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Gatlinburg, Tennessee

“The Gateway to the Great Smoky Mountains” Attracts Visitors & Investors By Carole VanSickle Ellis Gatlinburg, Tennessee, has always been an attractive destination. Hundreds of years before the city was settled in 1806 as the settlement White Oaks Flats, Native American tribes traversed the area regularly as they hunted up and down the peaks and valleys of the mountain range we know today as the Great Smoky Mountains. Gatlinburg would have been founded three years earlier, but the original settler, a South Carolinian named William Ogle, died of malaria after prepping enough logs to build a cabin and then returning to his native state for the winter. Three years later, his widow and her remaining family returned to the area and assembled the cabin Ogle had left behind him in what is, today, the heart of Gatlinburg. In the wake of the American Revolution, the area around Gatlinburg attracted veterans from both that war and the War of 1812 who were eager to convert their war pay, 50-acre deeds for U.S. land, and become landowners in the beautiful and fruitful area that Ogle had dubbed “The Land of Paradise.” Many of their descendants make up the roughly 3,600 permanent residents of Gatlinburg today. Although fewer than 4,000 people live in Gatlinburg proper, which is often referred to as “The Gateway to the Great Smoky Mountains,” roughly 12 million people visit Sevier County, where Gatlinburg is located, each year. The area attracts tourists during every season thanks to a host of activities for history buffs, skiers of all levels, and nature lovers who want to visit the Great Smoky Mountains National Park or enjoy a vast array of activities designed to highlight different recreational elements in the region. “With the formation of the Great Smoky Mountains National Park [in 1945], tourism began to boost the area’s economy,” explained the Gatlinburg Convention & Visitors Bureau on their official Gatlinburg timeline. The group continued, “[Gatlinburg] has since developed into a four-season resort and convention setting.” The area is home to many artists’ communities thanks to investments around the same time into the Arrowmont School of Arts and Crafts and Pi Beta Phi’s public school, the first of its kind in the area, which was founded in 1912 and dedicated to “practical and academic education” and “the rebirth of Appalachian culture through arts and crafts and the ‘cottage craft industry’ movement.” A “Land of Paradise” for the Short-Term Rental Investor Today, those 12 million annual visitors not only spend heavily in the area during their stays; they support a vast real estate sector dominated by short-term rental options. “The combination of low property taxes, easy accessibility, and a supportive community makes Gatlinburg an ideal destination for short-term rental property owners,” according to a 2023 report published by local brokerage Colonial Properties. According to short-term rental resource hub Chalet, average property taxes in Gatlinburg hover just over 2.5%, lower than both state and national averages, and local short-term rental regulations are relatively permissive. Gatlinburg does