June 2022 – Page 3

HOME FLIPPING SPIKES ACROSS U.S. IN FIRST QUARTER OF 2022 BUT PROFITS DROP TO 13-YEAR LOW

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Nationwide Home-Flipping Rate Jumps to Highest Level This Century;Raw Profits on Home Flips Increase for First Time Since 2020;But Typical Profit Margins on Flips Decline Again, to Lowest Point Since 2009 ATTOM, a leading curator of real estate data nationwide for land and property data, released its first-quarter 2022 U.S. Home Flipping Report showing that 114,706 single-family houses and condominiums in the United States were flipped in the first quarter. Those transactions represented 9.6 percent of all home sales in the first quarter of 2022, or one in 10 transactions – the highest level since at least 2000. The latest total was up from 6.9 percent, or one in every 14 home sales in the nation during the fourth quarter of 2021, and from 4.9 percent, or one in 20 sales, in the first quarter of last year. The jump in the home-flipping rate during the first quarter of this year marked the fifth straight quarterly increase. It also represented the largest quarterly and annual percentage-point gains since 2000. But the report also shows that as home sales by investors spiked, typical raw profits on those deals remained below where they were a year ago, and in a more striking trend, profit margins dipped to their lowest point since 2009. “The good news for fix-and-flip investors is that demand remains strong from prospective homebuyers, as evidenced by this quarter’s report, which shows that one of every 10 homes sold during Q1 was a flip,” said Rick Sharga, executive vice president of market intelligence for ATTOM. “The bad news is that rising mortgage interest rates are beginning to slow down home price appreciation rates, and buyers have become more selective – and less willing to outbid other buyers for properties they’re interested in. This is having a predictable impact on profit margins for investors.” Among all flips nationwide, the gross profit on typical transactions (the difference between the median purchase price paid by investors and the median resale price) stood at $67,000 in the first quarter of 2022. While that was up 5.5 percent from $63,500 in the fourth quarter of 2021, and represented the first increase since late 2020, it was 4.3 percent less than the $70,000 level recorded in the first quarter of 2021. Profit margins, meanwhile, fell for the sixth quarter in a row, as the typical gross-flipping profit of $67,000 in the first quarter of 2022 translated into just a 25.8 percent return on investment compared to the original acquisition price. The national gross-flipping ROI was down from 27.3 percent in the fourth quarter of 2021 and from 38.9 percent a year earlier. It sat at the lowest point since the first quarter of 2009, when the housing market was slumping from the effects of the Great Recession in the late 2000s. The latest return on investment also was less than half the peak of 53.1 percent for this century, which hit in late 2016. Profit margins declined in the first quarter of 2022 as resale prices on flipped homes continued to shoot up more slowly than they were when investors originally bought their properties. Specifically, the median price of homes flipped in the first quarter of 2022 increased to another all-time high of $327,000. That was up 10.5 percent from $296,000 in the fourth quarter of 2021 and 30.8 percent from $250,000 a year earlier. Both increases stood out as the largest for flipped properties since 2000. Home flipping rates up in 95 percent of local markets Home flips as a portion of all home sales increased from the fourth quarter of 2021 to the first quarter of 2022 in 181 of the 191 metropolitan statistical areas around the U.S. analyzed for this report (95 percent). Rates went up quarterly by at least two percentage points in 99 of those metros (52 percent). (Metro areas were included if they had a population of 200,000 or more and at least 50 home flips in the first quarter of 2022.) Among those metros, the largest flipping rates during the first quarter of 2022 were in Phoenix, AZ (flips comprised 18.7 percent of all home sales); Charlotte, NC (18 percent); Tucson, AZ (16.2 percent); Atlanta, GA (16.1 percent) and Jacksonville, FL (16 percent). Q1 2022 U.S. Home Flipping Historical Trends The highest flipping rates during the first quarter of 2022 in metro areas with a population of less than 1 million were in Durham, NC (15.3 percent); Gainesville, FL (14.9 percent); Ogden, UT (13.9 percent); Clarksville, TN (13.4 percent) and Winston-Salem, NC (13.4 percent). The smallest home-flipping rates among metro areas analyzed in the first quarter were in Olympia, WA (4.4 percent); Portland, ME (4.6 percent); Salem, OR (4.7 percent); Syracuse, NY (4.7 percent) and Davenport, IA (4.9 percent). Typical home flipping returns decrease in three quarters of metro areas The median $327,000 resale price of homes flipped nationwide in the first quarter of 2022 generated a gross flipping profit of $67,000 above the median investor purchase price of $260,000. That resulted in a 25.8 percent profit margin. Profit margins dipped from the first quarter of 2021 to the first quarter of 2022 in 139 of the 191 metro areas with enough data to analyze (73 percent). The biggest annual declines came in Salisbury, MD (ROI down from 173.7 percent in the first quarter of 2021 to 29.3 percent in the first quarter of 2022); Elkhart, IN (down from 148.3 percent to 24.9 percent); Macon, GA (down from 120.7 percent to 50.9 percent); Lynchburg, VA (down from 96.2 percent to 31.5 percent) and Flint, MI (down from 126.2 percent to 64 percent). Markets with the largest returns on investment during the first quarter of 2022 on typical home flips were Scranton, PA (115.5 percent); Kingsport, TN (114 percent); Reading, PA (108.6 percent); Pittsburgh, PA (105.7 percent) and Johnson City, TN (101.1 percent). Aside from Pittsburgh, the largest investment returns in the first quarter among metro areas with a population of at least 1 million were in Buffalo, NY (ROI of 88.2 percent); Philadelphia, PA (80.3 percent); Richmond, VA (79 percent) and New Orleans, LA (69.9 percent). Metro areas with the smallest profit margins on typical home flips in the first quarter of 2022 were Boise, ID (4.4 percent return); Fort Collins, CO (5.7 percent); College Station, TX (7.2 percent); Sacramento, CA (9 percent) and Santa Rosa, CA (9.6 percent). Q1 2022 Home Flipping Profit Trends Historical Chart West and Northeast continue to boast largest raw profits; South and Midwest have smallest The highest raw profits on median-priced home flips in

