REI INK

FirstKey Homes

Dedicated to Growth & Its Residents Going into 2024 By Carole VanSickle Ellis In 2015, when FirstKey Homes opened its doors, the single-family rental (SFR) market was still in its infancy, with researchers at the National Bureau of Economic Research still publishing papers with theses illustrating now-ubiquitous sentiments such as “There is considerable interest in single-family rentals as an asset class.” At that time, FirstKey debuted on the market, declaring it would “set the standard for excellence in SFR management with an approach that combines the dedicated, personal attention of highly experienced professionals with the technology and support of a world-class service provider.” A lot has changed since then and, FirstKey Homes CEO Colleen Keating said proudly just nine years later, the really important elements of FirstKey have remained the same. “We are a leader in the SFR space in resident experience,” Keating said, noting that the company established a keen focus on hiring the best talent early on in order to optimize that experience. She continued, “Our ‘Keypers,’ which is what we call our team members nationwide, are truly dedicated to making a difference in the lives of our residents each day and contributing to the growth of FirstKey Homes,” she said. Today, FirstKey Homes has nearly 53,000 single-family homes nationwide. Ryan Bowes, FirstKey’s chief investment officer (CIO), recalled joining the company in the middle of the COVID-19 pandemic and helping lead the charge to acquire housing and then make it available to residents seeking single-family options during the early days of the pandemic. “We challenged our real estate teams, our closing teams, our corporate team, and our acquisition teams to make this happen,” he said. “It took an incredible amount of effort not just because of the growth we achieved but because our field teams were out there renovating, overseeing assets, renting properties, and working with residents on a daily basis. We believe that good real estate business requires the human touch.” Bowes explained the FirstKey business model requires every home have effective and thorough due diligence performed prior to acquisition as well as direct company supervision of or involvement in renovations, repairs, and underwriting. “There are platforms where the homes are purchased sight-unseen, but that is just not our business model,” he declared proudly. “At the end of the day, we want to be sure each home leads to a great lease and a great experience for our residents. If we have not had human involvement, we are not comfortable with underwriting or acquiring a property.” Those acquisitions made it possible for tens of thousands of residents to live in SFR properties at a time when this asset class was in incredibly high demand, an achievement of which Keating is extremely proud. “There was, of course, a lot of uncertainty in 2020, but I had faith in the resilience of the SFR sector and the need for quality housing,” she said. Keating noted she is proud of FirstKey’s portfolio but takes particular pride in “what that portfolio represents: building a great team that could rapidly grow and scale in a healthy way, being part of a much-needed housing solution, and providing even more American families with high-quality homes in great neighborhoods.” Keating, whose role in the company involves, among other things, extensive travel to visit and connect with Keypers around the country, walking homes in FirstKey developments, and working with teams nationwide, added, “Aligning a company’s offering, values, and mission with the right strategic partners lies at the heart of our ability to make a meaningful, positive impact on local communities. We are so proud of our growth and the contributions we are making to creating communities where our residents can thrive.” Relentless Pursuit of Talent, Growth & Positive Impact FirstKey Homes has certainly demonstrated meteoric growth since its inception, and, under Keating’s leadership, the company’s talent pool is thriving right along with its communities. “I believe it is imperative we remain relentless about surrounding ourselves with the very best talent and create an environment where top talent in the industry can thrive,” Keating explained. “Truly break-through results can only be achieved with a ‘blue-ribbon’ team.” Bowes said he is particularly excited about bringing in new team members who are excited and passionate about real estate. A self-proclaimed real estate enthusiast, Bowes observed working at FirstKey Homes is a perfect fit because he and his team “live and breathe real estate.” He continued, “We love every facet of real estate, especially taking care of our residents, and there is no better asset class in the industry to be in right now than SFR.” FirstKey Homes employees are known as “Keypers,” and the company’s employee policies are dedicated to helping Keypers feel welcomed and included while providing ongoing opportunities for growth. “We have an entire learning and development team dedicated to the career growth of those within our organization because we know that when employees feel valued and heard, they will be co-creators and co-collaborators within the business, going above and beyond to deliver that great resident experience,” Keating said. “We place a high priority on development of individuals as well as corporate growth.” The decision to not only prioritize Keyper development but also to verbalize specific goals and policies surrounding this goal has resulted in FirstKey’s ability to attract young, excited professionals to its rosters. Keating said an overt company policy of inclusion has aided in this effort as well, particularly when it comes to bringing in top Gen Z and Millennial talent. “To be able to seize that creativity and innovation, you have to maintain an inclusive culture within your company,” she said. “Our people know they are contributing and their voices are heard, and that means a better experience for everyone involved, from a top-level executive to a brand-new resident and those with whom they work and interact.” For the Keyper community, part of being heard and involved in the company includes participating in a vast array of employee-driven community-service activities. For example, a

