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Funding & Alternative Lending

A Newfound Hope

How Investors are Shifting with the Market by Amy Daniel There is an emerging excitement for investors as activity is beginning to reignite in the space. For the last few years, there was a pause in the market as rates increased, housing costs soared, and inventory remained low. But as 30-year fixed mortgage rates begin to drop, there is a newfound hope across the entire market, with rates averaging 6.46% in the first week of September, down from 7.22% in early May and a recent high of 7.79% in October 2023. This is the lowest rates have been since April 2023. While investors typically take on 5-year short term loans that recently have had lower rates than a 30-year fixed mortgage and have been much steadier, changes across the entire market have an impact on the space and investors are beginning to react. We are starting to see things loosen up and investors who sat out over the last few years are coming back, ready to play. Investor home purchases in the second quarter of 2024 were up 3% year-over-year. That means investors purchased a total of $43 billion worth of properties, according to a Redfin report. The most popular purchase for investors in Q2 was single-family homes, which comprised 69% of all investor purchases. As investors work on next steps within the every-changing market—whether it is shifting their portfolio or thinking about refinancing — there’s a lot of moving parts that they need to consider. Impact of the Market We are seeing a lot of larger investors pruning their portfolios right now, whether there is a certain area that they want to get out of, or they are looking to switch up their inventory. Lower traditional rates will have a large impact on this and should be seen as a positive for those looking to make a change in their portfolio. As investors sell off assets, simply put, they need someone to buy them. In many instances, they are selling to individual buyers who are purchasing these homes as a one-off asset. As traditional 30-year fixed rates drop, investors can sell off assets faster and make a switch. They are no longer stuck in a market with no movement and can make moves to prune their portfolio. What is the Right Move? As rates begin to shift, simultaneously, many investors have loans that were taken out during the hot pre-pandemic market from 2018 to 2020 come due. With this, lenders are being more aggressive and having conversations with borrowers to determine the next steps: Do they want to pay off the loan or pull in different assets and refinance? With 5-year short-term loans coming due and movement in the market, we are seeing an increase in refinance requests from investors looking to refresh their portfolios. So, what is the right move? Investors are constantly thinking about the bottom line and there are certainly deals to be had as the market continues to change. Refinancing can help investors leverage a lower rate or tap into equity to make improvements or rehab a property. It is important to track the data and analysis to determine the next steps. Historically, refinancing could make sense for investors any time they are saving one or more percentage points. The terms of the loan should also be at the forefront of an investor’s mind when they are considering refinancing. Is there a pre-payment penalty? Carefully reviewing the terms of the original loan is vital. It is important to understand the rules and parameters of the loan before making a move. The Right Lender With every decision — from making changes to their portfolio to refinancing — investors must partner with the right lender who will help them make the best decision for their unique situation. The right lender will be proactive and communicate with investors frequently, keeping them aware of changes in the market and when it might be beneficial for them to refinance. Investors should seek out a lender that is not going to make them jump through hoops and someone who specifically understands the single-family rental space. Building an ongoing relationship with a lender can make a big difference. Investors should find a lender who understands the space, what they are trying to accomplish, and one who will help them get to their end game. Looking Ahead: What’s to Come It is tough for anyone to know what lies ahead but those of us who are in the space are always focused on margin and profitability. We are starting to see some areas where values are coming down and we have seen some rate improvement. If that continues into 2025, despite rental pricing coming down, investors could still find some good deals and make the margins they are looking for in their specific markets. And they should have a healthy swing on portfolio growth and allow for some continued pruning to happen in areas where investors want to sell. The lower rates will help the one-off purchase of these homes to homeowners. On top of everything else that is going on, we are also in an election year which could spark additional changes in the future for the real estate community.

