REI INK

REI INK Celebrates its 50th Issue

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A Remarkable Journey During Remarkable Times By Robert Rakowski Welcome to the 50th issue of REI INK. These last four and a half years have been quite the journey; a journey through the struggles of being the “new kid in town”, the COVID pandemic, inflation, an out-of-control and uncertain economy, but mostly a terrific journey of forming professional and personal relationships with absolutely wonderful people and companies. It took an absolute DREAM team to reach this milestone. For anybody who thinks that publishing a top-shelf magazine for 50 consecutive months is an easy task or simply a minor accomplishment, I would love to chat with you over an adult beverage. During this timeframe, we also sent out over 600 newsletters, created the REI-Referral Network, and launched the Highest-and-Best platform. Look at our 50 covers. That is one heck of an impressive collage, basically a “who’s who” of the real estate industry. You do not get that quality of cover stories month after month by accident. You get them by delivering results and earning the respect of the industry leaders. And interestingly, our 50th cover story is on REI Nation. I was initially introduced to the Clothier family in 2010 when I first began cutting my teeth in the publishing industry. Here we are 13 years later, and they are on the cover of REI INK. REI Nation has a great story and a great history. Thank you to everybody who has supported us along this journey. Happy investing!

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rei nation

Chasing Perfection – Going the Extra Mile for Turnkey Investors By Carole VanSickle Ellis When REI Nation founders Kent Clothier, Sr., and his wife, Sherry, started building their real estate portfolio in the early 2000s, the real estate investing landscape was very different than it is today. Ultimately, the company born of those initial portfolio-building efforts, then called Memphis Invest and today operating as REI Nation, would play an integral role in the evolution and growth of the space thanks to particular emphasis on providing a personal touch for both clients and residents and delivering gold-standard service to both clients and property residents. Today, REI Nation operates in a dozen primary markets, manages nearly 8,000 properties, and has home bases in Memphis, Tennessee, and Dallas, Texas. “We really started looking to grow in 2009, 2010, and 2011,” recalled Chris Clothier, one of Kent’s sons and a partner in REI Nation along with his father and brother, Brett. That growth led to the renaming of Memphis Invest as REI Nation, a necessary shift since the company is headquartered in Memphis and has a second hub in Dallas, Texas, and roughly 120 teams operating in Houston, San Antonio, Oklahoma City, Tulsa, Little Rock, St. Louis, Huntsville, Birmingham, and Tuscaloosa.  “We operate in markets that are just a short drive from one of our main hubs,” explained Clothier, noting it is a priority for REI Nation representatives to be able to get to any active markets “really, really quickly.” He explained, “We always want to be able to utilize a team and our resources quickly as well as operating mainly in mid-size and large markets with population centers at or below the median price point for homes.” REI Nation acquires, renovates, leases, and operates single-family rental properties for its investor clients, making efficient, effective systems a must for successful company growth. “Today, we manage a $2 billion portfolio for our clients,” Clothier said, noting that 100% of REI Nation clients elect to have the company manage their assets after acquisition. Although roughly 3% of the company’s clients annually elect to go with a new management company or sell off a property, Clothier proudly points