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Emerald Capital Funding is Now Pacific Equity & Loan

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Emerald Capital Funding now operates as Pacific Equity & Loan after joining with Pacific Equity & Loan. The deal will allow them to provide more resources and investment opportunities to real estate investors in the Washington market. “The move comes amid a rapidly evolving mortgage industry in specifically the private money and hard money lending sector,” said Christopher Robison, ECF president and founder, in a press release.  “We need to stay ahead of the curve and assure that our customers receive the best value, the best technology and continue to work with a trusted local lender. We are noticing a lot of new players from other states that might not know our market as well as we do. Our team of professionals ensure our investors realize the returns they desire with accurate metrics based on local insights and years of experience in the local market.” Real estate investors can expect a new online experience with more resources, additional experienced professionals and an increased local presence. Pacific Equity & Loan has offices in Federal Way, Washington, and Lakewood, Washington. It is a private mortgage lender offering fix-and-flip bridge loans, new construction loans and rental property loans to investors using a simplified online platform that reduces paperwork and closing lag.

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The BRRRR Method Is Actually Quite Hot!

Investors are using this method to heat up their real estate portfolios. by Christian Pepe You’ve probably heard of the famous BRRRR method, the phrase made popular by Bigger Pockets’ Brandon Turner. The BRRRR method involves five steps: Buy Renovate Rent Refinance Repeat. It’s a new name for a time-tested strategy to create wealth through real estate. Whether you know the acronym or not, all seasoned real estate investors understand the concept. First you buy a property cheap, renovate the property to make it presentable and then rent it to create cash flow. Finally, you refinance to get all your cash back and go do it again! While the concept does indeed sound straightforward, investors often struggle to obtain the financing (loan) needed. Traditional banks and conventional lenders won’t lend on these types of real estate investments. In fact, traditional loan programs will not help you BRRRR your way to wealth in real estate. Investors need to align themselves with a lender that understands the method itself. Here’s what that looks like in two steps: Step 1: Fix/Flip Bridge Loan: A short-term fix/flip loan will give you the financing you need to buy and fix the property. These loan programs are designed to allow you to buy a property “as is” and renovate it. The programs typically provide 80-90% of the funds to buy the property and 100% of the construction funds needed to renovate it. This type of loan allows you to act fast and close quickly, making you the next best thing to a cash buyer. These loans are usually referred to as fix/flip loans, , but in regards to the BRRRR method, the true plan will be to fix/hold. It’s very important to let your lender know the plan is to buy/fix/hold because they will look at the deal differently than if the plan is to buy/fix/flip. Most lenders focus on ARV, or “as repaired value,” but if you let your lender know the plan is to hold, they will analyze the deal differently and may lend a higher percentage of ARV. When flipping, lenders typically won’t lend you more than 70% of ARV. If the plan is to hold, you may get more flexibility based on your potential rent cash flow. Step 2: Long-term Landlord Loan/DSCR Loan: DSCR stands for Debt Service Coverage Ratio, referring to the cash flow of a property. On DSCR loans, lenders are basing their lending decision more on the rental income and cash flow of the property and focusing less on the personal income of the borrower. In fact, these are considered “No Doc” loans, meaning you won’t need to provide nearly as much documentation as you would for a traditional mortgage. Another benefit of a DSCR loan is that many lenders will allow you to close the transaction in the name of an LLC or corporation. This is highly beneficial to investors. Holding a property in the name of an LLC offers potential tax benefits to investors and reduces exposure from a liability standpoint. By using a short-term buy/fix loan and a long-term DSCR loan, you can now buy a distressed property, renovate it and then refinance into a 30-year fixed-rate loan. The best part is most DSCR loans allow you to “cash out” on the new property value without a long waiting period. Most traditional loans will make you wait up to 12 months before lending on the new or renovated value. With a DSCR loan, you should be able to “cash out” as soon as the work is done and the property is renovated. Here is an example to demonstrate how this really works: Buy a single-family home: $100,000 Construction costs: $30,000 ARV (As Repaired Value): $175,000 Step 1: Fix/Hold Bridge Loan: $85,000 to buy the property (85% of purchase price) $30,000 to renovate (100% of construction costs) Total Loan Amount: $115,000 Step 2: DSCR 30 Year Fixed Loan: New Value (ARV): $175,000 Cash out refinance (75% of value): $131,250 You now have most or all of your cash back in the bank, and you have a property that cash flows completely. Your tenant is paying down your debt and, long term, your asset is expected to appreciate in value. Obviously, this example keeps it very simple and many other things still need to be factored into the equation (e.g., closing costs of each loan, carrying costs, loan qualification parameters, etc.). But my point is to get you thinking! You can make this happen and most likely with not as much cash as you think. Start building your real estate portfolio today with the BRRRR method.