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San Jose, California

“The Capital of Silicon Valley” Still Holds Opportunities for Investors By Carole VanSickle Ellis If you live in San Jose, California, then some in the real estate space believe you might need to steel yourself for something most Californians are not very used to: falling home prices. According to Zillow economists, San Jose could see the largest decrease in home prices in the country over the course of 2024, with estimated losses exceeding 6%. The analysts cited high mortgage rates and limited opportunities for new construction as reasons for falling home values. “Builders have limited opportunities with a severe lack of available land,” the team observed, adding potential sellers may add to the local inventory if interest rates fall because lower interest rates will create more mobility among homeowners. Of course, with median sales prices still in excess of $1.3 million and up nearly $25,000 year-over-year as of February 2024, the San Jose market is still a rich one from most perspectives. Nevertheless, local investors say the market is full of opportunities for investors willing to put in some effort. Derek Torculas, owner and CEO at California-based NorCal Home Offer, cited accelerated appreciation as one of the biggest draws for investors interested in Golden State investing. “I find properties that make sense all the time,” he said, adding his company is currently engaged in both fix-and-flip deals and buy-and-hold strategies. As of early 2024, Torculas’s tactics still hold strong, but stiff competition from other investors continued to drive prices skyward. In fact, according to a Redfin analysis published in August 2023, San Jose topped the list of metro areas with the highest median sales prices for investor-bought homes, tying with San Francisco with a median sales price of $1.8 million. To Lori Greymont, president and CEO of the San Jose Real Estate Investors (SJREI) Association, ongoing strength in the market simply indicates San Jose will not follow other west-coast markets into a downturn any time soon. “The San Jose market is like an island,” Greymont said. “While we saw a slow-down in the number of sales over the last year-and-a-half, the price of homes has not only held steady but new and newly renovated homes are turning as quickly now as they did in the past.” Greymont has been buying, selling, and managing both single- and multifamily properties for more than 25 years. A “Builder’s Remedy” in Jeopardy Clearly, there is not currently a surplus of housing in the San Jose area, something that local officials have tried to combat using a vast array of city plans designed to bring in affordable housing options without succumbing to what some insist is a dire threat of “overdevelopment.” However, as the battle continues, many developers accuse the city of simply dismissing many solutions to the problem out of hand without presenting viable alternatives. This conflict stems from a state law in California that permits developers to build projects of nearly any height and size in cities that lack state-certified housing plans. San Jose was one such city until February of this year, resulting in 29 new developments receiving builders-remedy approval between January 2023 and February 2024. However, now that the city’s plan has been approved, only two-thirds of the approved projects will be permitted to continue, thereby chopping more than 4,000 pre-approved units from the city’s pending housing and creating financing complications for the city and private developers. “Less density is better than zero density,” said Erik Schoennauer, a local land-use consultant and representative on seven of the rejected builders-remedy projects. “Having plans that can’t be financed means nothing gets built, and the city has a lot of plans that are financially infeasible to build,” he warned. In response to criticism of this nature, the city announced a streamlining initiative to enable older and underutilized buildings to gain approval for residential upgrades and renovations more quickly. Jerad Ferguson, a San Jose principal planner, told the San Jose Spotlight in February 2023 the infill ordinance will “enable the construction of more affordable housing and allow projects to skip public hearings.” San Jose also plans to update zoning codes to permit housing development in three local business corridors as early as next spring. Those corridors are 13th Street, Japantown, and Willow Glen. However, critics of this move say the proposed zoning changes threaten historic businesses, so investors in the area should monitor local discussion closely, particularly around the Japantown area. San Jose’s Japantown, which grew from the site where Japanese immigrants originally settled in the Santa Clara Valley, is one of only three historical Japantowns still extant in the United States today. Hospitality Sector Could Indicate Ongoing Weakness in 2024 The entire state of California has long been considered a premier travel destination, and San Jose enjoys a top position in the ranks of places tourists like to visit. However, post-pandemic, the city’s tourist sector has not entirely recovered, and this could mean long-term problems for both the local hospitality industry and hospitality-related real estate. Matthew Martinucci, vice president of sales and destination services at nonprofit destination marketing organization Team San Jose, told the Silicon Valley Business Journal in February of this year that he believes San Jose’s reliance on tourist interest from visitors to San Francisco has hurt the city’s post-pandemic recovery. “Much of the international focus for the Bay Area is negative now,” he explained, adding, “San Jose has enough [positive elements] to stand on its own.” In 2019, San Jose boasted roughly 20.6 million international and domestic trips with an annual cumulative spend of nearly $3 billion. The most recently available numbers today (2022) indicate a loss of nearly 1 million trips (still up 35% over 2021) and an annual cumulative spend down about $1 billion compared to 2019. 2023 numbers have not yet been published, but in September 2023, Silicon Valley Business Journal reporter Devan Patel warned, “The slow post-pandemic recovery in business and international travel is still weighing on the [tourism] sector.” This weight is making itself known

