REI INK

Artificial Intelligence

AI Enables Personalized Property Intelligence for Investors By Steve Gaenzler Historic inflation, a doubling of mortgage rates, and general uncertainty about the direction of the real estate market have made investors cautious about the future and concerned about risk in their portfolios. The U.S. housing market is experiencing something between a normalization and a correction. After skyrocketing in 2021 and early 2022, home price growth slowed significantly between June and September, according to homegenius Home Price Index (HPI) data released by homegenius Real Estate. But while the slowdown has been broad based, it has not been evenly distributed. Shifts in home prices vary significantly by market—with the West and Southwest seeing the biggest slowdowns in appreciation and San Francisco becoming the first major metro to register falling home prices. Geographic differences make accurate valuations a challenge at a pivotal moment when investors need maximum clarity. Fortunately, artificial intelligence (AI) can help solve the trickiest puzzles. Recent AI innovations in valuation technology now make it possible to generate highly personalized intelligence on properties and gain an analytical edge in fast-moving markets. Introducing Computer Vision Computer vision is a field of artificial intelligence that uses advanced machine learning to teach computers to interpret and understand the visual world. This technology has already been used for many things like autonomous vehicles, facial recognition, and medical image analysis. Computer vision is being applied to more and more use cases across different industries every day, including the real estate valuation process. By drawing on billions of digital images from cameras and videos and processing them through deep learning models, computers can be taught to accurately identify and classify the attributes and condition of a property and evaluate it against comparables in any geographic area. This type of AI attempts to mimic the abilities of an appraiser to see a property and assess its value, except AI can be faster, smarter, and may mitigate inherent human bias. Computer vision technology and AI-enabled pricing tools have a range of applications across the real estate ecosystem. For investors, it may help fine-tune investment strategies, increase return on investment (ROI) for portfolios, and make investment decisions based on personalized property intelligence:  These applications work together for real estate investors and may help to mitigate risk, increase accuracy, and speed up the analytical process. As the U.S. real estate market enters a period of uncertainty and turbulence, technologies that deliver personalized property intelligence at a macro and micro level will be increasingly valuable. Intelligent valuation solutions powered by AI image recognition and computer vision technology like homegeniusIQ from homegenius Real Estate are transforming the real estate industry and making it easier for investors to navigate the challenging market. It is all about getting the right data in hand at the right time so you have the ability to maximize the value of your portfolio and maintain a stable risk management posture. Whether deteriorating economic conditions in the near-term will be enough to overtake the underlying longer-term secular trends driving the run-up remains to be seen. But while they are waiting for a clear trend to emerge, now is a good time for investors to take stock of their portfolios and make decisions based on the most accurate analytics available.

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October 2022 U.S. Foreclosure Activity

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Completed Foreclosures Increase by 18%, While Starts Remain Flat By ATTOM Staff ATTOM, a leading curator of real estate data nationwide for land and property data, released its October 2022 U.S. Foreclosure Market Report, which shows there were a total of 32,376 U.S. properties with foreclosure filings — default notices, scheduled auctions or bank repossessions — up 57& from a year ago, but only up 2% from the prior month. Illinois, Delaware, and New Jersey had the highest foreclosure rates Nationwide one in every 4,339 housing units had a foreclosure filing in October 2022. States with the highest foreclosure rates were: »          Illinois (one in every 1,779 housing units with a foreclosure filing) »          Delaware (one in every 2,178 housing units) »          New Jersey (one in every 2,305 housing units) »          South Carolina (one in every 2,711 housing units) »          Nevada (one in every 2,755 housing units) “Even though foreclosure activity continues its slow, steady increase since the end of the government’s moratorium, we’re still far below normal levels,” said Rick Sharga, executive vice president of market intelligence at ATTOM. “October foreclosure activity was about 59% of pre-pandemic numbers, and at its current pace foreclosures probably won’t be back to historically normal levels until sometime around mid-2023.” Among the 223 metropolitan statistical areas with a population of at least 200,000, those with the highest foreclosure rates in October 2022 were: »          Fayetteville, NC (one in every 1,135 housing units with a foreclosure filing) »          St. Louis, MO (one in every 1,177 housing units) »          Jacksonville, NC (one in every 1,203 housing units) »          Cleveland, OH (one in every 1,624 housing units) »          Spartanburg, SC (one in every 1,729 housing units) Those metropolitan areas with a population greater than 1 million, with the worst foreclosure rates in October 2022, including St. Louis, MO and Cleveland, OH were: »          Las Vegas, NV (one in every 2,062 housing units) »          Riverside, CA (one in every 2,127 housing units) »          Chicago, IL (one in every 2,154 housing units) Foreclosure completion numbers increase 18% from last month Lenders repossessed 4,156 U.S. properties through completed foreclosures (REOs) in October 2022, up 18% from last month and up 37% from last year. “Repossessions in October were just under 31% of where they were in October of 2019,” Sharga added. “This suggests that borrowers in foreclosure have been able to sell their homes prior to the foreclosure auction, and that a higher percentage of properties at the auctions are being sold to third-party buyers. A new flood of REO homes seems increasingly unlikely to happen anytime soon.” States that had the greatest number of REOs in October 2022, included: »          Illinois (1,100 REOs) »          New York (273 REOs) »          Pennsylvania (251 REOs) »          Michigan (239 REOs) »          California (194 REOs) Those major metropolitan statistical areas (MSAs) with a population greater than 1 million that saw the greatest number of REOs in October 2022 included: »          St. Louis, MO (841 REOs) »          Chicago, IL (220 REOs) »          New York, NY (147 REOs) »          Philadelphia, PA (124 REOs) »          Detroit, MI (98 REOs) California, Texas, and Florida had the greatest number of foreclosure starts Lenders started the foreclosure process on 21,829 U.S. properties in October 2022, down less than 1% from last month but up 103% from a year ago. States that had the greatest number of foreclosure starts in October 2022 included: »          California (2,594 foreclosure starts) »          Texas (1,901 foreclosure starts) »          Florida (1,528 foreclosure starts) »          New York (1,362 foreclosure starts) »          Illinois (1,300 foreclosure starts) Those major metropolitan areas with a population greater than 1 million that had the greatest number of foreclosure starts in October 2022 included: »          New York, NY (1,655 foreclosure starts) »          Chicago, IL (1,107 foreclosure starts) »          Los Angeles, CA (816 foreclosure starts) »          Philadelphia, PA (788 foreclosure starts) »          Miami, FL (583 foreclosure starts)