have regulations in place governing noise and occupancy, but short-term rentals are permitted in nearly all residential zoning districts. Furthermore, at present, the city does not limit the number of rental properties owned by any one person or business entities, nor does the city restrict length of stay for short-term renters. The average daily rate (ADR) in Gatlinburg is higher than $300, and seven-bedroom houses post ADRs of nearly $600. “The town’s proximity to the Great Smoky Mountains National Park ensures a constant influx of tourists, driving demand for short-term rentals,” wrote Mashvisor analysts earlier this year. “[Proximity to the park] has led to a 15% increase in rental income for vacation homes compared to the previous year,” they continued. At time of publication, Gatlinburg’s average Airbnb occupancy rate was roughly 70%, with summer and fall occupancy rates exceeding 80%. Those numbers held firm across room counts from studio to 5+ rooms. “It is just explosive popularity,” said Airbnb spokesperson Ben Breit of the massive influx of tourists into the Gatlinburg and nearby Pigeon Forge areas. “The weather is perfect; you’re up in the mountains…I just can’t imagine a better place to be.” Investors should note Gatlinburg is also a hotbed for exotic, adventure-based short-term rentals, including treehouses. Treehouse rentals flourish in the area, with some investors reporting generating hundreds of thousands of dollars in annual revenue with these assets. However, investors must remember treehouses and “tree forts” come with many additional factors including zoning and safety ordinances that might not apply elsewhere. “Treehouse maintenance is required every year to ensure the structure and the tree(s) remain safe and secure for years to come and, more importantly, that its users are not put at risk,” explained Pete Nelson, master treehouse builder and host of Animal Planet’s “Treehouse Masters.” Owners of all treehouses, but particularly those who own short-term rental treehouses and may not be in regular, on-site contact with their properties, must be aware that treehouse hardware can shift over time, thus changing the load-bearing abilities of the massive treehouse attachment bolts (TABs). Vigilant monitoring is the only thing that can prevent disaster. A Booming Market Leaves Locals Concerned About a Correction At present, the Gatlinburg market does appear to be veering into a buyers’ market, with most homes selling below list price (see “By the Numbers” sidebar) and local housing inventory rising. Of course, this does not necessarily mean a crash is imminent. However, as pandemic-era investors who may no longer be able to work remotely or who find Sevier County’s decision to classify some short-term rentals as commercial properties (resulting in higher tax rates on related income) does not work within their budget leave the area, there will likely be a significant slide in investment-property prices. “The tourists are leaving the industry and the professionals are coming in and making the market better,” observed New York-based short-term rental operator Paul Kromidas in July 2023. At the time, he predicted this shift would happen “over 24 months.” This