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Empowering Lenders and Originators

The Future of Capital Markets Operations is Here By Stuart Wall With housing inventory at an all-time low, there is a growing opportunity for many Residential Transition Loans (RTL) investors. This opportunity has been stifled in the last 18 months by interest hikes and the uncertainty of when market conditions will settle or improve. These same market dynamics have led to a boom in private credit that brings its own growth and logistics pains. While riding out the uncertainty or riding the growth wave brings different sets of problems to lenders and originators, focusing on strategy and operations through technology can ultimately help lenders and originators alike win. In the rapidly evolving world of debt financing, capital optimization is crucial for maintaining competitiveness and ensuring sustainable growth.  Enter Setpoint, the capital markets operating system designed to improve the way teams operate. With its continual growth, highlighted by a recent partnership with Wells Fargo, Setpoint is poised to set a new standard in operational efficiency and liquidity. A New Era of Lending Efficiency Setpoint’s platform includes a suite of products, services and capital that help lenders scale. By integrating with both lenders and originators, Setpoint improves the funding process by focusing on data standardization, automated calculations and reporting, and third-party diligence while ultimately reducing time to fund. For lenders, Setpoint standardizes borrower data, reconciles calculations, and manages Asset-Based Lending portfolios. This is done through real-time analytics and loan-level data tracking that gives more precise portfolio ownership. The platform’s portfolio modeling tools are pivotal in optimizing new credit facilities, projecting IRR, automating facility reporting, and providing a centralized platform for all funding operations and borrower activities. Fulfilling new funding requests is at the heart of the platform, bringing operational efficiency and security to a once manual process. Lenders can review and approve funding requests entirely on the platform. Advance rate step-down schedules, required reserve amounts, and funding logic are configured for each facility and amendment, removing the need to reconfirm compliance to the credit agreement with each request. An audit trail of historical requests and approvals are a click away and plainly documented and then stored for future reporting processes. Once implementation is complete, data ingestion is instant and error free removing manual data transfer processes — no more email threads and FTP folders. Whether pulling data via API or spreadsheet, Setpoint works with lenders directly to ensure standardization and accuracy throughout the portfolio. Lenders can even view any asset’s collateral and funding or advance step-down history without leaving the platform. While using Setpoint, clients see the time to fund drop by 50%, resulting in higher utilization across borrowers. Lenders also lower the time spent monitoring borrowing base and facility compliance with custom alerts and portfolio views. Each facility’s concentration limits and buy-box criteria are monitored in real time with access to individual asset details that contribute to each limit. The platform also automatically tracks the completion of borrower’s recurring financial deliverables, such as monthly financials or compliance certificates, for improved risk management procedures. Additionally, lenders gain access to more frequent and accurate portfolio reporting with enhanced risk analysis and