Delayed Gratification Is Your Key To Financial Freedom With Mike Hambright Of Investor Fuel Mastermind

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Sometimes, being naïve about how things work in a business can be a blessing. While others are running away or cowering in fear, you might just go against the grain and reap massive rewards as a result. That’s exactly what happened to Mike Hambright when he started out in real estate. Mike is a real estate investor for 14 years, podcast host, and founder of Investor Fuel, America’s top mastermind for professional real estate investors. Joining Tim Herriage in this episode, Mike takes us on a tour to his real estate journey, which started in 2008. If you’ve lived long enough to know what 2008 means, you’d know that this guy ran straight into the fire while everyone else was running away from it. But he came out of it even stronger and now has diversified into multifamily, coaching, and a lot of other things. Tune in as he dishes out nugget upon nugget if wisdom that only a smart, seasoned investor, coach, and thought leader like Mike can offer! — Watch the episode here Listen to the podcast here Delayed Gratification Is Your Key To Financial Freedom With Mike Hambright Of Investor Fuel Mastermind Welcome back to the Uncontested Investing show. I’m Tim Herriage. Thanks for coming back. I’m here with my buddy, Mike Hambright. How are you doing? I’m excited to be here. I’m glad you are here. Thanks for being here. Why don’t you tell people who you are and what you do? First and foremost, I have been a real estate investor for a couple of years but over the years, you start to bolt more things on. First, I became a rental company owner. We are managing rentals and then started getting into coaching. Over time, I founded the Investor Fuel Mastermind, which you have shared there. Over the past years, I have run a data and tech company and lead generation called The Investor Machine. There’s a bunch of stuff in the real estate space. I’ve flipped hundreds of houses here in Dallas. You and I used to be running shoulder to shoulder, maybe competitors that we are all competing on some level. Now, I mostly do large multifamily syndication. It’s a little bit of everything over the last years. You are an interesting fellow. You are doing probably the best job in the industry on the mastermind with Investor Fuel. I’ve enjoyed being there, not only as a lender but I still run my investment company. I find myself sitting in the presentation like, “We suck,” rather than, “This guy is doing $80,000 a month, and I’m doing $50,000 a year.” We need to fix that. In one of my first segments when I was in the Marine Corps, I used to brief generals. I was an intelligence analyst. They always told us, “You had until the most important thing up front.” You don’t bury the lead in a briefing because you start getting mortar shells or the general has to get up to go to do something. He needs to know the most important thing. Imagine we’ve got someone reading. Maybe they go to coffee. They don’t get to catch the whole thing. I want you to take two minutes to deliver the bottom line up front. What do you think people need to be thinking about, doing, not doing or focused on? Give general, relevant, actionable advice. Take it away. Ultimately, folks need to understand that this is a long game. For the first couple of years that I was in business, I was living day-to-day, very transactional. This is a transactional business as a real estate investor. However, when you have the hindsight to be able to look back on the failures, the wins, and everything that’s happened over time, and you could do it over again, it’s good advice to know that you should be in this for the long haul. In this day and age, everybody wants to pop a pill and lose 50 pounds, and everything is supposed to happen fast. We have immediate gratification when I have an idea for something, and it’s at my doorstep later that day from Amazon. That’s not how the real world works in terms of your career or business. You have to play the long game in terms of being willing to fail. If folks that are reading are just getting into real estate or in any business, that’s not a normal thing. We think failure is a loss. When you are an entrepreneur and have been in the game for a while, you realize that failure is a stepping stone to success. You have to be willing to fall but you have to be willing to get up. It’s not over until you don’t get up. Play the long game. Think about the end in mind. I posted something on social media about delayed gratification being the key to financial freedom and freedom ultimately. If you wholesale everything and gets that quick buck or rehab it and get that not as quick a buck but more bucks, and you don’t keep them as rentals, at the end of the day, you will be disappointed. Play the long game, think with the end in mind, and make sure you are setting yourself for a long-term legacy. It’s good advice from a smart guy. Let’s talk about what we are going to talk about. What are some things that you think are interesting happening in the market nowadays? It’s interesting because there are a bunch of folks that are in the business that they weren’t in here during the last downturn or any other market cycle. This is all they know. I started in 2008, so it was a down cycle, which was never that bad in Dallas. Let’s be honest. There are a lot of people that have practices now that are going to get in trouble like overpaying for houses because they are counting on