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Optimize Your Property Management Workflow

When Running a Long-Term Real Estate Investment Business, Workflows Must be Clear By Kori Covrigaru Between contractors prepping the rental, marketing the property, tenant communications, and everything in between, it is easy for workflows and processes to become muddied. There are numerous people, resources, and steps to each process, but it is possible to streamline your processes and increase your profit. PlanOmatic worked with a client who had an issue during renovations. His contractors could not get access to the properties. This issue delayed projects, causing a massive income loss through added days on the market. PlanOlabs looked at their data and found that the access issues were in the same region. They were within the same zip code and managed by one individual. Once they learned that, they solved the problem and reduced the access issues from 30% to less than 10% of the time. How can you increase your profits through optimized workflows? Use the Data to Make Informed Decisions When running a long-term rental business, you have goals but need a real community to help you understand how to meet those goals. What processes are your competitors utilizing that you are not? Having data at your fingertips allows you to make informed decisions for your business. “Big clients are getting bigger with aspirational goals to scale,” said Tim Rose, Director of PlanOlabs, as he explained that they meet these goals through competitor data provided by PlanOlabs. Automate Rental Listing Marketing Automate your marketing materials. Work with a photography company specializing in rental listing photography. With PlanOmatic, in one appointment, the photos and assets are taken for the listing photography, floor plans, and 3D walkthroughs all at once. After the appointment is complete, a simple API integration allows the rest of the process to automate. Simplified Leasing Process Today’s renter wants ease. With tools like Zillow Rental Manager or Apartments.com Property Management Tools, you can screen potential tenants, approve them, and have them sign a lease online. With the popularity of 3D virtual walkthroughs, fewer tenants insist on in-person walkthroughs, so this online experience provides a seamless transition from prospect to tenant. Set up Online Payments Once a tenant has signed a lease, they want the seamless experience to continue. Offer online payments, so tenants can automate their bill payments, and you do not need to wait for checks to arrive. Instead, watch your bank account grow. Digital Maintenance Tickets Continue the seamless experience with digital maintenance tickets. Manage maintenance requests from a dashboard. Tenants can go online and submit a ticket with photos and then stay in the loop to know when the repair will be completed. Property managers can easily manage multiple properties, tenants, and maintenance tickets from a single dashboard. Perform Competitive Analysis When you have a single-family rental business, you have big goals: large portfolios, new builds, and a seamless operation. But to reach those goals, you need to understand what your competitors are doing. “This is a common threshold where they start to feel pain. How are we going to meet these ambitious goals? How do we lay out a solid workflow or process foundation? We use our data, ask vendors, and go to our other clients, so we can help them come up with some answers,” Rose said. Optimize Your Property Management Workflow Many property management marketing departments have a workflow process as in the BEFORE column, which is 11 steps long. After optimizing your workflow, it can be trimmed down to three steps through automation. Rose explains how PlanOlabs supports property management companies in optimizing workflows. “What is the objective of the process you are looking to refine? Look at who is responsible for that piece of the process. Next, look at handoffs. When one person is done with their part of the process, how do they hand it off to the next person in line? Once we understand who is part of the process and when those handoffs happen, we can look at the task. What can be automated?” Using tech-driven solutions reduces manual effort, increases profit, and improves tenant satisfaction. Everyone wins.

