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The Future of Senior Housing

Co-housing may be the solution to senior citizens’ housing  needs—and an opportunity for investors. From McMansions to mini homes, the housing market is ever changing. A major shift that’s occurring right now is being fueled by the aging of the baby boomer generation. According to the U.S. Census Bureau’s 2017 National Population Projections report, every person in this cohort of the population will be 65 or older by 2030—just a decade from now. And by 2034, 77 million people will be 65 or older compared to 76.5 million who will be under the age of 18. Implications for the Housing Market Millions of people are thinking about “downsizing” now that the kids have moved out. According to a Zillow report released in November 2019, four of 10 homes in the U.S. are owned by residents age 60 or older. That percentage increases if you shave off just another five years of age: five of 10 are owned by residents age 55 or older. The report notes that roughly 21 million homes are likely to be vacated during the next 20 years—either through downsizing or death. What does this transformative shift mean for the housing market? As the old adage goes, “There are two sides to every story.” And that’s true of the housing market implications created by aging Boomers. On the one hand, seniors are in the market for a different type of housing than they’ve been accustomed to for decades—and that new type of housing is in short supply. On the other hand, who’s going to buy the houses they currently own? The Silver Tsunami, as the transformation is sometimes called, is creating a glut of larger homes, especially in areas that are pricy and relatively exclusive, making them unaffordable for younger buyers. According to the same Zillow analysis, retirement destinations such as Miami, Orlando, Tampa and Tucson will also likely experience much housing turnover down the road if future retirees aren’t as attracted to these areas and the homes available there. Other regions of the country, including Cleveland, Dayton, Knoxville and Pittsburgh, may also see a bigger impact from the transition. In recent decades, these areas have lost younger residents who have left for better job opportunities. The result is an older population in those communities. Let’s start with the first situation. For seniors, the home that worked for them when they were younger and raising a family may be very different from the home they need and want now. Many need a smaller and more senior-friendly home that still offers some space and privacy. They don’t need the big 3,000- to 5,000-square-foot, four- to five-bedroom home on a half-acre lot they owned when all the kids lived there. They also don’t want to be isolated in an “adults only” neighborhood, but they still want an upscale setting with all the amenities. Given this, many seniors would prefer a one-story or ranch-style home with a garage space or two. The problem? Those homes are not as easy to find as you may think. The other side of the dilemma is this: Who wants to buy that big, older home from them? An older home that needs to be updated or remodeled isn’t as attractive as a new home is to a first-time homebuyer. Plus, many of those homes are too big for families that don’t need as much space because their families tend to be smaller. For the real estate flipper, there may not be as many ready buyers in that size of a home or in that price range either. For the buy-and-hold real estate investor, the rental income may not be enough to cover the debt service and other expenses either. That is a problem for some—and an opportunity for others. In many areas, the McMansions of the 90s that were so popular languish on the market for a longer period then smaller and newer homes. The good news is, there just may be a better use for those homes. Golden Girls a Model for the Golden Years? There is a huge market for specific senior housing and a huge opportunity for builders and developers who get this next trend right. And there is another opportunity for the creative real estate professional who may use that home for a different purpose altogether. These homes could be used as Airbnbs, or co-housing for students—or even as “Golden Girls”-style homes for seniors. The concept of “co-housing,” in which a group of unrelated people such as students live with others who share some common interest, is catching on across the country. Students have been sharing homes for years, and many investors now see this as a lucrative alternative to renting one home to one family. Many students, given a choice, would rather live off campus and have more space. Being able to choose their roommates versus having them assigned is an added attractive benefit of this type of housing arrangement. Co-housing for seniors is becoming more popular as well. We were all introduced to this concept in the 80s with the popular TV show “The Golden Girls.” Living with friends and sharing the expenses and upkeep are some of the reasons seniors like this model. The added benefit of having a community of peers their own age is a huge draw for them as well. It’s a trend that will likely continue to grow. How do investors fare with this trend? They can rent a home by the room and make a higher profit. For example, that same home may only be able to be rented for $2,000 a month to a family. But it could be rented to four or five seniors at $1,000 per room instead. The landlord might pay for the upkeep and the utilities, making it very attractive for the senior tenants. It would save the seniors money and remove the responsibility of maintenance, or even the uncertainty of future increases in property taxes. Because each market is different, the demographics will dictate the

