REI INK

ASA Disappointed with Continued Exclusion of Appraisal Profession from Ongoing Federal Agency Efforts on Valuation Bias

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The Department of Housing and Urban Development (HUD) held a virtual event looking at bias issues surrounding the home valuation process. Notably, this event was held without any participants from the appraisal profession at the table. This marks the second event of its kind that has excluded appraisers or their representatives from these important conversations. On June 15th, the Consumer Financial Protection Bureau (CFPB) held their own valuation bias event, absent any meaningful input from the appraisal profession. This mirrors the ongoing process, led by HUD, by which the PAVE Interagency Task Force has been working. Rather than providing public notice of planned meetings and seeking stakeholder input, the Task Force meets privately and without offering meaningful opportunity for public input. The exclusion of the appraisal profession from these events sends the message – intentional or not – that the input of appraisers is unwanted by those seeking to address issues relating to valuation bias. We believe that our track record on this issue demonstrates not only a willingness to engage on the question of valuation bias, but a commitment to doing the earnest work necessary to understand and overcome these challenges: ASA provided significant input to and ongoing support for HR 2553, the Real Estate Valuation Fairness and Improvement Act of 2021. This bill provides a comprehensive framework that addresses the housing finance system holistically and provides all stakeholders an opportunity to offer input; ASA has also worked on the state level to improve legislation designed to provide consumers meaningful disclosure around their rights if they feel they have been subject to discrimination, as well as ensuring that appraisers are provided the tools and resources necessary to understand the nuances of topics such as unconscious bias; ASA has testified before, and is on a Task Force with, the City of Philadelphia to investigate what role localities can play in understanding and addressing valuation bias issue; ASA, along with its partners in the appraisal profession, developed and presented a free session discussing unconscious bias and its possible effects in the appraisal process; and, Since 2019, ASA has engaged its own Diversity and Inclusion Task Force, looking at ways to improve representation across the whole of the appraisal profession. ASA has also served on the Diversity, Equity, and Inclusion Special Committee of the Appraisal Foundation, and supports the broad-based efforts undertaken by the Foundation in this area. As was reiterated in a recent letter to HUD, ASA (as well as the whole of the appraisal profession) continues to be willing to engage meaningfully on the topic of valuation bias. All we ask is for agencies such as HUD and CFPB to provide the opportunity. American Society of AppraisersThe American Society of Appraisers is a world renowned and respected international organization devoted to the appraisal profession. As the oldest and only major appraisal organization representing all appraisal specialists, ASA is dedicated to providing the highest possible standards in all areas of ethics, professionalism, education and designation criteria. For more information about the American Society of Appraisers, the ASA designation program for appraisers or the Society’s free “Find an Appraiser” Referral System, visit www.appraisers.org or call (800) 272-8258.

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Cooks With Class!

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REI INK at IMN East At the IMN Single Family Rental Forum (East), REI INK and RCN Capital hosted a Latin interactive cooking event at the Real Food Academy. The event was sponsored by Invigorate Finance. About 40 industry executives, clients and friends came together to hone their cooking skills and to have fun in a unique social setting. Round 2 will be in Scottsdale at the IMN SFR Conference (West) which will be held November 30 – December 2.  

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U.S. Home Sale Profits Remain High