out that this is far, far less than the 20% industry standard. “We do not do things like your traditional property management companies,” said Nate Gray, a vice president with REI Nation who oversees property management and customer service across the company’s markets. “Our investors hire us to handle the headaches that come with investing in single-family real estate. Property management is a tough, tough business, and we handle it so well because we are willing to do the things that no one else is doing.” Gray cited company practices including sending out surveys to both investors and property residents to elicit responses and feedback on nearly every interaction with REI Nation and an ongoing tradition of reading Google reviews “every single day” in a productive, group setting in order to adjust and refine how the company handles asset management and other facets of SFR investing. “We read those reviews aloud in front of the entire leadership team every day,” Gray said. “We talk about them, discuss them, and, when necessary, fix problems. 98% of the time, we get everything right, but we care about the 2% of the time we do not get it. We are chasing perfection.” A Tradition of Transparency & Dedicated Communication The REI Nation team does not just share reviews and survey responses internally; they prioritize transparency about company performance across the board. Nowhere is this more evident, said Jessica Stooksbury, the company’s chief financial officer, than in the financial, legal, and human resources aspects of the group. When she interviewed with the Clothiers, she was intrigued by “a family business that seems small but is so large of a family enterprise.” She joined the team about five years ago, citing the group’s “transparency about business” as one of the main attractions and recalling how she had been excited to work with a business operating on the scale of REI Nation. “It is a lot easier to account for things if you do it consistently,” Stooksbury said. “This is especially true when you are dealing with a lot of investors. You have a lot of money coming in and going out, and it is easier to manage when things are consistent across the board.” Stooksbury said she also admires the way REI Nation has a policy of always trying to do the right thing. “A lot of companies will say that they are always thinking about what is best for owners, residents, vendors, and associates,” she explained, adding, “but walking the walk is very different from talking the talk. If the right thing to do is to help a client or resident out, that is what they are going to do even if they could do something else that would be financially better for them. As a CFO, that way of thinking makes being fiscally responsible for what is going on in an organization a whole lot easier.” Communication is not just about making information available, however. Heather Harris, vice president of marketing for REI Nation, explained education holds a top position both in terms of providing information to REI Nation investors and serving the real estate industry at large. Harris manages production and distribution of the company’s weekly “REI Nation Market Insights,” the “REI Nation Investor Blueprint,” videos and original content, company-focused updates, Clothier’s “Total Turnkey Series,” and weekly showcases of featured properties, employees, company events, and investor visits. “We have really taken time [during the COVID-19 pandemic] to hone our skills: improving our teams, providing better education for our team and for investors, and becoming the ‘go-to voice’ in the industry,” Clothier said proudly. “There are no secrets in this industry. We share so much of our information, data, and knowledge with other companies, other entrepreneurs, other management companies, and other investors. That will never stop for us because we have