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Ohio Foreclosure Law Changes

The changes bring advantages to investors who take the time to understand them. If you want to invest in foreclosed properties in Ohio, you should know about changes the state made a few years ago to its foreclosure law. The changes make it easier for investors to buy foreclosed properties. But, you have to know where to look and how the process works to take full advantage of the changes. First, Some Background In a judicial foreclosure state like Ohio, the property securing the loan cannot be offered for sale to the public until the court has entered a decree of foreclosure and issued an order of sale. The order of sale was traditionally issued only to the county sheriff. The mortgage foreclosure crisis revealed the weakness of this. Put simply, many sheriffs were not equipped from a staffing and technology standpoint to keep up with an ever-increasing volume of sale orders. The result was a large backlog of unsold properties. In some counties in Ohio, it was taking a year or more for the sheriff to sell the property. The backlog hurt Ohioans by contributing to neighborhood blight. Lenders were hurt because the delays in getting properties sold increased the cost of foreclosure. This was a political problem; both sides of the aisle wanted a solution. Members of the Ohio General Assembly asked the Ohio State Bar Association to form a group of interested persons and propose a legislative solution to the problem. Two Significant Changes After many meetings and much debate, the group agreed upon a solution that became law at the end of 2016. The law made significant changes to the foreclosure sale process. First, the law made it easier for judges to issue orders of sale to private auctioneers (technically, “private selling officers”) instead of the county sheriffs. The law did so by defining a process for private foreclosure auctions and filling in gaps that had existed in Ohio’s code. This brought certainty to the transfer of title by a private auctioneer in a foreclosure action. Second, the law requires sheriff sales to be brought into the modern era by creating a five-year timeframe for sheriffs to conduct auctions online. The law also eliminated local inefficiencies that had developed over the years. Notably, sale deposits were made uniform across the state, and sales could be postponed to a new date without having to meet the appraisal and publication requirements again. Political Compromises The solution included some political compromises. Judges wanted discretion over whether a private auctioneer could sell the property. The result is that the use of a private auctioneer happens on a case-by-case basis. Some judges flatly prohibit the use of a private selling officer. As a result, even when plaintiffs in foreclosure cases prefer to use a private selling officer, in some cases they have no choice but to use the sheriff. Sheriffs did not want to lose control over the appraisal process, so that process is still under their control. Sheriffs also did not want to lose control over sale publications, so private selling officers must use the sheriff’s preferred newspaper for the public notice of the sale. Finally, sheriffs wanted time to phase in their use of an online auction platform. Ohio has 88 sheriffs. Each sheriff has until September 2022 to conduct auctions online at www.realauction.com, the vendor chosen for online sheriff auctions. To date, the Franklin County Sheriff is the only one who has made the transition. The result is an imperfect but effective law. The backlog of unsold properties at the county sheriffs’ offices is gone. There is no reason why such a backlog should ever happen again since private auctioneers can now step in to help. The movement to online sales is also bringing the foreclosure sale process into the modern era. Understanding the Process With that as background, the question is: Where can you find foreclosure sales in Ohio today and how does the process work? It depends on who is conducting the auction—the sheriff or a private selling officer. In 87 of Ohio’s 88 counties, the sheriff still holds live auctions. The location, date and time of each auction are published in the local newspaper and posted to the sheriff’s website. Franklin County holds its sales at www.realauction.com. All private selling officer sales are held online. The two main websites for these sales are www.auction.com and www.privatesellingofficer.com. These websites allow you to sign up for alerts about upcoming auctions. Some private selling officers also advertise their foreclosure sales on real estate websites or social media platforms. An online foreclosure auction conducted by a private selling officer has advantages over a live auction conducted by a sheriff. Here’s why: First, searching for properties is easier if the auction is online. Second, you can bid remotely in an online auction, including from a mobile device, which reduces your cost of bidding and the hassle of sale cancellations. Third, whereas live auctions conducted by a sheriff move quickly—sometimes taking less than 60 seconds per property—online auctions must be open for bidding for at least seven days. So, there is less chance you will miss an auction. Fourth, if the auction is conducted by a private selling officer, a title company will handle all funds and record your deed. Title companies are usually much quicker than county sheriffs at doing these things. Finally, private selling officers are available to field questions about how the process works. The process includes unique risks no matter who conducts the auction. You have no right to inspect the property since the owner still owns it. Private selling officers and sheriffs have no authority to give you access to the property. Properties are sold as-is with no contingencies. Each sale must be confirmed by the court. The confirmation requirement, which takes 30-60 days on average, can be surprising news to investors who are used to buying REO properties. Once the sale is confirmed, you will have 30 days to pay the balance due. After