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The Rise of SFR 3.0

Technology is shaping the latest phase of single-family rental—and new opportunities await both investors and renters. Single-family rental (SFR) investing has existed for as long as landlords have owned detached single-family rental homes. In modern times, a landlord is any individual(s), government body or institution that provides housing for people who either can’t afford or don’t want to own their own homes. Great Recession Triggers SFR 2.0 Although various new ways to leverage debt did enter the market, not much fundamentally changed in SFR for centuries. Even the types of investors who owned the units stayed relatively consistent during “SFR 1.0,” with most being wealthy local businessmen. But the foreclosure crisis set the stage for SFR 2.0. Here’s how. In 2008-2009, at the height of the Great Recession, the residential real estate market was tanking. But by 2010-2011, as home values began clawing their way back toward their 2006 peaks, investors were increasingly attracted to this asset class. These new investors included many first-time investors, ranging from individuals to very large institutional investors. The market not only saw the entrance of “large” owners but also an increase in the number of institutional investors. Many of these new institutional investors for the first time bought single-family properties by the hundreds and  even thousands. Consider the words of American investor Warren Buffet who in February 2012 remarked: “I would buy a couple of hundred thousand homes if I could figure out a way to manage them.” After the bottom was established, residential real estate began following the stock market—which has continued to surge, more than doubling in value. Nearly nine years later, SFR has proven to be a viable institutional asset class. It currently boasts three public real estate investment trusts (REITs)—American Homes 4 Rent, Invitation Homes and Front Yard Residential—and many large private funds whose numbers are growing. Additionally, beginning in 2020, even more money is already slated for allocation to this asset class by first-time SFR institutional investors. Positioned for SFR 3.0 Today, we are entering yet another stage of single-family rental—SFR 3.0. The shifts in SFR from 2011 to 2019 occurred at a dizzying speed when compared to the incremental changes of the previous hundreds of years. Technology innovations provided tools not only for better analyzing market data but also for executing every part of the rental process. Meanwhile, all this new dry powder is looking to get going at a time when distressed inventory is at its lowest volume level in the last decade. So, what’s a new investor to do? Fortunately for these new groups, many of the original service providers who helped initial institutional aggregators build their portfolios are still around. Further, they have welcomed technological advances openly and now offer services directly to investors. This group includes Entera, SFRhub, Mynd and ResiPro—all technology-backed service providers whose founders have provided services to various institutional investors across multiple states. Others include JWB out of Jacksonville, Florida, who are very active in a single city but cover every service investor need. These turnkey services include building new homes specifically for rental from the ground up, as well as sourcing distressed homes to renovate, renovations, leasing, managing, maintaining and selling investment homes. Technology will only continue to make system and process flow easier and more transparent. When combined with machine learning and AI, even more information can be shared with more people, the rate of data harvesting will increase and the data itself will be even more accurate. These developments open up the SFR asset class even further. Investors with a smaller amount of capital behind their first fund or even an individual who wishes to invest in a fraction of a single rental home can now do so through a group like Roofstock. Perhaps most interesting for the next growth phase of SFR is Build-To-Rent (BTR). BTR involves small regional homebuilders like Kinloch Partners and ResiBuilt, who are specifically building new homes for rentals across entire communities, or even scattered lots one at a time. Finally, with more capital inflow and institutional activity, both large and small investors will continue to push out to more locations, seeking more geographic diversity. Going forward, local agents, and even the national brokerages they work under, will have to get involved. Many have already started announcing their official foray into representing investors at large by first representing sellers through iBuying. “iBuying” is the term used for companies that bid on homes from potential sellers by offering a firm price and a quick close. Opendoor is a leader in the iBuying movement. This venture-backed iBuyer purchased about 10,000 homes from January to July 2019. Zillow Offers, another iBuyer, closed about a third of Opendoor’s  volume. Offerpad closed just under 2,000 homes  in the same period. Interestingly, many of the founders of these companies were early leaders in building large pools of single-family rentals for their institutional partners. These innovators used their experience to create these iBuyer companies. Each week it seems as if another national brokerage announces they are officially an iBuyer. Yet just over a year ago, many publicly stated they would never become an iBuyer and openly campaigned against the model. Relatedly, many brokerage houses are also embracing “concierge,” meaning they provide specific renovation services either directly or indirectly for their clients who are selling. In some cases, the agent’s broker or an affiliate may pay for the renovation costs. In other scenarios, the homeowner may borrow money from a private lender who will use the soon-to-be for sale home as collateral, getting paid back contractually at closing. In other cases, venture-backed groups like Figure allow homeowners to borrow directly from a private lender for specific home improvements. Just as independent booksellers promoted their stores as having salon-like atmospheres offering book signings, lectures, children’s story times, reading groups and so on, many real estate companies will do the same with property-related services. These include not just the purchase and sale but also general contracting, lending and education about the entire