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Phoenix, Arizona

Investors, Homeowners Continue to Bank on The Valley of the Sun By Carole VanSickle Ellis Imagine describing the boundaries of your hometown city in this way: “The area is bounded by the shores of Lake Pleasant and the Superstition Mountains.” It sounds like a fairy tale, but the truth is that this description closely matches the boundaries of the Phoenix, Arizona, metropolitan area. In Phoenix, home values are the stuff of dreams as well, with owners who purchased in 2017 banking 94% appreciation over the last six years. While values probably will not continue to skyrocket in that manner, local analysts predict the Phoenix market will continue to hold strong until the end of 2023 and then, astoundingly, level off rather than “correct” simply because local home values already reflect the taut balance between supply and demand in the area. “There is not enough housing for the population, [and] people need a place to live,” local broker and Phoenix Board of Realtors president Butch Lieber told the Arizona Digital Free Press in late June. Lieber said he expects home prices will rise throughout the remainder of 2023 in large part because population growth in Phoenix has continued to climb. “We have gone up about 10% in prices so far this year,” he said. However, while homebuyers are still flocking to the Phoenix area, many investors are backing away — at least from single-family property purchases. During Q1 2023, Redfin reported a 64% drop in investor purchases in Phoenix compared to Q1 2022. Nassau County, New York; Atlanta, Georgia; and Charlotte, North Carolina, were the only cities in the country to post larger declines. With annual sales prices on investment properties also down 9% in Phoenix, investors are likely easing off purchase rates because it is becoming increasingly hard to recoup expenses and make a profit. Earlier this year, investors reported buying homes for a median price of $400,000, but selling for only about $10,000 more than this. Furthermore, not many owners are choosing to list their homes in the first place. According to the St. Louis Fed, there were just under 8,600 homes for sale in the entire Phoenix metropolitan area in June 2023. This lack of housing paired with a steadily growing population has resulted in a housing market that is stable despite its recent, meteoric rise. The majority of acquisition activity in the Phoenix area is focused on the sub-$450,000 “sweet spot.” Steven Hensley, senior manager with new-home consulting firm Zonda Advisory, explained, “Ultimately, given the lack of existing resale homes…new homes with favorable specs and financing are selling at a healthy pace, and builders can pull some levers which don’t exist in the resale market.” He noted, however, that consumers “don’t want to wait.” Beating Pandemic Flight, Hands Down Although the global COVID-19 pandemic slowed and even reversed urban population growth in 2020 and 2021, Phoenix’s urban growth never stopped. In fact, the area added 66,850 people in 2021 and 72,850 in 2022. These were some of the largest gains for a major city anywhere in the country, and the Phoenix metro area now has more than 5 million residents and could top 7.6 million by 2055. In other similarly attractive metro locations, would-be homebuyers might find themselves compelled to accept renting simply because the few homes listed on the market are too expensive to buy. In Phoenix, however, many renters are actually losing their rentals as landlords elect to take advantage of rising home prices and sell off rental properties. According to a report in Time magazine, the number of residential rental units in Phoenix has grown but only about 11% over the past decade. By comparison, the local population grew by about 20%. With fewer single-family listings on the market than ever and most new construction focused in the multifamily sector, the competition for single-family homes in Phoenix is likely to grow only more intense. Solving for the Water Factor Perhaps one of the only things that could potentially stop the population influx in Phoenix is the statewide groundwater shortage throughout Arizona and the complicated politics and policies surrounding the issue of who gets water and who has water rights. For investors, the issue is even more complicated. It is vitally important to understand how water rights are regulated and where (or if) there is likely to be “queue” for them in the future. The key to solving the “water factor” in Arizona relies on understanding how state and local water policies interact. More than 50 years ago, 10 Arizona municipalities in Maricopa County, where the majority of the Phoenix metro is located, joined together to secure water resources for their respective areas of the state. The Arizona Municipal Water Users Association (AMWUA), led by executive director Warren Tenney, represents 3.7 million residents, more than half the state’s population, as well as businesses and industries critical to both the state and local economies. “AMWUA members understand…we live in a desert. We have to manage our water well,” Tenney said. AMWUA members must complete regular reassessments every 10 to 15 years in order to maintain a certified, demonstrable plan for 100 years’ of assured water supply. Currently, all cities have either recently completed this recertification or are in the process of doing so in order to receive their designation for 2025. “This gives everyone a chance to revisit demand and supply,” Tenney explained. Investors interested in development in the Phoenix area should investigate how their deal fits into the geographic AMWUA certifications. “It really is the platinum standard in water management,” Tenney said. “All 10 AMWUA cities are well positioned to be able to continue to develop and thrive because they are not solely dependent on groundwater and are able to meet demands of community and local projects over the next 100 years.” The Grass is Still Greener in the Valley of the Sun Phoenix is certainly a market filled with contradictions, but one trend seems beyond dispute. The Valley of the Sun housing market

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The Principles of Flipping Remain Constant