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2020: The Year of the Platform

How “proptech” innovators are transforming residential real estate Although early innovators such as Zillow have been around for almost two decades, the full impact of the internet on the real estate industry has come into focus in just the last few years. Dozens of new VC-backed companies have come online and are challenging existing business models. A new type of company called an “iBuyer” (e.g., Opendoor) offers homeowners a new way to sell their houses. This new approach is fast and easy compared to traditional methods of selling real estate. Companies such as HomeLight, which started as a “smarter” way to find a real estate agent, have expanded to offer iBuyer and cash buyer options via partnerships with companies like Opendoor. In addition, they’ve added several related services, including mortgage, title and—in a few states—escrow. HomeLight, for example, saw an opportunity to expand from a point solution to a platform that could offer a better client experience and capture more revenue through the entire real estate transaction lifecycle. The advent of service platforms like HomeLight is transforming the real estate landscape by offering consumers ease, convenience and exceptional experience. Rather than contact a single agent or cash buyer, homeowners can now work with a single platform provider that can assess their needs and offer the best combination of services to create the desired outcome. How did we get here? Three big trends have reshaped residential real estate as we enter this new decade: The digitalization of real estate, including big data and property technology (proptech). iBuyers & Instant Offers, which offer sellers a quick and easy way to sell. The evolution of Zillow, which has evolved from online ads to instant offers to a complete platform. Let’s examine how these three trends are building blocks for the new age of residential real estate. Big Trend 1 Digitalization: Big Data and Proptech It used to be that only the real estate pros had access to data related to properties and home sales. Consumer access to data forever altered real estate as Zillow and other websites opened the doors to data that was once locked in local MLS systems and county data repositories. Later, new proptech companies like HomeLight began to collect and analyze agent performance data in order to offer consumers a smarter way to identify an agent. Proptech empowers home sellers and buyers by adding intelligence (algorithms, etc.) to the massive amounts of property and transaction data available. Big Trend 2  iBuyers and Instant Offers For many years, homeowners who wanted to sell a house retained a broker or agent and put the property on the market (MLS). If the house was in rough shape, the seller could sell off market to a local real estate investor. These retail (agent) and wholesale (investor) markets satisfied the needs of a wide range of home sellers. Then, along came the “iBuyers”—Opendoor in 2013, Offerpad in 2015 and Zillow Offers in 2017. They transformed the real estate industry. iBuyers blurred the lines between the retail and wholesale worlds, making it possible for a seller to get an immediate cash offer that is “close to retail” but also fast and easy. Interestingly, iBuyers are not usually direct competitors with investors. iBuyers typically don’t want homes that need a lot of repairs. Their core value proposition is to offer an alternative to selling the traditional way with an agent (by eliminating the need to find a buyer for the current home before looking for a new home). Big Trend 3 The Evolution of Zillow When it launched 16 years ago, Zillow was an exciting new real estate portal that gave brokers and agents a compelling new way to market properties and connect with clients online. The company added rental searches in 2009. Soon Zillow replaced the real estate information on the websites of online newspapers and portals such as Yahoo, AOL and MSN. Zillow’s biggest competitor was Trulia, which it acquired in 2015. When Zillow Offers launched in 2017, it sent a wave through the real estate industry. Agents began to question whether Zillow was friend or foe. Zillow further expanded its consumer services in 2018 by acquiring Mortgage Lenders of America and began to offer home loans to consumers. As Zillow evolved, other players in the industry felt pressured to evolve as well. To compete with Zillow, it was no longer enough to offer only retail brokerage because consumers were now aware of the iBuyer alternative. As a result, brokerages such as Keller Williams, Realogy, RedFin and eXp Realty have all rushed to provide an “Instant Offer” alternative, especially in major markets served by Zillow Offers and Opendoor. Pairing an Instant Offer with a Listing Agreement has become table stakes in our industry. Where Are We Now? 2020 marks the culmination of almost 20 years of digital evolution in the real estate industry. In the past, residential real estate was characterized by many individual players who performed individual services such as buying homes, listing homes for sale, providing home loans and transaction processing. Today, many of these services are being integrated to create more comprehensive solutions for real estate consumers. While the home seller or buyer now has mountains of data and a multitude  of new ways to sell or purchase a home, this evolution has created a new problem for the consumer. Namely, it’s confusion that comes from having so many options to consider, combined with a relatively complex underlying process. Integrated Service Platforms Because they now have so many options, consumers often are not sure where to start or which options are the best fit for them. One way that our industry will address this issue is through residential real estate platforms. HomeLight is another example of a company that has evolved from a single-service provider into a complete service platform. From its beginning as an agent referral service, HomeLight has added iBuyer and investor options (via strategic relationships), plus a number of complementary transactional services such as mortgage, title and