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…But Take Unusual Fall In Second Quarter ATTOM, curator of the nation’s premier property database, released its second-quarter 2021 U.S. Home Sales Report, which shows that profit margins for home sellers took an unusualdip in the second quarter but still were far above where were they were a year earlier. In a sign that the housing market remained super-heated but that investment returns may be declining, the report reveals that the typical single-family home and condo sale across the United States during the second quarter of 2021 generated a profit of $94,500. That was up from $90,000 in the first quarter of 2021 and from $60,572 in the second quarter of 2020. However, the profit margin on the median-priced house or condominium—he return on investment that sellers made on their original purchase price—declined from 48.4% in the first quarter of this year to 44.9% in the second quarter. While the latest margin remained 13 points above the 32% level recorded a year earlier, the drop-off marked a rare decline during a time of year that usually produces some of the best returns for sellers. The last time typical returns on investment dropped nationally during any second-quarter period was in 2008. The mixed picture of high, but reduced, profit margins came as the national median home price hit yet another record in the second quarter of 2021, reaching $305,000. That was up 11% from $275,200 in the first quarter of 2021 and 22% from $250,000 in the second quarter of 2020. The annual price surge marked the largest since at least 2006 and was two to four times greater than increases seen just a year ago. Still, profits dropped in the second quarter of this year because price gains—high as they were—were smaller than increases that recent sellers had been paying when they originally bought their homes. The gap between the latest price gains and earlier increases caused the dip in profit margins. While home prices rose from the first to the second quarter of 2021 in 98% of U.S. metropolitan areas with enough data to analyze, investment returns rose in only 56%. The recent price and profit trends reflect a housing market that has continued its decade-long upward spiral, even as the Coronavirus pandemic has damaged significant sectors of the U.S. economy since it hit early last year. Amid rock-bottom interest rates and worries about living in congested virus-prone parts of the country, a glut of buyers have been chasing a tight supply of homes for sale, raising demand and spiking prices. “Prices and profits from the second quarter painted yet another picture of a housing market in high gear—except for one thing. Profit margins dropped in the second quarter, which is very unusual for any Springtime period because that’s when the housing market is usually hottest or close to it,” said Todd Teta, chief product officer at ATTOM. “While it may just be a momentary thing in today’s volatile market, it’s definitely something to keep an eye on in case it’s a sign that the market is finally cooling or giving in to some of the economic forces connected to the virus pandemic.” Other Takeaways Profit margins rose annually in more than 80% of metro areas around the U.S. and quarterly in slightly more than half Western metros continued to have highest profit margins; southern metros have smallest Prices up in almost every metro area Homeownership tenure fell to 8-year low Institutional investment shot up to nearly a 6-year high Cash sales up to six-year high FHA-financed purchases at nearly 14-year low

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3D Tours Utilized on Zillow Rentals

Increase SFR Property Leads by 40% … Decrease Dayson the Market by 30% By Kori Covrigaru Most house hunters start their property searches online today and digital tools such as a 3D virtual tour make viewing a rental home remotely even faster and easier. Whether from a smartphone or laptop, 3D tours allow consumers to get a realistic experience and feel for what a single-family rental (“SFR”) property is like without having to visit it in-person. According to a recent Zillow study, most Americans would like to use digital tools while home shopping, and a vast majority (79%) of those surveyed said they wanted the ability to view a 3D virtual tour. At PlanOmatic, we recently measured the impact of 3D tours for SFR property marketing on the Zillow Rentals platform, which includes Zillow, Trulia, and Hotpads. Zillow is the leading real estate and rental marketplace dedicated to empowering consumers with data, inspiration and knowledge around the place they call home, and connecting them with great real estate professionals. Our 3D tour study was conducted in partnership with a national provider of well-maintained single-family rental homes. The purpose of the study was to determine if the provider should invest in a 3D tour solution to use on Zillow Rentals—their number one lead source—to attract more rental prospects and to provide a superior client experience. Our study data found an increase in lead activity and applications, and a decrease in days on market (“DOM”) when a 3D tour was published on the Zillow Rentals platform. The data revealed the following: Lead activity in the single-family rental home provider’s CRM showed an increase of more than 40% when a 3D tour was published on Zillow Rentals Lead activity from Zillow Rentals increased by 101% when a 3D tour was published on the platform Applications submitted per property by prospective residents increased by more than 35% when a 3D tour was published on Zillow Rentals The DOM showed a 30% decrease for properties that used a 3D tour on Zillow Rentals compared with properties that only had photos on Zillow “Essentially all home searches start online today, and this has fundamentally changed the way properties are marketed. Our clients are trying to get as much property information in front of the consumer as possible, and a 3D tour stands out online allowing future residents to walk through the house imagining themselves there without visiting in person,” said Tim Rose, Director of Operations for PlanOlabs at PlanOmatic. “Our study was conducted to test whether a 3D tour had a measurable impact for our client, and the results prove that by publishing a 3D tour on the Zillow Rentals platform, SFR owners will generate more property leads and applications, and reduce the days on market.” Rose added, “This is a case of supply and demand. Consumers are demanding and prioritizing 3D experiences online, and by adding 3D tours to the Zillow Rentals platform, SFR owners and operators are meeting that demand with a high quality virtual experience that their future residents now expect.” The 3D tour study was conducted by PlanOlabs, the research, data, and consulting hub at PlanOmatic that analyzes and optimizes the property lifecycle for SFR investors, owners and operators. At PlanOlabs, we analyze SFR investors’ current state and use our industry experience to optimize their operational and marketing processes in order to scale and meet their portfolio growth goals. For this particular test case, PlanOlabs tracked more than 70 of our partners’ properties across two markets—Dallas and Houston, Texas. We created a 3D tour for Zillow Rentals for half the properties in each market and compared that to a control group of properties that received a standard professional photo shoot. The test case properties were tracked between May 10th and June 30th.