Data & Analytics

What We Learned About Auction in 2023

How it Will Prepare You for 2024 By Amy Daniel Auction, once a market dominated by investors, is becoming more mainstream. People who previously were frightened by the process are no longer afraid to go down the auction path. In the last year, there was a shift to where everyday homebuyers became more comfortable with the auction process. Based on ServiceLink’s 2023 State of Homebuying Report (SOHBR), which surveyed 1,000 individuals who either purchased or tried to purchase a home in the last three years, 40% of respondents would consider buying at auction, up from 33% in 2022. Of that, Gen X was most likely to consider buying at auction at 46%, followed by Gen Z and millennials at 39% and baby boomers at 30%. So, why the shift? And what does this mean for investors who were in the game first? Here are some of the trends we saw in 2023 that will prepare you for a better 2024. Auction is An Added Channel At a time when the market is down, inventory is low, interest rates are high and prices have held relatively steady, auction has provided buyers with another avenue to find the right fit no matter what they are seeking. Based on the 2023 SOHBR report, 50% of respondents said they would potentially use their auction purchase as a primary residence, up from 29% in 2022. While longstanding investors are affected by the added competition in the auction space, this is where you need to tap into your expertise. Be savvy. Remember: Not everyone wants to buy a home. There is also an increase in people looking to do a short-term rental rather than dive into a purchase. This leaves a huge place for investors in the market. Investors need to track neighborhood property values, ensure their purchase is sustainable and be good at vetting tenants to promote long-term success. Even in this market, there is space for everyone to win. It is Easier Than Ever The auction process is simple. Thanks to the latest technological offerings, it has become even simpler. You can now bid on a property in another state and close on the asset within 30 days. Everything can be completed without ever having to pick up a phone or step foot in the state. There is no longer a need to find a local agent. eClosings are a big driver that fuel added traction in the auction space. Data also is readily available at buyers’ fingertips making the due diligence process much easier. Interactive photos, access to title reports and values of other properties in the area, can all be found with the tap of a finger. This makes buyers comfortable knowing they are making a knowledgeable decision without physically visiting the property. According to 2023 SOBHR data, 48% of respondents who purchased a home used an eSigning application or closing documents to complete their transaction, while 53% applied for a mortgage online and 25% conducted an appraisal remotely. In 2023, digital technology advancements made it easier than ever to purchase a property at auction. Tap into that. You can and should utilize the added technology to your benefit. Sharpen Your Pencil In 2023, investors are being more particular with what properties they are choosing to purchase. With a volatile market, it is important for investors to tap into their knowledge of the market, do their due diligence and ensure the property checks all—not just some—of the boxes. Also, have patience. A down market, while frustrating, has given investors time to reflect on their own processes and find ways they can do things more efficiently. Remember: Sharpen your pencil, look ahead and make sure the property makes sense in the long-term. It is OK to take your time when selecting your next purchase. The Right Partner is a Must Facing what industry experts have said could be one of the toughest winters ever for the real estate industry, it is now more important than ever to find the right partner that has financial stability, along with a team dedicated to the auction space. This is a niche market and investors need someone who knows the arena and can help them maneuver through the process. In 2024, it is going to be even more critical to partner with the right people who are in it for the long haul, that have longevity and can really help push you to that next level. Find a partner that moves quickly and gets it right. Every day matters. This is why it is important to find a partner who keeps the lines of communication open. A partner should keep investors updated with the latest happenings on their transaction, if there are any title issues involved and how long it is going to take to get things cleared. You want a partner who keeps you in the loop. What to Expect in 2024 It is not surprising, given the market and the added comfort people are finding with auction as they become more familiar with it, that there was more interest in auction in 2023 than in years prior. It is an exciting time for auction as it gains traction that will carry into 2024. There is no slowing down. The next year will continue to be a very busy year in auction. More properties will come to market and auction is going to be a critical piece of the real estate market, for homebuyers and investors alike. Even with the added auction competition from homebuyers, investors can stay ahead by tapping into their expertise, utilizing digital advancements in the industry, being patient and focusing on finding the right property that meets your needs, as well as teaming up with the right partner. This is the recipe for success in 2024.