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Know Your Chicago Neighborhoods

Sidebar to January 2020 Regional Spotlight: Why Chicago Works for Investors in 2020 One thing you will hear repeatedly from real estate investors with capital in Chicago is to “know your neighborhood.” For Scott Larson, vice president at Chicago-based bridge lender Pangea Mortgage Capital, that means his company focuses on certain areas of south and west Chicago. For Mike Wojcik, chief marketing officer at Fay Servicing LLC, it means identifying areas in the city proper and surrounding suburbs where market appeal is steady, and homeowners and investors will find financing available. “There are lots of great places in Chicago to live, but you have to understand what our residents find interesting and appealing,”  Wojcik said. “That is absolutely necessary for cracking this market.” Regardless of what type of properties any Chicago investor is interested in, however, there is one topic of conversation they all agree  on: The pending arrival of the Barack Obama Presidential Library is going to be good for Chicago. “The Obama Library will be located in Jackson Park,”  Larson said. “That is obviously  going to be a really long-term driver in the market.” Larson revealed that Tiger Woods is helping redesign a golf course in the same area of the city, which has created a particularly hot submarket in the area between the future location of the presidential library and the location of the golf course. “Just north of the South Shore area, there is a lot of long-term investment happening,” he said. Ishay Grinberg, president of Rental Beast, Inc., emphasized the importance of having all the information possible about local neighborhoods and localized rental trends before making an investment. “I wish every investor understood just how little transparency investors have when it comes to rental inventory and just how big of a problem this poses,” he said. Grinberg said investors  should consider how to price the amenities the property needs to stay competitive, demographic information and relevant consumer behavior when investing in a rental.

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Why Chicago Works for Investors in 2020