forecasting abilities. Standardized reporting across facilities enables lenders to analyze portfolio performance and risk by funding vehicles. Additionally, lenders can use real-time dashboard views to track metrics such as outstanding commitments, current utilization, or upcoming advance step-downs for cash management, utilization, and for monitoring borrower trends over time. With Setpoint, you can automate workflows and reporting to focus on driving portfolio growth. This approach helps lenders achieve their best work by funding transactions within 24 hours all while managing over $18 billion in transactions annually. Accomplishing this level of efficiency at scale is crucial for lenders looking to improve their market responsiveness and operational agility. By enhancing standardization and liquidity, the platform builds trust and efficiency in the credit system. Eliminating Errors and Enhancing Liquidity As Setpoint manages the end-to-end capital markets process, lenders and borrowers can operate together on-platform. With Setpoint’s Capital OS product, originators can accelerate capital allocation, instantly reduce operational risk, and automate lender management. For originators, it starts with configuring the technology and services to meet individual facility needs. During implementation, seasoned capital markets and engineering teams review everything from facility data structures to eligible asset criteria and data security. Each facility is configured according to the credit agreement’s buy-box and concentration limit requirements. Adding additional facilities is painless and presents new asset allocation optimization features. Once implemented, the platform similarly allows originators to streamline funding operations with automated data ingestion, calculation and reporting workflows, and overall asset management. They can run any number of allocation scenarios or leverage an AI-driven engine to determine optimal asset allocation. Originators can even access real-time Third-Party Reviews and certifications, thus improving capital access while ensuring compliance. All necessary funding operations tooling or services can be found directly on Setpoint. Trust and Efficiency with Wells Fargo Setpoint’s support for a wide array of asset classes, including auto loans, consumer loans, equipment financing, Residential Transition Loans (RTL), Single Family Rental (SFR), Small and Mid-sized Businesses (SMB), solar loans, etc., positions the platform as a versatile tool across any sector. This versatility ensures that regardless of the market segment lenders focus on, Setpoint has the capability to enhance their operational and financial performance. The recent partnership with Wells Fargo is a significant milestone for Setpoint and a testament to the platform’s reliability and efficiency. This collaboration not only enhances the technology’s credibility but also offers counterparties access to a wider network and greater opportunities.  More specifically, as Wells Fargo’s Third-Party Calculation Agent, Setpoint approves and certifies borrowing requests, monthly payments and investor reporting. In the role as Third-Party Paying Agent, Setpoint facilitates client payments via the technology platform by issuing payment instructions, as authorized by Setpoint’s clients, to account banks where funds are held or are to be transferred. The partnership is poised to boost confidence among lenders and originators, signaling that Setpoint’s technology is not only innovative but also trusted by leading

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The Impact of Digital Appraisal on Investment Property Valuations