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From Framing Houses to Forging Customer Relationships

Jeff Watson, Home Depot’s Senior Director of Pro Sales West By Carole VanSickle Ellis When Jeff Watson was framing houses in college, he had no idea that his decision to leave that job and look for “more consistent” work at The Home Depot would result in a career with the company spanning more than 29 years (and counting). That initial decision shaped Watson’s professional life — for the better, he said. “For me, it has been a wonderful growth opportunity,” Watson said. “I was going to college and framing houses, then came to Home Depot to try to have a more consistent job so I could get through school. When I graduated from college, I ended up staying and have had some incredible experiences ever since.” Currently, Watson serves as Home Depot’s senior director of Pro Sales West with a specific focus on “outside sales.” This division of the company is dedicated to what Watson describes as “pursuing the professional customer in a more complex project environment;” his team works with some of the company’s largest Home Depot Pro customers to help them source products and services needed to complete jobs and perform on a larger scale. “It is definitely a unique position,” Watson said. “We have always been grateful for the Pro Business that walks into our Home Depot stores or shops with us online, but we realized over the past several years that some of our biggest customers really needed new types of support and solutions that would enable them to thrive in their businesses and steer their larger project purchases to Home Depot. That might mean consulting with them about the best product choices and decisions or helping them figure out when to start thinking about the next purchase so their timeline remains intact.” Whatever the need, Watson’s team is dedicated to first identifying it and then meeting it in unique ways only possible because of their close working relationships with these customers. Translating Personal Experience to Professional Success Over the course of his own personal real estate journey (buying and selling seven homes over the course of roughly two decades), Watson became very tuned in to the elements of the industry that are most important to keeping projects on track for his clients. In the end, he said, it boils down to two elements: products and services. “So many of our customers’ entire focus has to be on getting properties up to speed — either by updating or renovating new assets or fixing up and maintaining existing ones — so those properties can be either rented or sold,” Watson explained. “When you have a really large company, you need strategies and capabilities to alleviate friction that comes with purchasing products for those projects. That is where my team comes in.” Watson recalled an incident while in a previous role that really drove home for him the need for a new infrastructure when it came to serving large-scale real estate investors. A renovator who was dealing with multiple assets in markets distributed around the country ordered doors for a project in one area that were identical to those the investor had used successfully on another project. Unfortunately for this individual, the maxim that “location is everything in real estate” held true in this scenario, and the doors that had been appropriate for his project in one state turned out not to meet code in the new market. However, Watson said, the customer who placed the order with the store failed to note this potential issue, simply replicating the original order for the doors. When they came in, the customer was furious. Watson returned early from a family vacation, resolved the situation, and realized there was a clear need for a more “centrally located” type of associate on the team. “We saw that there was a need for people who would understand some of these clients are transacting in multiple areas and markets and would know to ask the customer to check the local building codes,” he observed, noting many of his team members have a deep familiarity with local building trends and can assist customers in need of insight in this arena as well. “Today, that is something our outside sales representatives are capable of recommending along with the Home Depot Pro Support Center folks, whereas sometimes store associates may only leverage the closed quote order history. We knew that bringing this element to our team could give customers a better experience.” Watson is particularly proud of his work with Home Depot and recalled an opportunity in his previous role over National Accounts to expand in order to better serve the Pro customers and specifically serve the real estate investing industry more appropriately. Over the past couple of years, he headed up an initiative to segment this area of business into four distinct verticals and establish experienced, qualified leadership positions in each vertical, including a vertical dedicated entirely to residential property managers and investors. “The result has been we are now able to generate lots of value and create a more streamlined approach and better pricing tools to help that industry,” he said. And the original irate renovator? Well, Watson and his team were able to resolve the situation to his satisfaction. After remaining a steadfast Home Depot customer for nearly 10 years after that incident, the investor sold his company to a private equity firm and has started several other businesses. “They are all Home Depot customers, of course,” Watson laughed. A Proud History of Growth & Career Enhancement As a long-time Home Depot employee himself, Watson does not fail to note how the expansion of the outside-sales program has changed lives within the company as well as outside of it. “Six years ago, the National Account team consisted of about eight associates, and, five years later, it was up to 32. The Outside Sales organization has grown three times over in the last three years alone with over 1,000 associates impacted. That is a