Avoid the Temple of Doom and Go to the Holy Grail of Profit By Nathan Trunfio Real estate investing is an adventure, and nowhere is this truer than with fix-and-flips. Flippers are in many ways the archeologists of real estate, looking for forgotten properties left in distress so they can return them to the value and prominence these treasures deserve. Kind of like Indiana Jones searching for the lost ark, just without the bullwhip and the fedora. But in today’s market, real estate investors may wish they had Indy’s dial of destiny to turn back time and go back to the market conditions they enjoyed just a few years ago back in 2020. No doubt about it—the housing market is very different for fix-and-flip investors than it was right before the pandemic. Looking at all these differences begs the question — how can you succeed when things have changed so much, so fast? The good news is that the basics behind a successful fix-and-flip business in 2020 still apply today. These strategies may require different tactics, but the fundamentals are the same. Let’s survey the changes in the fix-and-flip market since 2020, and then see how three fundamental strategies for successful flips still apply in the current environment. All data is from ATTOM Data Solutions’ quarterly and annual releases. Changes in the Fix-and-Flip Market Flips continue to gain market share because the overall real estate market is slower The flip rate right now is 9%, meaning that 9 of 100 home sales were flips. That rate, which is the second highest this century, was under 6% in 2020 and 2021. One interesting callout — the five metros with the highest flip rates were all in the southeast, including Atlanta, Jacksonville, and Memphis. It is worth noting that the number of flips seems to be flattening out. After increasing from 242,000 in 2020 to 357,000 in 2021 to 407,000 in 2022, the flip rate dipped by about 10% in the first quarter of 2023. This decline is not a red flag for investors, however, first because of winter seasonality, and more significantly because this rate of decline was less than the rate of decline across all home purchases. This important distinction shows that real estate investment transactions continue to be more durable than the homebuyer mortgage market. The market share for flips should give real estate investors confidence that deals still can be found even in a market defined by tight inventory and higher interest rates. Flip profit margins have compressed, but the worst is over Back in 2016 and 2017, flip profit percentages surpassed 50%. In 2020, the profit percentage still surpassed 40%. But things have changed. So far in 2023, the average flip profit percentage is just 23%, a slight increase over all-time lows in late 2022. This stat clearly shows how rapidly rising purchase prices plus additional rehab costs (both in terms of materials and labor) have significantly compressed profit percentages for flippers. But while percentages have dropped, actual gross profits are consistent, sitting between $65,000 and $70,000 in each of the past three years. Now that we have a good picture of what is happening in the fix-and-flip market, let’s look at the investment strategies that the best investors are using to profit today. As we do, we will see that the fundamentals of flipping remain the same—giving investors confidence in their path toward profit. Fundamentals of Flipping that Remain Unchanged Buying right is more important than ever Experienced flippers know that the best way to profit from a flip is to buy the distressed property at the right price. That is even more true in an environment where it costs significantly more to purchase a house. The right initial purchase price sets an investor up to benefit from tight inventory and higher prices on exit, locking in profit. On the other hand, overpaying for a distressed property in a tight profit environment can lead investors into trouble. The best way to put yourself in a position to buy right is to find the most effective marketing mediums that give you opportunities to buy properties directly from sellers. Numerous marketing strategies can help you do this, from tried-and-true direct mail to using text messaging, digital advertising, or social media to drive leads and referrals. It is also important for investors to remain disciplined. If the purchase price is too high, slim profit percentages will make it very difficult to profit on exit. This is another reason to avoid bidding wars and remain focused only on the deals where the numbers work. Decide on what is most important to your strategy—gross profit or profit percentage Today’s smaller profit percentages show us that flippers must invest more money to achieve the same profit on average. So investors need to decide what is more important to them—making more dollars or getting a better percentage return on their money. Both are legitimate strategies driven by risk tolerance and an investor’s ability to flip at volume. If you want bigger profits, lean into larger primary markets with higher home prices. Boston, New York, and California’s Bay Area top the list in terms of the highest gross profits—each well over $100,000 per flip. Investors who choose this approach should expect to spend around $1 million to purchase and rehab properties. That increases risk because it requires a larger capital investment, but it can yield more overall dollars on the bottom line. On the other hand, flippers who specialize in volume may choose smaller deals that provide healthier profit percentages of 70% or above. These deals give investors (especially less experienced investors) a less risky path to profit. The target is to look for properties with purchase prices below the national average of $250,000. The Rust Belt is full of markets where it is easier to find and flip these properties. For example, Pittsburgh flips offer a 110% profit percentage because of a low $87,000 initial purchase price. Buffalo and Detroit offer similar

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RCN Capital Investor Sentiment Survey