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Innovation Points Straight to Evolution

Industry behemoth Altisource is helping every investor scale When Stephen R. Covey observed in the 1980s, “The key is not in spending time, but investing it,” he could have been describing the problem Altisource would be solving roughly three decades later. Altisource, an integrated service provider and marketplace for the real estate and mortgage industries, offers a tailored suite of services for real estate investors. Altisource Vice President Ben Hall described the offering as “a compelling solution for investors getting into the market or looking to scale.” “We help close some of the largest transactions in the industry, including a $508 million single-family rental portfolio acquisition last year with multiple levels of financing. We  are not a small shop,”  Hall said. Still, the very scale of the company enables midsize investors to leverage the Altisource suite of products and services to scale their portfolios and streamline their real estate operations in meaningful and accelerated ways. “We provide solutions to investors managing diverse portfolios,” he said. “Real estate investors understand that having a diverse portfolio will provide greater opportunities to innovate. We are an ideal partner for these investors because at Altisource, our products and services are constantly expanding and evolving.” Support and Data on All Fronts Altisource operates on multiple, distinct fronts. The company’s suite of solutions allows investors to research, bid and close on real estate properties with a single vendor. “You cannot get our combination and breadth of data anywhere else on the market,” Hall said. For example, investors currently scaling their investment portfolios use RentRange rental data and Springhouse valuation services to make predictions about market-specific economic trends, rental rates and property values, factoring in a vast array of metrics and data points not centrally available outside of Altisource. Investors on all scales leverage the online real estate marketing platform Hubzu to both acquire and liquidate properties. The company also offers a standardized closing process option using its vertically integrated Premium Title and settlement services. “Our message to investors is simple: Don’t do it alone,” Hall said. “The real estate investor market is maturing, and there are phenomenal resources out there to help you along the way.” Innovation and Investor-Friendly Focus Hall explained that one of the biggest attractions to him when he joined Altisource in 2011 was the company’s potential to be a “market differentiator.” Unlike many real estate-related service providers, Altisource continues to be viable and relevant in both up and down markets. “Real estate is cyclical. If one part of the market is down, another part is probably up. A company like ours is a diversifying and stabilizing factor because the organization is diverse and stable,” Hall explained. “It’s why we are so focused on serving the investment community and taking every opportunity to innovate while we do so. When you have a diverse portfolio of real estate or of real estate services, the innovation just comes naturally.” One of these innovations has become a staple for many lenders using the Altisource suite. “In conjunction with  traditional appraisal methods, lenders can utilize the RentRange Automated Valuation Model (AVM) to help justify valuation of the property and the rental income or stated rent values,” Hall said. AVM leverages RentRange’s wide range of data integration and data retrieval tools to expedite the loan underwriting process, saving lenders time and money while increasing their ability to see the whole picture when it comes to underwriting a loan. “Our RentRange AVM results may be incorporated into the loan underwriting model as part of the underwriting process. This helps lenders evaluate loan amount and mortgage amount versus rental income,” Heigold explained. “The adjustment to the underwriting process will create a clearer picture for the lender when it comes to predicting negative cash flow potential on a property.” That data may also be used to identify alternatives for investment properties when an investor’s original strategy falls through. “Any loan can benefit from a review using our services because the information gives the investor an idea of other options for what to do with a property,” Heigold said. “For example, if you are an owner-occupant falling on hard times, could you rent a less expensive apartment and cover your mortgage by renting out your house? In some markets, this option would let you keep your house and even generate returns in some cases. This type of analysis can also help an investor identify which properties to keep and which to sell in a liquidation scenario.” All About Scale At the end of the day, every move Altisource makes is about providing something—a data point, a service inroad or a new purchase or sales portal— for midmarket real estate investors. One way to create an increasingly large pool of midmarket investors is to assist smaller investors through the scaling process in every way possible. For example, RentRange’s AVM was designed with the individual investor’s needs in mind as well as the requirements of those with larger holdings. Unlike traditional AVM estimates, RentRange’s model can predict current market rent rates using the characteristics of an investor’s specific property. “Investors with just a few properties in their portfolios use our model to make decisions about future rent changes,” Heigold said. Hall noted many of the company’s larger clients are using the tool as well, which is, of course, good for the integrity of the entire analytics system. “The RentRange AVM provides you with real-time cash-flow estimates to plug into your unique investment model. It is a key component for investors that used to have to make guesstimates about future rental income,” Heigold said. “With the RentRange AVM, we have more data than they could ever collect on their own: MLS, property management companies, other rental sites, etc. We combine it into one system that provides you with a rental estimate in two seconds—a real fastball.” “We solve the complexities of managing diverse real estate portfolios so investors can remain hyper-focused on investment strategy,” Hall said. “We listen to the investor community and, together,