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Investor Profile

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**Publisher Note** Scott Sekulow passed away on Thursday, August 12, 2021, just one month after granting this interview. Scott had been hospitalized several days with COVID. John Holman, his Development Agent, said, “Scott was one of the really good guys. He was a leader in the council, always generous and willing to help other people. He will be missed!” From all of us at REI INK, Rest in Peace. “The Flipping Rabbi” Scott Sekulow, aka “The Flipping Rabbi” (a moniker bestowed by Emmanuel Lewis, the star of the 80’s sitcom Webster), bought his first HomeVestors® franchise in 2018 in Atlanta, GA. After only three and one-half years, his company, JNS Real Estate Investments, Inc. has become the Number One franchise in Atlanta. He bought his second franchise two months ago in Augusta, GA. He is also the founder and Rabbi of Congregation Beth Adonai in Atlanta which he formed in 2002. Having grown up in retail, he was a partner in his first business at the age of twelve; a pretzel booth at the Atlanta Flea Market. By age 18, he was a licensed real estate agent, only to give it up a few years later to pursue other interests. Feeling the call of the ministry, Scott went back to school in 1993 and received a BS in Biblical Education. Since then, he has ministered in the USA, Israel, the former Soviet Union, South America, and India. As a hobby, he got into flipping houses after rehabbing a rental property for his mother-in-law. He bought one of his houses from a local HomeVestors franchisee who convinced him to get involved with HomeVestors. Scott looked at HomeVestors as a great way to help people. “I don’t buy houses, I solve problems,” Scott explained. One such example concerns a decorated Vietnam Veteran who served eleven years in the military. After losing an eye and not getting much assistance from the VA, the veteran needed help and just a “little” money from his house so he could move in with a friend. Scott was not only able to get $10,000 more than expected from the sale of his house, but the Ministry also paid for the veteran’s moving expenses. Multiple Exit Strategies Scott has also taken a different approach as a HomeVestors independent business owner. One of the factors that initially attracted Scott to HomeVestors was that they offer multiple exit strategies for properties, be it wholesaling, fix and flip or buy and hold. So, as the market changes you can change your focus, as well. From the beginning, Scott’s focus has been on working with and selling to hedge funds, and in most cases not even rehabbing the property, just selling directly to them. While the Atlanta franchise focuses strictly on wholesaling, the Augusta franchise, SNJ Real Estate Solutions Inc., concentrates on both wholesaling and buy and hold. When a rehab is necessary, enter Judy Sekulow. The couple met while both attending Mercer University in Atlanta. Scott graduated with a BA in Management and Judy with a BA in Marketing. They married in 1989 and are the proud parents of a daughter, Natalie, born in 2001. According to Scott, “Judy has the decorating eye.” Today, the Sekulow team buys 70 houses per year consisting of wholesale deals and “cosmetic” fix and flips. They also recently began adding properties to their personal real estate portfolio. Even during the COVID lockdown, their businesses grew while other companies experienced a loss or shut down altogether. Scott attributes this to the fact that there is no competition among HomeVestors independent business owners. “We all work together, give advice to each other, and help each other. HomeVestors corporate has built a strong bond within the organization.” He also attributes it to the fact that real estate is a relationship business and not merely staring at your computer screen and being an “instant buyer.”   HomeVestors What exactly does it mean to be a HomeVestors business owner? Owning a real estate business is life changing and naturally comes with risks! When you become a HomeVestors business owner, you get immediate access to motivated seller leads, financing resources for qualifying purchases and repairs, one-on-one coaching with your local Development Agent, proprietary software for analyzing properties and deals, and access to a nationwide network of coaches and peers. Your house-buying business is yours and you run it as your own venture with a focus toward your individual business goals. If you are interested in a franchise, contact April Nealey at april.nealey@homevestors.com Each franchise office is independently owned and operated.