The Benefits of Property Data Collection By Mark Walser The valuation of investment properties in private lending has and will always be one of the most critical aspects of investment property transactions. However, in recent years, getting accurate and timely valuations has become more challenging due to many factors. Perhaps the most significant factor is the growing appraiser shortage, which is largely due to retirement. As it stands now, this issue will only intensify. According to the U.S. Bureau of Labor Statistics, the median age of appraisers is 53. In 2023, the Appraisal Institute reported that over 66% of appraisers are over the age of 50 and only 7% are under the age of 35. This reveals the compounding issue: Not only are appraisers aging out, but trainees are not rising in enough numbers to replace them. Investors should understand that this problem has been building for the past 10 years and is systemic across the entire lending industry, from GSE forward mortgage lending to every other part of the profession. Further exacerbating the situation in private lending is the fact that the appraisals in the REI space tend to be more complicated than the standard Fannie Mae 1004 SFR appraisal used in a conventional real estate loan. Often, the appraisals in investment/rehab properties will need more complex analysis, two values for “As Is” and “As Repaired” value, and require deeper knowledge of factors like rental value and building/flip considerations that many appraisers do not specialize in. Paired with accelerating retirements, this limits the number of appraisers that can serve investor loans in many areas, creating chokepoints for price, turnaround time, and quality in the appraiser availability. An easy visual of this paradigm can be seen in the GSEs’ tracking of appraiser capacity. As demonstrated, the number of active appraiser licenses has decreased significantly, which is driving the need for change. Appraisal bias is another huge issue for regulators, and they want to see appraisers and lenders address the issue along with mitigating high fees and turnaround times for borrowers. What is the solution to these issues? The answer is appraisal modernization. The technology underpinning appraisal modernization addresses much of this concern by giving the appraiser immense property data to review and allows them to create a valuation without physical interaction with a potential tenant. As the market recovers, the appraisal industry is transforming to use 3D imagery, location-based data collection, and AI to reduce turn times, enhance property risk mitigation, and reduce the need for appraisers to physically visit properties. The technology is able to create detailed interior and exterior imagery and virtual tour walk-throughs of homes and identify home condition and quality along with amenities and finishes in a consistent manner. The term “appraisal modernization” often refers to any combination of this data collection paired with a property appraisal waiver decision, or paired with a full appraisal analysis done by a licensed local appraiser who resides at their office desk and uses the entire data packet to create an appraisal report on the Hybrid or Desktop Appraisal forms. It is important to note that these appraisals are considered “Full” appraisals and are equivalent in analysis to the traditional 1004 URAR appraisal, often with even better data. The timing for investors couldn’t be more fortuitous, as appraisal modernizations initiatives are being created and enacted across the industry to combat the same issues outlined above. From mitigating appraisal bias to solving for a worsening appraiser shortage, appraisal modernization is touching every stakeholder in the housing industry. The impact of these changes flows downstream to benefit every lending sub-market. The way this works in the case of a normal appraisal or a pre-rehab property is that a property data collector visits a property with their smartphone and specialized software from the appraisal provider. Depending on the technology available to them from the appraisal provider, property data collectors can use software applications and their phone’s cameras to capture 3D imagery from the exterior and interior of the property. Some physical 3D captures can generate up to 900 HDR-quality images per capture, along with a virtual tour that is like an interactive walkthrough of the entire home. On top of that, the data collector also captures vital information about the property’s condition, quality, and amenities on a form. Everything from the type of utilities present to the condition of the cabinets, to deficiencies or remodel specs are captured in detail, room-to-room, for the appraiser to use. Crucially, the technology used in these captures uses the LIDAR technology and photogrammetry built into today’s smartphones to accurately image the interior spaces of the home, and software can build out an extremely accurate floorplan complete with labels and square footage that follow ANSI standards. The combination of the imagery, 3D tours, condition/quality data, and the floor plan give the appraiser and the lender a “data packet” that immerses them in the property. The Benefits of Property Data Collection So, what is the result of this process applied to a two-value appraisal report (pre- and post-rehab) for an REI property? The first benefit is the speed of inspection and appraisal delivery. The daily carrying costs of investor loans are significantly higher than conventional mortgage loans, and the faster the appraisal process can be finished, the more money that is saved by all parties. Today’s leading providers can get inspections and data collections of homes done within 48 hours or less after receipt of order, with the majority being next day inspection if the property contact is available. The inspection takes approximately one hour to complete and captures everything at the site, both exterior and interior. A local appraiser can take the data packet and view the pre-rehab condition of the home, provide an “As Is” value and factor in the budget to provide an “As Repaired” value. This process can be consistently completed in two to three days by prepared, local appraisers who await the data packet. This brings a consistent appraisal experience with a turnround

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Avoid These 6 Rental Renovation Mistakes