REI INK and RCN CAPITAL LAUNCH PODCAST SERIES

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REI INK Magazine, a business publication for real estate investors, and RCN Capital, a leading nationwide private lender specializing in financing for real estate investors, have announced the official launch of their collaborative podcast, Uncontested Investing, with the first episode airing on Tuesday, June 21st, 2022. The Uncontested Investing Podcast, presented by REI INK and sponsored by RCN Capital, will be hosted by RCN’s Executive Director, Tim Herriage and feature experienced real estate investors that will share their stories of success and failure in the industry. “The Uncontested Investing show is meant to be very candid conversations with investors that have seen and done it all in the real estate industry,” said Tim Herriage, Executive Director of RCN Capital. “We wanted to do something completely different with this show and give our listeners the ability to learn from the best and that meant asking the hard questions so they can hear the good, the bad and everything in between.” REI INK and RCN Capital developed the Uncontested Investing Podcast with the goal of providing actionable advice to individuals at any level looking to be successful in real estate. “The ‘Uncontested Investing’ podcast series is a natural extension of what we set out to do since the magazine’s inception, and that is to provide quality content from respected leaders in the real estate investment industry,” said Robert Rakowski, CEO and Publisher of REI INK. “And what better partner to have on this venture than RCN Capital!” New episodes of Uncontested Investing will be available every Tuesday starting on June 21st, 2022 at REI-INK.com/UncontestedInvesting, streaming on all listening platforms, and on YouTube. About REI INK Magazine REI INK is a business publication for serious real estate investors and service providers. As a comprehensive real estate investment publication, REI INK covers all types of real estate investments and topics, including single family, multifamily, commercial, alternative investing strategies, lending, acquisitions and dispositions, property management and more. About RCN Capital RCN Capital is a South Windsor, CT based national, direct, private lender. Established in 2010, RCN provides commercial loans for the purchase or refinance of non-owner occupied residential and commercial properties. The company specializes in new construction financing, short-term fix & flip and bridge financing and long-term rental financing for real estate investors. For more information on RCN Capital and RCN’s loan programs, visit www.RCNCapital.com.