The Windy City is weighted with opportunity if you know where to look. Chicago, Illinois, was dubbed “The City That Works” during the more than two decades that Richard J. Daley was mayor. Daley, whose son also served as Chicago mayor for a record-breaking 22 years before refusing to run for a seventh term in  2011, used the slogan as part of his own mayoral campaign. The phrase implied that Chicago was a hardworking city dedicated to getting the job done. Daley first debuted it when he said, “This is a working city, an immigrant city, and there’s just something about the Blackhawks [ice hockey team] that inspires everyone out there. … They give 100 percent … and that’s what Chicago is all about.” Today, Chicago is known for being a lot of things, including: The “most immigrant-friendly city in America,” according to a recent Cities Index report. A city whose housing is still recovering while other markets may be peaking or softening. Home to one of the most highly nuanced housing markets in the country. Home to the second-highest property taxes in the nation. One of the hottest markets in the country for certain sectors of commercial and residential real estate. With that type of “mixed bag” market, it can be hard for real estate investors to know exactly what to do with the Windy City. “The one thing investors really do not like is uncertainty. When it is present, it slows investment,” said Scott Larson, vice president at Chicago-based bridge lender Pangea Mortgage Capital. “However, at the end of the day, Chicago’s real estate market is growing consistently, and its employment base is strong. We would not own 10,000 units in Chicago or lend on other projects in this city if we did not feel confident on that front.” Mike Wojcik, chief marketing officer at Fay Servicing LLC, said the lagging recovery in Chicago, which leaves many potential investors feeling uncertain about the market, is an advantage for property owners and private lenders in  the area. “The recovery in Chicago is not happening as quickly as it is in some of the other large metropolitan markets around the country,” he said. “That means there is still good investment potential in this area. For lenders who understand the nuances of this market, there is a lot of potential there as well.” Ishay Grinberg, president of rental listings database Rental Beast Inc., agreed. “Chicago absolutely has room for recovery and growth,” he said. “Many neighborhoods are currently experiencing a revival, and the city’s rental and home prices are relatively affordable for residents.” Grinberg noted there is a great deal of opportunity for investors who own midmarket properties, those that might be accessible to first-time homebuyers. “There is very little affordable rental inventory or affordable homes for first-time homebuyers being built in key areas of Chicago,” he said. Wojcik said investors should particularly note several areas of the city. “There is a very high concentration of higher-end properties on the north side of Chicago, while the south side was harder hit during the last housing crash and has not recovered as well. This is also an issue in parts of the west side of Chicago, and investors are sometimes a little apprehensive about getting into those markets,” he said. “The reality is that there are a lot of great places in Chicago to live, and investors who take the time to get to know the area or work with someone who does can still find good deals in this area.” Negative Headlines Of course, Chicago has had its share of high-profile headlines and media coverage that cast the city in a negative light. In 2015, Spike Lee’s controversial film Chi-raq compared Chicago’s crime rates to those of war-torn Iraq. At times, the city that bills itself as “The Quintessential American City” has struggled to defend itself from interior issues, including a chronic and pervasive lack of trust between the city police and local residents, some of the highest property taxes in the country, more total pension debt than 44 of the 50 U.S. states and a public school system that cannot stay out of the press or avoid high-profile walkouts and strikes. According to Wojcik, investors already active in the Chicago area have a relatively prosaic outlook about the issues in their city. “Everyone here understands that at some point, we are going to have to bite the bullet and figure these issues and obligations out,” he said. “Unfortunately, some  politicians have kicked the can down the road until now, when we are starting to see some more serious conversations on these topics. There is no magic bullet to solve these problems and there are going to be hard decisions made.” Wojcik said that although these issues might make some investors reconsider whether they want to invest in the Chicago area, it does not appear to be keeping most Chicago residents up at night. Although there has been a very slow trickle out of the city for many years, the city is still the third-most-populous in the country. Furthermore, the 7.2 million residents in the Chicago metro area are earning more than ever before, reported YardiMatrix analysts in their 2019 Metro Outlook for the city. “The number  of households with a total income of more than $100,000 has grown, while the total of those earning less has been declining,” Yardi economists wrote. Those increasingly affluent households are showing a tendency to move to the suburbs, creating home-value stability and long-term appreciation outlooks in the areas around Chicago as well as within the city proper. Yardi analysts said current home values are around 17% higher than 2011 levels, and median home prices were up about 1.3% year-over-year in mid-2019. With the average mortgage payment accounting for only about 16% of the area’s median income and rents accounting for about a quarter of that median income, the market is clearly well-positioned to sustain more growth before leveling off or experiencing another downswing.

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Looking Back: The Top 10 Hottest Markets by Annual Rental Increases in 2019

Sidebar to January 2020 Profile: Altisource: Innovation Points Straight to Evolution With the New Year barely begun, investors may glean a great deal of insight about where residential rental housing is headed by looking back at the numbers from 2019. RentRange’s senior data analyst Fred Heigold III provided commentary on the past year’s rental rate increases for three-bedroom single-family homes and notable MSAs. “Overall, increasing employment and wage growth  in the top markets have bolstered recent increases,” Heigold wrote. “Additionally, slow supply of growth of available single-family rentals have squeezed  certain markets versus demand.” Arizona and Tennessee Top the List “In Arizona, Phoenix and Tucson have seen an economic surge in recent years. They share the top three largest percent gains with Memphis, Tennessee,” Heigold said. “Memphis rent growth continues to increase strongly by percent-increase, although it has a lower overall price change compared to other markets.” 3 Florida Markets Maintaining Momentum “The Florida markets Tampa, Miami and Orlando round out the top 10, showing a nearly 10% increase in the past year.”Methodology The data showcases the top 10 U.S. Metropolitan  Statistical Areas (MSAs) by average rental rate increase for three-bedroom single-family homes between September 2019 and September 2018. RentRange produced the rankings using metropolitan statistical areas, a standardized method for identifying city centers and immediate suburban areas. RentRange gathers rental data on approximately 250,000 single-family houses per month from a variety of contractual sources, including multiple listing services, property managers, landlords

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