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Chicago’s “Unbelievable” Industrial Real Estate Sector

Sidebar to January 2020 Regional Spotlight: Why Chicago Works for Investors in 2020 Local brokers are finding it difficult to find enough positive adjectives to describe Chicago’s warehouse market. “The demand has been unbelievable,” said Fred Regnery, principal broker at the Colliers Rosemont office, noting that even trade tensions with China have not dampened demand for this type of property. “The underlying fundamentals have been so good the tariffs haven’t been big enough to change anybody’s plans.” Industrial and warehouse properties in the Chicago  area are getting harder and harder to find as vacancy rates plummet in the area. Local industrial vacancy rates were just 6.15% in third quarter 2019, down from 6.4% a year prior. Local vacancies have not been that low since early 2001. Analysts say the sector is thriving in large part because of “boosted sales of goods manufactured and stored in industrial buildings.” Crain’s described “the rise of online shopping” as “rocket fuel to the market” and cited Amazon’s ongoing expansions as a big factor in the sector’s growth. With more retailers taking their products online, the demand for warehouses to support the supply chains necessary for e-commerce has burgeoned. Amazon alone plans to open two “delivery stations” in Chicago suburbs Skokie and Channahon that will boast a cumulative 1.3 million square feet and create hundreds of new jobs in these areas. Another vendor, British liquor company Diageo, is erecting a 1.5 million-square-foot warehouse in Plainfield. Industrial warehouse space demand is measured by net absorption, meaning the change in the amount of leased space compared to previous time periods. In third quarter 2019, the net absorption for the Chicago market was 9.2 million square feet, Colliers reported. That is the most absorbed in a quarter since 2005. Chicago net absorption had been positive for 30 consecutive quarters at that point. In fact, the metric has been so consistent that developers have not yet overshot the market despite erecting huge concrete boxes almost anywhere there is space to put them. Colliers estimated Chicago-area absorption would total 22.5 million square feet at the end of 2019, the second-highest amount absorbed during the current economic cycle.

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Real Estate’s Financial Opportunity