WORD OF THE DAY: Monopsony

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[mə-NAHP-sə-nee] Part of speech: noun Origin: Greek, 1930s Definition: (Economics) A market situation in which there is only one buyer. Examples of Monopsony in a sentence “The conglomerate used questionable tactics to create this monopsony.” “Is Amazon a monopsony in the goods market?” About Monopsony This word stems from the Greek suffix “mono-” meaning “one” and the Greek “opsōnein,” meaning “buy provisions.” Did you Know? “Monopsony” can be easily mistaken with “monopoly,” but they have somewhat inverse definitions. While a “monopsony” is a market situation in which there is only one buyer of a good or service, a “monopoly” is a situation in which there is only one producer of a good or service. Economic theory proposes that monopsonies can lead to lower wages for workers because they are paid less than their marginal revenue product.

Elevated Inflation, Higher Interest Rates Expected to Take Toll on Consumer Spending

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Housing Predicted to Drag on Growth Through 2023 as Financial Conditions Tighten The compounding effects of elevated inflation and higher interest rates are expected to further weigh on economic growth and home sales as the year progresses, with full-year 2022 growth now forecast at a slightly reduced 1.2 percent and expectations of a late-2023 modest economic contraction unchanged, according to the June 2022 commentary from the Fannie Mae (OTCQB: FNMA) Economic and Strategic Research (ESR) Group. While consumers’ resilience to the predicted financial stress remains an open question, the ESR Group now forecasts personal consumption growth to slow from 4.2 percent in Q2 2022 to 1.9 percent and 1.3 percent, respectively, in Q3 2022 and Q4 2022. Residential fixed investment, driven in part by an even further reduced home sales forecast, is projected to decline 8.6 percent in 2022 and 6.5 percent in 2023 – the largest percentage declines among the major GDP components. Substantially higher mortgage rates are now the housing market’s primary constraint. The ESR Group expects total home sales to fall 13.5 percent in 2022 – down even further from its 11.1 percent projected decline last month – and, correspondingly, for mortgage originations to move downward to $2.6 trillion in 2022 and $2.2 trillion in 2023. Refinance origination activity, in particular, continues to slow, as evidenced by Fannie Mae’s new Refinance Application-Level Index, with only an estimated 2 percent of outstanding mortgages having at least a 50-basis-point incentive to refinance. “The market’s expectations of the necessary Federal Reserve response to persistent broad-based inflation continue to adjust,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. “Tightening financial conditions are slowing economic activity, and consumers are drawing down savings and increasingly relying on credit cards as they seek to maintain current levels of consumption.” “The significant, sudden rise in interest rates is beginning to be felt widely as employment growth slows and stock market valuations fall,” Duncan said. “Nowhere is this more evident than in housing affordability measures, with the prospective monthly payment on a typical new mortgage climbing dramatically. As a result, both new and existing home sales continue to slow, while refinance activity has fallen substantially, with what’s left largely consisting of equity extraction.” Duncan continued: “Our view continues to be that the magnitude of response required of monetary and fiscal tightening to return inflation to the Federal Reserve’s target will likely result in a recession, which we currently expect will be modest and occur next year. Notably, the recent market response to continued heightened inflation suggests that the predicted recession could occur sooner and be deeper than our current baseline forecast.” Visit the Economic & Strategic Research site at fanniemae.com to read the full June 2022 Economic Outlook, including the Economic Developments Commentary, Economic Forecast, Housing Forecast, and Multifamily Market Commentary. To receive e-mail updates with other housing market research from Fannie Mae’s Economic & Strategic Research Group, please click here

WORD OF THE DAY: Soigné

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[swan-YAY] Part of speech: adjective Origin: French, 19th century Definition: Dressed very elegantly; well groomed. Examples of Soigné in a sentence “Matthew was tall, handsome, and soigné when he met Lucy for their date.” “Looking at the photographs of his grandparents, Joe was surprised at how soigné they were.” About Soigné “Soigné” is the past participle of the French verb “soigner,” meaning “to take care of.” In turn, “soigner” comes from the French word “soin,” meaning “care.” Did you Know? French words have masculine and feminine forms. To use “soigné” to describe a woman, the feminine adjective would be pronounced the same, but it has an additional “e” on the end: “soignée.” For example, “Sarah was tall, fair, and soignée.” In English, it’s not necessary to differentiate between the masculine and feminine forms.