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Cornerstone Building Brands

Bringing Relentless Customer Focus to Investors Everywhere By Carole VanSickle Ellis When Cornerstone Building Brands director of retail sales Jorge Castro talks to a potential or current client about their door-and-window needs for a project, he tends to ask a lot of questions. However, they are not always the questions his customers expect from their suppliers. That is the key, Castro says, to Cornerstone’s history of satisfied, repeat clients. “The thing I always ask first is, ‘What drives you?’” Castro said. “That helps me really understand the need they have for the project. It is far more effective than just telling someone about every single product right off the bat. I want to know the biggest things they want to do and why they are investing in the property so we can give them the best products that will fit that need.” As the largest manufacturer of exterior building products in North America, Cornerstone can usually offer an array of products that fit the bill. Mike Castillo, Cornerstone’s national account manager on the company’s Retail Pro business, explained. “Our company offers consumers big things because our brand and portfolio extend across the country. Whether you are in Florida or Washington, we can help you.” Castillo, a former marine who has been with the company more than eight years, noted that one his team’s top priorities is making sure customers have all the information they need and the support Cornerstone can offer in order to make sure they choose the right product for an asset. “We view every relationship with a client not just as a point of sale but as a partnership,” Castro said. “If there are issues, then we get someone dedicated to going to a job site with the customer to figure it out. There have even been times we rebuilt windows and delivered them next-day because when it comes to that partnership, we will do what is necessary to help our customers get the job done.” Diagnosing Problems, Asking Questions & Implementing Solutions Sometimes, helping get the job done involves identifying places where the customer is missing vital information. For example, Castro noted many new Cornerstone clients struggle with understanding how to make sure they are meeting all code requirements when they install windows and doors. For many investors, in particular, who may own assets in multiple markets across the country and deal with myriad variations on common code requirements, the line between energy efficiency (often oversimplified to simply mean any product meeting federal ENERGY STAR certifications) and local code regulations becomes blurred. Then, Castro said, an owner can end up with a building that does not meet code requirements even if it has environmentally supportive windows, doors, and other appliances. “We have to know the requirements everywhere, whether you are in the Pacific Northwest, Florida, Texas, or California. Building codes are standards to which a builder must build the property, and those vary from place to place, whereas ENERGY STAR goes by region, and there are only four regions,” Castro explained. “However, a lot of property owners end up going by ENERGY STAR because they think that will take their building to code, which can end up being a very costly mistake. They are not the same thing. You have to go with the code first.” Castro recalled an experience with one customer who had not replaced windows in a multifamily building before. Some of the units had burned in a fire, so a large number of windows and doors needed to be completely replaced and dramatically updated. “They were kind of at a loss because it was their first time; the building had been built in the 70s so it was not an easy swap, and they were not sure exactly what they needed to do,” Castro said. Ultimately, the customer and Cornerstone worked together to entirely outfit one unit with the new windows Castro recommended so they could see how they worked out, and this helped them understand the process and tackle the larger project with confidence. “They were calling us and sending pictures, and then we would get them products. We ended up delivering more than 1,500 windows.” Castro said. “That was 10 years ago, and they are still working with us because they left that project feeling confident and satisfied. I feel so comfortable knowing that is the kind of company I work for: where we are encouraged to treat our customers that way.” “The number one thing our teams do is know the vital details: what kind of latches you need on a window, how to factor in what types of things are close to the project that might affect the product you choose, and the best way to get those things delivered the best way possible,” Castillo chimed in. “We make sure we have those answers up front so transactions are smooth and clients get the right products.” A Focus on the Community: Helping Families Come Home for Good Sometimes, getting the right products to the right places involves more than just helping out clients with projects. Cornerstone also dedicates large volumes of resources to helping families struggling to find stable housing secure a safe place to land — permanently. Cornerstone Building Brands “Home for Good Project” partners with Habitat for Humanity and the LadyAID Fund of the Community Foundation of Middle Tennessee to help build affordable housing for families in need. Cornerstone donates products, facilitates house builds, and works with Grammy-winning trio Lady A (founders of LadyAID) to “use music to strengthen and inspire our communities,” according to the project website. So far, the Home for Good Project has:  »         Participated in building or remodeling more than 720 homes  »         Impacted 135 communities via these projects  »         Donated $3.4 million in products and resources These projects have helped families that were living in unstable housing situations or facing homelessness access a “forever place they can always come back to.” For example, Kentucky resident Sallie and her son, Casey,

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Maximizing Returns on Fix-and-Flip Investments