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Q&A with Nickalene Badalamenti-Kalas

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Meeting Asset Management Needs in a Changing REI Market As investors expand property portfolios across the United States, many are encountering new challenges in the administration of turns, make-ready, renovations, and ongoing property maintenance field services. REI INK spoke with Nickalene Badalamenti-Kalas, President and CEO of Five Brothers, the asset management service provider, to help unpack these trends and discover how Five Brothers is assisting property managers and owner-operated investors with the divergent realities they face from market to market. You have led Five Brothers for eight years as President and CEO. Can you give us a short “2022 in Review” and provide some historical context as well? Yes, I took over the company on the heels of the 2008 crash. That was a challenging time and, despite certain difficulties arising primarily from the pandemic, 2022 showed itself to be a good time for investors to seize opportunity. More properties emerged from forbearance allowing investors to expand their portfolios and turn more properties. Are you optimistic about 2023? The upswing in investor activity is definitely continuing and we expect 2023 to be a great market for the investor. We’re already seeing a steady increase in field service requests to conduct turn- and make-ready tasks. Our vendor network stands ready to provide these general repair, cleaning, painting, and ongoing maintenance services. That said, we are increasingly engaged by investors to assist them with a range of developing challenges, particularly as they expand their portfolios to more distant, less familiar territories. With a nationwide field services vendor network, Five Brothers is well-positioned to help. What are some of the other challenges? Some additional challenges are the expected fallout of the last few years due to COVID, labor shortages, material and fuel price increases, and other factors that have resulted in a tight contractor market. Some investors are therefore having difficulty finding the right talent to provide timely turns, make-ready and ongoing maintenance services. And while we’ve been impacted as well, Five Brothers has the considerable advantage of a strong, stable, and mature relationship with our contractor partners. They’re remarkably committed and energized by the new investor market opportunities we’re seeing. Additionally, we’ve been very successful in bringing on new, qualified field service talent — independent and insured painters, cleaning personnel, general contractors — who can deliver quality services cost-effectively with tight timelines and with full regulatory compliance. Through local referrals from our general contractors, we also hire qualified licensed professionals when the job requires their services. Can you speak more about the compliance issues? Well, compliance can really be a big challenge for rental properties. At Five Brothers, we’ve invested tremendous resources in infrastructure, technologies, and personnel to ensure the turns, make-ready, renovation, and regular maintenance activities our field staff conduct agree with every code. This job requires that investment because compliance varies not just from state to state, but often from neighborhood to neighborhood. And they’re fluid: they are in a continual state of flux, so we continuously update our code compliance database. As an asset management company, our focus remains on the risk management associated with violations and mitigating extraneous fees. This is a major component to ensuring investors are maximizing their portfolio value. With our help, they focus their energies on their property assets, rather than its upkeep, or ever-changing compliance requirements. What else does Five Brothers bring to the REI equation? Other issues we see commonly involve exterior landscaping, general exterior structure repairs and seasonal maintenance. Within our tenant- and market-ready portfolio it is customary to complete cleaning, painting, and general repair services. We have the people and the quality control measures to carry out these jobs quickly and correctly on behalf of our clients. Our dedicated staff knows our vendor resources well and is particularly adept at dispatching the right talent for each job. We are also making continual system and process updates in order to provide clients with maximum account transparency with respect to work completion status. Transparency is a high priority for our clients in the SFR space. The bottom line: whether evaluating a potential investment property, bringing a property up to code, providing maintenance and/or refreshing between tenants, we are optimally equipped to assure that service requirements are completed quickly and effectively, every time. What trends do you see developing in the SFR market? One in particular is the increasing adoption of smart-home technologies. For example, our contractor network is conducting more and more smart lock and thermostat programming and installations. These smart devices allow investors to remotely control their assets such as manage energy use, administer access, prevent damage and monitor activity. Investors are looking to implement this technology in greater numbers, and Five Brothers is there to support the need. Another trend we’re helping our investors manage is the standardization of contractor service pricing schedules, nationwide. This is a massive process change, and as investors expand to new markets, they are encountering eye-opening variances in pricing. With Five Brothers’ long-standing — more than 55 years now — partnership with our field service network, we’re helping to normalize fees such as these, so investors know what to expect across their entire portfolio, regardless of locale. Finally, as weather events continue to intensify, investors are looking for ways to monitor and respond quickly to major storms like the recent hurricane Ian. We developed our proprietary CLADE resource specifically to address that need. CLADE merges weather/disaster reporting, asset location, and our FiveOnline asset-history database, into one easy-to-use platform. This keeps our clients informed about the status of their properties potentially in a storm path. They can take preemptive action to protect their properties, or more quickly identify damaged assets to accelerate claims. Recent history shows us just how important weather and disaster reporting is to the real estate investor. Do you have any final words for the real estate investor? With investors no longer buying just in their own backyard, and with compliance requirements varying from city to city, it is imperative that they