Investment opportunities will continue to grow. Perhaps better than any other group, America’s Realtors understand how property ownership has the potential to change lives and enhance futures for individuals from every background and in every corner of this country. Homeowners volunteer, serve on community boards and vote in local elections at a higher rate than the general population. And studies have shown that the children of homeowners perform better in school and go on to earn more money as adults than the children of non-homeowners. In addition to these tangible societal and socioeconomic benefits, real estate presents a tremendous financial opportunity for investors and potential investors—no matter the resources or expertise they possess. Housing’s Impact on the U.S. Economy Home sales support more than 2.5 million private-sector jobs in this country in an average year. Few, if any, industries are more important to America’s economic engine than this. And as our economy continues to perform, there is profit potential for investors in nearly every U.S. market. Figures from October show that the U.S. economy continues to create about 2 million jobs per year, while the 3.6% unemployment rate is approaching historic lows and wages are growing faster than inflation. One of the most promising indicators that this strength is sustainable is data showing the number of job openings (7 million) outpacing current job seekers (5.9 million). National Association of Realtors’ Chief Economist Lawrence Yun has echoed this belief, stressing his optimism at the 2019 Realtors Conference and Expo in San Francisco in December 2019. “Because of healthy consumer activity and job creation in every state, I do not foresee a recession in 2020,” Yun said, noting that current conditions are better than they were before previous U.S. recessions. “The outlook for our economic climate becomes particularly strong when considering housing demand and low interest rates, which have boosted the economy and residential and commercial activity,” he added. The overall outlook surrounding interest rates should indeed project confidence to investors and property owners alike, as Yun refers to persistent low mortgage rates as our economy’s “magic bullet.” With 30-year fixed-mortgage rates expected to hover around 4% next year, the average homeowner could shave around $100 a month—or more—off their mortgage, amounting to tens of thousands of dollars in savings over the life of a loan. For property owners, potential investors and prospective homebuyers, all these positive economic trends signal a market that is able to withstand inventory shortages and considerable price appreciation many U.S. markets have recently witnessed. Shifting Domestic Demographics As our economy moves forward, so too will our housing market. And as our housing market strengthens, so too will our economy. This is a cycle that, while not without risks, presents tremendous opportunity for those currently mulling the prospect of homeownership or property investment. Factor in added demand as millennials age and pay off student debt while baby boomers begin to downsize, and a formula exists to suggest the sustainable, long-term vitality of America’s housing market—even though additional new home construction would certainly be a welcome sight. And, make no mistake, these demographic trends matter. Among households with heads aged 25 to 64, the largest group is those headed by 25- to 34-year-olds (46.2 million). This group includes millennials (born 1982-2000), the youngest of whom will be 30 years old by 2030. The 35-to-44 age group, Generation X, comprises another 41.8 million households. As these individuals grow older, marry and form their own households, many will begin seeking out a home to match their evolving lives. In a recent national study, eight of 10 millennials said owning a home is part of their American dream, and that they hope to do so in the future. The reality, however, is that student loan debt continues to burden a significant portion of this population. The typical millennial can expect to wait seven years before the dream of homeownership can become a reality. And when it comes time to buy, those with student debt purchase homes worth 19% less than buyers with identical incomes, even when controlling for region and square feet. As this problem persists, NAR continues to advocate for policies designed to increase housing supply and maximize affordability, including allowing higher density in single-family zoned areas; easing minimum parking regulations that may be outdated due to the rise of ride share apps and the expansion of public transportation; and promoting cost and time-efficiencies from modular, panelized or manufactured housing. Transforming Commerce Transforms Investment Outside of the residential space, the explosion of e-commerce continues to drive the demand for industrial warehouses and flex office space. Consider Amazon’s one-day delivery model and Walmart’s intention to develop its own competing system. Quick and efficient delivery means more warehouse distribution centers. And because retailing is population driven, areas with strong population growth are likely to see increasing demand for industrial office space. With this, the South and Midwest regions emerge as particularly attractive industrial real estate investment destinations, thanks largely to increasing domestic migration and property values that remain relatively affordable. Metro areas with cost-effective industrial rents coupled with strong in-migration are Atlanta, Dallas, Houston, Minneapolis  and Washington, D.C. Finally, the multifamily market is arguably the most attractive commercial property class. Rental vacancy rates are currently very tight in many metro areas, indicative of the demand for rental housing. National rental vacancy rates sit at 7%, but these figures are substantially lower in major metropolitan markets like Boston, Denver, Los Angeles, Dallas, Chicago and Phoenix. All across the country, America’s 1.4 million Realtors are engaged with private partners, housing industry trade groups and lawmakers to raise awareness about the challenges facing homebuyers and to promote solutions that address critical national housing needs. As our focus on ensuring the American dream remains a reality for people from all background and all walks of life, investment opportunities will continue to grow. And that development will only benefit property owners, homebuyers and our economy moving forward.

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