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Capital Gains Challenges Ahead for Landlords

Creative Investors Could Hold the Key to the Solution & Incredible Returns by Carole VanSickle Ellis When Eddie Speed encounters a challenging situation, the 40-year veteran of the performing and non-performing note space has a history of tackling the problem with a combination of creativity and determination—and he usually is able to work out a winning solution. Speed has never seen anything quite like the financial challenge coming down the pipeline for investors facing capital gains taxes in 2021, however. Changes in Capital Gains “The current presidential administration is getting ready to disrupt the real estate investing business in ways most people cannot yet imagine,” Speed warned. “They are basically planning to double capital gains very, very soon.” He is referring to President Biden’s much-touted campaign promise to change the capital gains taxing process in order to tax the nation’s highest earners at a rate of nearly 50 percent. Currently, these individuals pay about 24 percent in long-term capital gains, and White House officials say that the country’s top tax bracket is still “able to manipulate the tax system in their favor.” The change to capital gains is allegedly designed to “level the playing field” while increasing federal tax revenue by raising taxes for households making more than $400,000 a year. This policy, if it passes into law, could disproportionately affect individual real estate investors who tend to generate the majority of their returns (and income) through the sale of property rather than via a more traditional, annual salary. In particular, landlords hoping to liquidate their portfolios will suffer, and Speed says the only solution he can see at present is to act quickly and creatively to get ahead of the looming problem. “According to the Urban Institute, about half of all individual landlords’ properties are currently free and clear, meaning there is no mortgage on those rental properties,” Speed said. Historically, this would have been an ideal position for a mom-and-pop landlord planning to use the income from rental properties along with some liquidation to support themselves in retirement. Thanks to the proposed capital gains policies, however, the tax burden associated with selling free-and-clear properties could soon be crippling. Speed believes that the pending hit to returns that landlords can generate upon sale of a property combined with the after-effects of the COVID-19 pandemic that have left more than 10 million tenants owing more than $6,000 in rents each could spur many landlords to sell now— if they can do so in a way that protects the returns they have been cultivating throughout the life of the investment. That is good news, he insists. The Strategy “With this policy, the president has done the biggest favor in his political career for investors using seller financing,” Speed said. “This is the least-understood market niche in real estate, but investors willing to work in this space have about six months to act on this incredible opportunity and help a lot of burned-out landlords in the process.” Seller financing involves the owner of a property holding a private note on that property in order to make a sale. The note, like any other property-backed loan, is legal and binding, but the current owner of the property holds the note instead of sending the buyer to another party in order to borrow money for the purchase. Seller-financed loans can have down-payments, creative terms, and interest rates that are set or variable just like “conventional” bank loans. They have been popular with creative real estate investors for years because they permit vast flexibility in pricing, purchase terms, and, crucially for Speed’s strategy, payment schedules.  “If a landlord has a rental property that they acquired for $100,000 and now it is worth $250,000, [upon selling that property] that landlord would have a capital gain of $150,000. However, if the landlord were to sell the property using seller financing and collect payments over the next 15 years, they would pay one-fifteenth of the capital gains every year for the next 15 years,” Speed explained. He added, “This option frees up landlords who would like to sell right now to do so. The key is that real estate investors who want to buy these properties do not have very much time in which to reach these landlords, explain the strategy, and transact the deals.”  Speed, of course, already has that process in place and in action. His company is working with partners to reach landlords on a scale and at a pace seldom seen even in creative real estate. “Thanks to our partnerships and business relationships, we can work quickly to reach landlords and then explain in a compelling, persuasive way exactly what we are offering to do,” he said. Over the course of his career, Speed has shown real estate investors how to create investment-grade notes for many purposes, including acquiring those notes and recapitalization. Through NoteSchool, his training program for investors who want to create note transactions and create investment-grade seller-financed notes, Speed is helping other investors refine the process of reaching sellers and explaining this limited-time strategy to them. “The current environment is perfect for seller-financing because there is a sound, easy-to-explain reason that a landlord-seller should seriously consider carrying a note not just one year or five years but long-term,” Speed explained. “For the deal maker real estate investor targeting the small-time landlord, this can create huge savings on interest for investors buying these properties, increase their volume of acquisitions, help investors develop strategies that create more favorable terms than what a bank or mortgage company might be able to agree to, and solve a huge, life-altering problem for landlords who might otherwise find their real estateportfolios decimated by these new guidelines on capital gains.”

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