercriminals are financially motivated and looking for the quickest income, you can follow simple practices to make yourself and your company a harder target than others. When the cybercriminal’s potential gain is less than the resources required to achieve it, they move on to easier targets. Here are a few ways to reduce risk: For Companies  (title, lenders, PE  firms, retirement plan custodians, etc.) Align to a standardized cybersecurity framework such as NIST SP 800-151 or CIS Controls. Build a culture of  security, starting with leadership support. Deliver staff awareness  training quarterly. KnowBe4 is a great  platform for this. Conduct annual risk assessments and  penetration tests on critical systems. Ensure you have a complete set of IT and security documentation. These include documents such as an Incident Response Plan, password policy, acceptable use policy, bring your own device (BYOD) policy, etc. Carry cyber insurance. Although a reactive measure, cyber insurance is inexpensive and likely to be used. For individuals Have situational awareness. If a request doesn’t feel right, pick up the phone and make a call to verify. Just because an email appears to come from someone you know, it doesn’t mean it is legitimate. Use two-factor authentication. Use an authenticator application (e.g., Google Authenticator) when possible, instead of a pass code being sent via text message. Set up critical accounts with a separate and private email address rather than your daily business or personal account. Keep all software and firmware updated on your computer and network. Ensure your home and office router default usernames and passwords are changed, both for Wi-Fi and router administration. Use a virtual private network (VPN) service when working from any public Wi-Fi. Use hard passwords with a minimum of 12 characters and no common words (password managers are great for this). Implement lock screens on all devices and remote wipe capability on mobile devices. Back up your files regularly, encrypt the backups (there are many tools available for this online), and then “unplug” until next backup. Ensure your vendors (title companies, etc.) are following accepted security practices to reduce the chance of your own information being compromised in their breach (security questionnaires are available online). Dark Clouds There is a dangerous myth that has caused many cyberattacks among smaller organizations. This is the myth that cloud-based services will keep you secure. From Google G-Suite and Office 365, to Salesforce and Dropbox, we all use cloud-based services to support at least portions of our business operations. Using the “cloud” absolutely makes sense for most small-midsize businesses. It provides tremendous capabilities while reducing the required investment in IT infrastructure. However, even the services with the most sophisticated security measures can be compromised if users don’t configure their accounts properly. For example, recently an investment group experienced significant losses after an executive’s primary email account was hacked. This account was used for everyday communication, so it was publicly known. It was also used to register the company’s domain name, for cryptocurrency accounts and to access the cloud-based storage containing information about all the company’s high-net worth investors. The attackers were able to hijack the domain name, taking company communications offline (email accounts and website), steal cryptocurrency accounts and compromise the security of the investors by accessing their sensitive data. Trust is vital in the investment business. One can only imagine what a  company’s investors must feel when the company seems to have disappeared digitally. Suddenly, investors can’t reach their point of contact and the company website is down. To make it worse, the investors get notified that their personal information and even bank account numbers are now in the hands of criminals. Sometimes this notification comes from the  criminals themselves as  a form of extortion. Situations like these show how critical proactive cybersecurity is for organizations of all sizes  in today’s technology-reliant environment. Whether you take proactive measures yourself or hire professionals to protect your company, cybersecurity is a requirement of doing business. There are already enough variables and risks in the

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