Data & Analytics

Standing Strong in the Complex SFR Market

Investors Need to Streamline Their Processes to Optimize Efficiency By Amy Daniel The scorching hot single-family rental market has cooled in recent months, as the Fed’s inflation-fighting interest rate hikes have prompted investors to take a breather. Many of them believe that these increases and the pressure they exert on individual buyers and sellers will drive values down, making conditions right for investors to capture better deals in the months ahead. For the time being, following substantial growth in acquisitions through the first half of 2022, bulk securitizations and overall purchases have slowed, as both large investors and smaller community investors pause to consider their next moves. All eyes are on the market, not so much because anyone expects rates to come down anytime soon, but rather because investors anticipate growing inventories of SFR properties in addition to the potential for better deals to come. They are taking a moment now to make strategic calculations as to when and where it may make the most sense for them to buy. On the consumer side, potential buyers continue to focus on finding their ideal homes, although, like investors, many are waiting for market conditions to stabilize before taking the plunge. For those who have recently discovered they cannot afford quite as much home as they qualified for before interest rates began climbing, SFR properties offer an attractive alternative. As established renters have already found, renting provides the homeowner experience without the long-term commitment to a huge mortgage. What do SFR renters look for in the homeowner experience? More privacy and indoor and outdoor space than apartments offer, a community atmosphere, and perhaps amenities such as a pool, a clubhouse with workout facilities, a playground, a dog park, walking trails, etc. Investors know that these features are what attract people, particularly younger generations, to the SFR space, whether because they crave the flexibility to easily relocate now that employers embrace work-from-anywhere policies, or they simply are not ready or able to commit the financial resources required to purchase a home. And so, through build-to-rent communities and individual purchases, investors are fulfilling potential renters’ wish lists, striving to do so at price points these consumers can afford. While they may be pausing on making huge property investments at the moment, most of these investors look at SFR as a high-potential emerging market. They realize that if they get their approach right now, they will lay the foundation for years — even decades — of investment returns to come. Riding Out the Storm Hunkering down for what could be many more months of tight margins and market uncertainty, investors are working toward streamlining their processes to optimize their efficiency. Many are finding that working with a service partner that can manage multiple areas related to portfolio management, as opposed to relying on one provider for this and another for that, helps them do exactly that. Think about it: In the current environment, every move you make as an investor, whether long- or short-term, is consequential. Having one partner you know you can rely on for title and close, valuations, inspections and other services frees you and your team to focus more fully on getting those strategic plays right. While it may take some doing to identify your ideal partner — few service providers offer such breadth of services — the payoff can be tremendous. Ultimately, your partner of choice should be well-equipped to support you in these areas:  »         SFR title and close. SFR transactions have their own nuances, meaning your partner should have a team dedicated to SFR title work and closings. In addition to being able to clear title quickly and accurately, they should offer options for closing anywhere you would like, through mobile notaries, local attorneys or eClose services. Expeditious document preparation, document review and recording services are also essential.  »         Valuations. The circumstances surrounding every property and transaction are unique. Your service partner should offer flexibility in the valuations process and be able to tailor valuations to your particular needs, whether you require a traditional, hybrid or desktop appraisal; BPO; AVM; or some other form of valuation. Make sure your partner is keeping up with the evolving standards being put into place by Freddie Mac and Fannie Mae, too, as appraisal modernization is set to go mainstream in 2023.  »         Property inspection and preservation. Having boots on the ground to verify that what you think you are buying is actually what you are buying is critical. When your partner physically inspects a home, you know exactly what is happening with that property. When the inspection coincides with closing, they will generally be able to rekey those properties for you in real time. If you need eviction services, they may be able to provide those as well.             Additionally, some service partners help ensure properties you are holding do not fall into a state of neglect by providing property preservation services. If that is the case, you may want to evaluate whether that partner may be more effective than contractors you have used in the past, due to their fuller understanding of your business and goals.  »         Asset disposition. A service partner that can support you in the disposition of properties adds even more value to your relationship. Again, that full understanding of who you are and where you would like your business to go enables them to help you assess available disposition options and make well-informed decisions. The Long-Term Outlook for SFR Though rates may not come down in the near future, the market will, at some point, stabilize in terms of both interest rates and home prices. Once consumers get comfortable with the going rates in the new normal, demand for SFR properties will certainly begin climbing once again. Investors who have prepared for this impending uptick — by streamlining and perfecting their approach — will prevail.

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