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Investors Move Towards Rental Strategy, Differ on Future Market Dynamics By RCN Capital and CJ Patrick Company In an ever-evolving real estate market, it is crucial for investors to stay informed and adaptable to seize opportunities and navigate challenges effectively. RCN Capital has partnered with CJ Patrick Company to conduct a quarterly Investor Sentiment Survey polling real estate investors around the country to provide valuable insights into the shifting dynamics and sentiments within the real estate investing landscape. As the inaugural quarterly report of its kind from RCN Capital and CJ Patrick Company, this Investor Sentiment Survey serves as a crucial pulse-check for real estate investors across the nation. It provides a comprehensive analysis of market challenges and opportunities while capturing the feedback and perceptions of over 200 industry professionals regarding prevailing trends and events. By examining the preferences, expectations, and challenges of investors, this survey empowers industry professionals to make informed decisions, adapt to market conditions, and capitalize on emerging opportunities. As the market continues to evolve, understanding investor sentiment becomes even more critical for sustained success. We extend our gratitude to the industry professionals that participated in the first Investor Sentiment Survey. Your insights serve as an invaluable future resource for industry professionals seeking to navigate the complex and dynamic real estate market. As the market continues to evolve, understanding investor sentiment becomes even more critical for sustained success. We look forward to participants’ future contributions and what information we can glean from this survey over time. RCN Capital is a national, direct, private lender. Established in 2010, RCN provides commercial loans for the purchase or refinance of non-owner occupied residential 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, visit www.RCNCapital.com  Founded in 2019, CJ Patrick Company is a Market Intelligence and Business Advisory firm working with companies in the real estate and mortgage industries. Visit www.cjpatrick.com for more information.  Q1 – How does the environment for residential real estate investing compare to one year ago? Q2 – What’s your outlook for residential real estate investing over the next six months compared to today? Q3 – What are the three biggest challenges facing your real estate investing business today? Q4 – What do you anticipate will be the three biggest challenges facing your residential real estate investing business six months from now? Q5 – What do you expect home prices to do over the next six months? Q6 – What is your primary type of residential real estate investment? Q7 – How many properties do you plan to invest in over the next 12 months? Q8 – Are you expecting the U.S. economy to enter a recession in 2023 or 2024? Q9 – Since mortgage rates doubled in 2022, what has happened in your market(s)?