Capitalize on Your SFR Investment By Daniel Neff Home renovations will always be part of being a single-family rental (SFR) owner/operator. However, the renovations you decide to tackle will vary based on your long-term plan for your SFR properties and how long you plan to hold them before selling. As you plan your renovations for 2024 and beyond, watch out for these rental renovation mistakes we frequently see in the field. For example, if you are planning to hold a property for a short time, you may choose to spend more because of the potential to get a quicker return, or if you are planning to flip it you can bake renovation costs into the sale price. If you plan to hold the home for a 10-year cycle, you may want to invest in renovations upfront, so you do not have excess maintenance issues (and costs) during that decade. For a five-year holding pattern, you’ll likely choose to be more conservative with renovations to maximize your investment for the medium term. No matter which holding cycle you’re in, the longer your home goes unrented, the less money you make. Your renovation process needs to be as quick of a turnaround as possible ($1,000 a day in renovation costs is a standard expectation). As you plan your renovations for 2024 and beyond, watch out for these rental renovation mistakes we frequently see out in the field. Renovation Mistake 1 Focusing on trends  Your renovations should aim to give you the longest staying power to ensure the property is attractive to renters and to help you avoid the need to renovate while the home is occupied. It is always cheaper to keep renters in the property versus having to take it off the market when it is time to find the next tenant. To make sure you renovate it right the first time, go for timeless fixtures and clean lines over “of-the-moment” trends to help with longevity.  Renovation Mistake 2 Choosing cosmetics over function Aim to make the home as functional and as open as possible to give renters the ability to make it their own. Making prescriptive cosmetic changes or dividing up spaces so that every room has a distinct purpose could prevent renters from being able to decide what they want to do with the living space and impact your investment in the process.  Renovation Mistake 3 Neglecting major appliances and needed replacements Investing on the front end to ensure that your mechanicals are in good functioning order lowers your odds of needing to spend that money as an operating expense while you have renters in the home. It also decreases the likelihood of having a potential billback from them as a result. Upgrading big-ticket items like HVAC, hot-water tanks, and appliances up front can save you time and effort once you have renters in place. A good rule of thumb is that if the item is older than 10 years consider replacing it as part of your rental renovation. Renovation Mistake 4 Not being on par with the rest of the neighborhood  While you are not aiming for your property to be the nicest house on the block, you do want to meet the traditional standards of the neighborhood. You can do this by ensuring the exteriors blend in. For example, if every house in the neighborhood has a fenced-in yard and yours does not, it is probably a good idea to add one (or to remove a fence if other homes do not have one). Making sure driveways and sidewalks are in good order not only helps with curb appeal, but also helps keep the property safe for tenants and guests. Renovation Mistake 5 Neglecting the garage or basement  While it may be cheaper to remove a garage that is not in great shape versus renovating it, this could actually cost you in the long run. Garages add value to homes and are typically a big selling point for renters, especially if you are in an area where they are detached. Not finishing or renovating a basement can be another missed opportunity to maximize your investment. Depending on your market, renovating it could enable you to increase your rental rate per month by $500 or more. Renovation Mistake 6 Not upgrading your lighting  Not upgrading your lighting is a mistake frequently skipped during renovations that is an easy (and cost-effective) fix. Converting it all to LED means work orders for lighting will certainly decrease—and may even become nonexistent. And renters like the cost-savings generated by low-energy-consuming lighting. SFR home renovation decisions can be challenging and vary based on a variety of considerations. But keeping your long-term plan in mind and sidestepping renovation mistakes like these can help you capitalize on your SFR investment. Bonus Tip Focus on the Kitchen  If renovations are part of your plan, consider investing in the kitchen to make the house feel more like a home, as well as adding convenience features. Kitchens are often the focal point of the home, not only serving as a functional space for cooking and eating, but also as an informal gathering place for friends and family. Updating appliances, upgrading lighting fixtures, replacing hardwood with more durable wood-like tile or giving the cabinets an affordable paint job may help a renter choose your unit over another. If you are looking to make a bigger splash, consider adding a kitchen island or adding a work nook in the kitchen (especially for those who need to use all of the bedrooms for family members). These options provide more usable space and can come in handy for those working at home or needing an after-school homework spot for the kids. Regardless of what you decide to do when upgrading your SFR homes, consider working with a company that performs regular work on these types of properties, like MCS. They can make recommendations on areas that can add value, reduce renovation costs, and help keep your homes rented.