Using All Available Data to Your Advantage By Mitchell Zagrodnik The real estate market has been in a state of flux in recent years. Since the middle of 2022, the higher rate environment combined with an overall lack of inventory throughout the U.S. has left many prospective buyers and sellers to navigate an extremely challenging real estate market. One of the most popular investment strategies utilized today is fix-and-flip investing. What makes this strategy so attractive is the ability to make quick returns, and, at the end of the day, what makes an investment worth your time and money is the overall return on investment. In an ever-changing housing market, savvy investors are always looking for advantages to stay ahead of the curve and find the best possible scenarios for their portfolio. In order to ensure a profitable fix-and-flip investment, it is crucial to understand that being selective in your property choices is necessary, as not all projects are good fits for these types of scenarios. Location is an immense factor. Doing the research to understand the current market, where it is headed in the future, and what areas throughout the U.S. are profitable and which to avoid, can give you a huge advantage in the space when it comes to maximizing your returns. The Current Landscape of the Fix-and-Flip Market Rehabbing homes for sale has only continued to grow in popularity over the years, with more and more people looking for financial independence wanting to capitalize on these opportunities. That said, it is important to recognize that along with the overall housing market, the fix-and-flip industry has had its fair share of challenges in recent memory. According to recent data provided by ATTOM, in 2023 there were 308,922 single family homes and condos flipped, making up 8.1% of all home sales. Meanwhile, 2022 was record-setting, with roughly 437,000 houses flipped, making up 8.4% of all home sales. Another point to make note of is that since 2016, gross profit on flips has been consistently between $60,000 and $70,000. But in that same timeframe, the average return on investment has been consistently dropping as well, from upwards of 51% returns in 2017 to nearly half that in 2023 at an average of 27.5%. What has been a great sign of optimism as well, is that as of June 2024, house flipping activity has increased nationwide for two consecutive quarters, with that average ROI jumping back up to 30% for the first time in a year (ATTOM). This is a positive sign for the flipping industry, but it is also important to recognize that there is still difficulty hitting higher profit margins in a majority of areas throughout the U.S., after expenses, when flipping a property. Keep in mind, a 25-30% return on investment is still a great return, so this data should not sway you away from pursuing these deals. But the reasons for these dwindling returns can be attributed to several factors. Rising median home prices, rising material costs, and a higher rate environment leading to less interest from potential buyers are all valid claims to that notion. However, there are some measures you can take to make the most on your investments. Maximizing your Returns The ideal scenario for a fix-and-flip is to finish the rehab quickly and efficiently, and then sell the property as soon as possible. Most investors will go the avenue of securing financing through a lender, and these loans are often structured with no prepayment penalty. For example, this means that on a short-term fix-and-flip loan with a 12-month term, if the project is completed three months into the term and the property sells, then the borrower can pay off the loan without any penalty and maximize their ROI. A great way to make sure your property sells quickly is to not wait until the rehab is complete before finding a prospective buyer. Investors can give themselves an advantage by networking with buyers or even utilizing a realtor to search for buyers while the property is being renovated. It is not a difficult sell for those searching for a home when they have the opportunity to live in a newly renovated home, and on top of that you can secure a quick sell upon completion. Hot and Cold Areas for Flipping in the U.S Market The rise in popularity of fix-and-flips as well as an ever-expansive array of data grants you access to ample amounts of tools and information at your disposal to make the most of the opportunities throughout the country. It is no secret that many investors nowadays are investing in states outside of where they live thanks to this availability of information. So where in the United States are flippers making the most bang for their buck? Data provided by ATTOM from Q1 of 2024 shows the areas with the highest returns on investment as of 2024 are:  »         Buffalo, NY at 127.8% ROI  »         Reading, PA at 124.9%  »         Pittsburgh, PA at 120.6% ROI  »         Scranton, PA with an average return of 115.7%  »         Harrisburg, PA with 113.6% ROI It is clear that there is a major concentration in the Northeast region of the U.S., with Pennsylvania seeming to be the most noticeable. The reason for the higher returns can most likely be attributed to these locations having home values that are relatively lower in desirable areas where there are a plentiful number of buyers. Metro areas where we are seeing the lowest ROI are led by:  »         Austin, TX at 0.3% ROI  »         Honolulu, HI at 1.7% ROI  »         San Antonio, TX at 2% ROI  »         Dallas, TX  at 5.3% ROI  »         Houston, TX at 8.4% ROI The trend to notice here is that these are cities that have experienced immense growth within the past five years, and four out of the five metro areas listed are in Texas. Even though these are desirable areas that people are moving to, the home values in these areas have skyrocketed.

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The $638 Million Reason to Choose Your Title Company Wisely