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Ensuring Lender Protection

A Vital Priority Amidst Booming Demand and Fast-Paced Lending By Brenda Gordon & Ren Hayhurst As the commercial lending landscape experiences significant shifts in 2023, multi-family lending appears to be slowing down, while the demand for single-family rental (SFR) units remains resilient. Amidst this dynamic market, lenders have strategically expanded their loan portfolios to capitalize on the surging demand. However, the real opportunity lies in the fix and flip loans, presenting an exciting opportunity for lenders to branch out and venture into multiple properties with portfolio loans. Recent statistics further validate the potential of fix and flip lending, with 72,960 single-family homes and condominiums flipped in the first quarter of 2023, accounting for 9% of all sales. While these numbers experienced a slight dip from Q1 2022, when they represented 9.4% of total home sales, they remained higher than the 8% recorded in Q4 of the previous year, reaching the second-highest figures in the last 23 years. According to GoDocs lending data, the fix and flip market is becoming increasingly relevant and promising. Throughout 2022, fix and flip loans delivered an astounding performance, witnessing a staggering 325% growth in Q3 compared to the previous quarter. This momentum continued into Q4, with a solid 50% expansion. Year over year, these loans witnessed an impressive surge of 280% from 2021 to 2022. Amidst this surging demand and fast-paced lending, safeguarding interests and ensuring the overall stability of fix and flip real estate investments have become paramount for lenders. So, what risk mitigation strategies should lenders adopt to navigate this dynamic market with confidence? Let’s delve into some crucial considerations that can empower lenders to thrive in the fix and flip domain. The Demand: Faster, More Complex, More Flexible As the fix and flip market experiences rapid growth, private lenders face new challenges that demand advanced solutions beyond traditional contractual and operational approaches. To effectively mitigate risks and stay ahead of the competition, lenders must adopt new strategies that cater to the evolving demands of this dynamic market. Speed The current market reflects strong demand for fast-closing, short-term interest-only loans with fixed rates. The market for acquiring SFRs is moving so quickly that lenders cannot afford any delays in the closing process, including document organization. Quick turnarounds are crucial to meeting borrower demands and securing lucrative deals. The Ability to Navigate Increased Complexity Multi-property portfolio fix and flip loans are becoming more common, necessitating sophisticated loan doc packages. Lenders must handle multiple security instruments across different jurisdictions, partial release provisions, loan re-balancing, and comprehensive loan-to-value ratio and debt service coverage ratio tests. Flexibility Construction funds often require careful management to ensure timely and on-budget project completion without incurring mechanics’ liens. Whether funds are held in the loan for progress payment disbursements or placed into an escrow account, lenders need a seamless system that safeguards their investments. If the funds are disbursed into an account held by or under the control of the lender, this option requires a separate account security agreement that works in tandem with the construction disbursement provisions in the other loan documents. The ability to manage construction funds efficiently and securely is paramount to protecting the lender’s interests and maintaining a smooth loan process. 50-State Compliance As top-tier markets narrow, the expansion into new markets has been initiated by fix and flippers, necessitating private lenders to possess bulletproof documentation that remains effective in any state, ensuring 50-state compliance to adapt to diverse regional requirements. The automated, real-time 50-state compliance method empowers lenders to have projects funded in new jurisdictions within minutes, enhancing speed and flexibility. This streamlined approach not only accelerates the lending process but also mitigates any concerns surrounding the complexity of adapting to diverse regional requirements, ensuring bulletproof documentation remains effective in every state. Documentation Automation: Pioneering the Future of Fix and Flip Lending In this rapidly changing financing landscape, cutting-edge technologies, as GoDocs offers, empower commercial lenders to pivot into new geographical areas and embrace various loan types, including the financing of ground-up build-to-rent (BTR) construction and fix and flip rehabilitation projects, without delay or complication. The advantages extend beyond just speed; automation reduces costs, delivers faster turnaround times for borrowers, and enables lenders to distinguish themselves from competitors. The fast-paced nature of the market and the rapid advancement of technology are well-grasped by industry experts. Like being a slow-moving tanker in a sea of change when clinging to outdated tools and methods, it becomes imperative for these experts to stay steps ahead, anticipating market shifts, and swiftly identifying emerging needs. Rapidly developing cutting-edge solutions empowers lenders to navigate the ever-changing landscape with ease and confidence. As the market evolves, our solutions stay responsive, anticipating lenders’ needs as the economy changes. We understand the importance of staying ahead of what is coming and what is needed in the industry. Examples of our commitment include building out the ability to generate unique loan packages for ground-up BTR construction loans and fix and flip rehab loans, as well as providing for automated loan modification documents to accommodate the growing need for term loan modifications or short-term extensions for fix and flip loans. Flexibility and configurability have become crucial cornerstones of modern automation technology, transforming how lenders approach complex fix and flip loans. Advanced automation solutions now offer effortless customization, ensuring seamless adaptation to various project agreements assigned to lenders. These innovative platforms also provide tailor-made completion guaranties and project assignment agreements specifically designed for fix and flip construction loans. Technology’s answer to flexibility: Rather than a “one-size fits all” construction loan package, advanced automated technology offers a custom fix and flip construction loan package. Taking advantage of cutting-edge automation packages equips lenders with streamlined documents, efficiently managing essential aspects such as construction completion obligations, disbursement controls, lien protections, loan balancing provisions, and rights of inspection. Additionally, lenders can access a range of construction loan doc packages, each meticulously crafted to address specific needs, whether it is ground-up construction, major rehabilitation projects, or simple cosmetic property improvements. As the

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