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Pass it on…

The Rising Costs of Real Estate Taxes By Suzanne Andresen I attended the launch of the Atlanta Chapter of the National Rental Home Council a few months ago and heard a lot about the SFR arena and the current concerns facing the industry. There were a few discussion points that I felt were more pressing than others. Certainly, the concerns about trespass were front and center, as Atlanta seems to have become one of the industry’s hot beds for that activity. Other areas of focus were the escalating insurance fees affecting certain markets, following the many catastrophic weather events we have seen across the country. If you would like to learn more about that topic, consider attending the AmeriCatalyst event in Washington, DC April 18th and 19th — Going to Extremes. The Rise in Real Estate Taxes The topic that I was most interested in was centered around real estate taxes. It seems that every year these fees continue to rise. In theory, that should not be the case. I am an elected official in Maine, and we recently completed the 10-year state required revaluation process for real estate and personal property. We were a few years behind due to COVID and needed all of the 18 months allocated to this task. We followed the state valuation process, hired an appraisal firm, and visited each and every real estate asset in the town. The state mandates that the town can assess a maximum of 5% overlay for items not currently projected as budgetary items. We have specific guidelines in this process where the town is prohibited from overcharging taxes to the residents and remaining within the limitation of the 5% rate as our overlap buffer. Once we receive the completed analysis with updated determination of current asset valuations, the elected officials then review what the town expects to spend annually to meet the town demand of services provided. As I am sure that all town budgets allocate the highest percentage to the school budget, the remainder of the monies in our town budget are reserved for the other municipal elements necessary to keep the town running like road repairs, first responders, public library, etc. In theory, as the values rise, the mill rate used to determine the tax bill falls. In the end, your real estate tax bills should remain relatively fixed unless you have altered your property for improvement. The new valuation the town received projected our tax rate to a significantly higher value from the previous assessments, — nearly 60%. Some of the increased value was the 15-year timeframe from the last revaluation. Additional increased value stemmed from an anomaly yet to have been experienced in the past following the frenzied acquisition appetite and fall out of COVID relocation — work from home scenarios. As a licensed real estate designated broker, I was surprised that this atmosphere trickled into Maine and was sustainable for more than two years. We are not mainstream America by any means. COVID Relocation Practices In watching real estate transactions, I learned that local residential mortgage requirements actually added in new COVID relocation practices, requesting remote employees purchasing homes in a new location to receive written approval from their employer, confirming that the employee’s job was indeed an approved offsite employment contract. We have seen companies require employees to return to the brick-and-mortar office buildings for onsite duties. Some have adopted a varied schedule or went completely to a 5-day work week in the office. The fear for the mortgage holder was that once the employer realized the employee had moved, perhaps their job would be in jeopardy for this new relocation destination when the return to the office policy would be reinstated, creating an uptick in foreclosed properties. Let’s look at the effects relocation has had on rental real estate. My brother recently moved from New York to South Carolina. He is recently divorced and decided to put his assets in a trust for his children. When he purchased his house, the taxes were estimated at $8,300 annually. After the closing documents and deed were recorded, the county billed the taxes for the new year at $25,830 under the assumption this was now a rental property due to the trust name on the deed. What factors from the county contribute to over a 300%+ markup on real estate taxes? It is not like rental properties have added families with nine school aged children and feel it is justified in this tax allocation. If we review the 5% overlay state limitation in tax allocations in Maine, this would not be an allowable assessment. There is an ever-increasing need for housing and rental properties, which will make it nearly impossible to forecast the demand. Municipalities should not be able to have fluctuating tax rates as part of the real estate property town revenues. We would not be able to meet the overlay stipulation with this assessment practice. As a landlord, rental fees include the monthly real estate tax as a pass through to the tenant, in all markets. Ultimately, the state’s assessment practices are the cause for rental properties becoming out of reach for certain tenants. The investors are constantly held accountable for gobbling up the available assets across the country, in front of first-time home buyers. There is a significant, purposeful rental engagement with many younger tenants. They are attracted to the flexibility of living wherever and whenever they want. Additionally, the population transitioning to the retirement aged scenarios have also decided they prefer renting vs owning. They have moved closer to their grandchildren and want the flexibility to pursue different locations and lifestyles, on a more flexible basis. We need to stop the perpetual demonization of real estate investors. They are providing valuable housing services to towns and communities across the country.

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