What Savvy Real Estate Investors Should Look for in a Title Company By Radian Title Services As real estate investors, you are always on the lookout for the next great opportunity. But in building your asset portfolio, are you giving enough thought to the foundation of every transaction — the title company? This often-overlooked aspect of real estate investing may help make or break your success in the long run. The title landscape has seen a surge of innovation in recent years. While innovation is welcome, it is crucial to look beyond headlines that seem too good to be true. The real value of a title company lies in its ability to protect your investments when things go sideways — and in real estate, they often do. Consider this: According to the American Land Title Association (ALTA), title insurance companies paid out over $638 million in claims in 2023 alone. This staggering amount highlights the importance of choosing a financially stable title company. New title technologies often lack the financial backbone to weather significant claims. In the worst-case scenario, an underfunded title company facing multiple large claims could become insolvent, potentially leaving investors exposed to heavy losses. So, what should savvy real estate investors look for in a title company? Here are several factors to consider:  »         Financial Stability // Consider whether a title company is backed by a strong parent company or with a proven track record of financial health. This may indicate adequate resources to pay claims and continue operations even in challenging times.  »         Claims-Paying History // A reputable title company should be transparent about its claims-paying history. This may demonstrate their ability and willingness to stand behind their policies when issues arise.  »         Customer Service // Responsive, knowledgeable customer service can make all the difference when navigating complex transactions or addressing title issues.  »         Underwriting Knowledge // Experienced underwriters can spot potential issues before they become problems, helping to save you time and headaches down the line.  »         Industry Relationships // Established title companies often have strong relationships with local recording offices, and other key players, which can help expedite transactions and resolve issues more quickly.  »         Technology Balance // While technology can streamline processes, it should complement, not replace, a human counterpart. Look for companies that leverage tech wisely without sacrificing the personal touch.  »         Regulatory Compliance // A good title company is fully licensed and compliant with all relevant state and federal regulations. This helps protect you from potential legal issues down the road. If you rely heavily on your agent to select the title company, make sure you understand why they chose a particular title company. Often real estate agents are incentivized to choose certain title providers. Their brokerage may have an existing relationship with a title company, or the brokerage might receive financial incentive for referrals to an affiliated title company. Remember, the easiest option is not always the best when it comes to protecting your investments. As we wrap up this inaugural Title Talk column, we want to share about who we are: Radian Title Services (which includes Radian Title Insurance, a title insurance underwriter and Radian Settlement Services, a title agency offering settlement services). Backed by Radian Group, a trusted name in mortgage and real estate for over 47 years, Radian Title Services combines financial strength with exceptional customer service. With Radian Group’s impressive $5 billion market cap and over 1,100 employees, investors can rest assured that Radian Title Services has the resources and stability to help protect their investments for the long haul. This backing provides peace of mind that your title insurance and settlement services provider will be there when you need them most. In future columns, we will dive deeper into specific title issues, emerging trends, and strategies to help protect your real estate investments. Until then, remember: a strong foundation may start with a strong title company. Choose wisely, and happy investing. For licensing information please visit www.radian.com/licensing-disclosure

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Leveraging Technology to Uncover Opportunities

Drive Your Own Success and Uncover Opportunities By Radian Real Estate Management The Single-Family Rental and its adjacent Build-to-Rent, Rent-to-Own, I-buyer, and Residential Transition Lending markets have evolved from modest beginnings into a commanding asset class suite worth trillions of dollars. In recent years, the investor-owned real estate market has experienced major growth driven by shifting demand, inventory, home values, and consumer desires. Overall, the U.S. housing market has appreciated significantly since 2020, boosting portfolio value for investors who timed it right. However, we are now seeing variances across the country as certain markets thrive while others begin to falter. Some areas like Charlotte and Nashville, where median home prices are still below the national average, continue to appreciate. Meanwhile, of the approximate 900 U.S. cities tracked by Zillow, 105 of them saw a decrease in home values over the last year. Savvy investors are keeping a close eye on emerging opportunities and regions that may offer growth potential with more favorable entry points and are looking for easy to use valuations technology to order, monitor status and receive completed valuation products. Radian Real Estate Management can help you finetune and execute your investor-purchase strategies across diverse national markets. Our one-of-a-kind Capital Markets Dashboard for diligence and valuations, built in our award-winning Pyramid Platform, can help you manage all of your property valuation needs within one easy to use system.  »         Get fast, reliable, and accurate valuation estimates, including industry-leading Broker Price Opinions with Rental Addendums.  »         Submit single or bulk valuation orders and monitor the status in real time.  »         Easily communicate with the experienced valuation team directly in the dashboard. As the investor-owned market continues to shift, be sure you are prepared with the right technology to help you drive your own success and uncover opportunities. For licensing information please visit https://www.radian.com/licensing-disclosure

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