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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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Clarksville, Tennessee

“Tennessee’s Top Spot” Could Beat the Heat in 2023 By Carole VanSickle Ellis Clarksville, Tennessee, might have been a “hidden gem” in the early 2020s, but now Tennessee’s self-proclaimed “Top Spot” market is making headlines both for meteoric appreciation and the potential for local home values to plummet by as much as 20% in 2023 according to a recent study released by Fortune magazine. Interestingly, many local real estate professionals believe Clarksville will successfully circumnavigate the market softening that so many other markets that experienced similar pandemic-fueled booms are approaching. Christian Black, a local realtor and former president of the Clarksville Association of Realtors (CAR), insisted that many analysts like those on the team at Fortune fail to consider several factors that make the Clarksville market uniquely resilient to post-pandemic price declines. “I don’t know that they are taking into account baby boomers moving here from higher-taxed states,” Black said, adding, “I don’t think they are taking into account the outside money that is coming in.” He also said he expects millennials who “waited to join the housing market” will likely keep demand for housing in the affordable Clarksville market high. The city boasts a cost-of-living that is roughly 8% lower than the national average despite being about 4% higher than the average cost-of-living in the state of Tennessee. Money magazine named Clarksville its top place to live in 2019, and the market was ranked sixth-most-attractive in the country to millennial homebuyers by the Nashville MLS using U.S. Census data in September of this year. “With low cost-of-living and a highly educated population, Clarksville is poised to see quite a bit of growth in the near future,” opined Nashville MLS analysts. They added that data indicates homeowners are still “likely to see their home values rise quite steadily” thanks to major employers like nearby Fort Campbell and Austin Peay State University. A Combustible Combination of Hot Housing, “Explosive” Growth At the beginning of 2022, OpenDoor.com ranked Clarksville the hottest housing market in the country. The company’s research team cited an extremely low housing inventory (less than one month), extremely low volumes of new-construction homes available in the area, and low days-on-market counts. OpenDoor.com head of city operations, Rob Reiling, noted Clarksville ZIP code 37042 was the “hottest” in the country at that time, and Travel Noire reporter Jasmine Osby added that proximity to Nashville (just under an hour) makes Clarksville “one of the trendiest places to live [that] still offers all the amazing amenities of a big city at an affordable price.” Of course, with skyrocketing home prices comes an eventual lack of affordability. With the one-year price change in Clarksville hovering just under 25% and the five-year price change higher than $136,000, the city is certainly hovering on the brink of an affordability crunch. It remains to be seen if local professionals like Black, who believe the market can withstand the demand for the foreseeable future, or the Fortune analytics team, which predicted the market is too overvalued to sustain growth in 2023, will turn out to be correct. Black’s argument that millennial buyers and renters from other areas of the country find Clarksville appealing certainly appears to hold water; according to U.S. Census Bureau data, more than one in six homeowners in Clarksville are younger than 35 (compared to one in 10 nationally). Calling Clarksville’s recent growth “explosive,” the CEO of the Clarksville Economic Development Council, Buck Dellinger, cited local dedication to expanding the local business as a key component in bringing new residents into the city. “Clarksville- Montgomery County is a top-requested location for new companies to show interest and perhaps make their new home,” Dellinger said this past January. In 2021, the city’s Industrial Development Board (IDB) paid $18 million for 400 acres to be developed into an industrial park that is already attracting multiple companies that could bring thousands of job opportunities into the Clarksville region. Dellinger said many of the companies currently considering Industrial Park East have requested nondisclosure agreements keeping their identities under wraps, but cited two potential projects that have given permission for their names to be released. Project Ocean, an electric vehicle technology company, could snap up the entirety of the industrial park and an addition 46 acres besides; Project Lisbon, a tech company, is interested in “at least half” of the park and “has the potential to bring $800.6 million in capital investments and 2,000 jobs with a $23/hour starting wage” to the area. Dellinger also noted Clarksville is ideal for distribution companies because more than half of the U.S. population lives within one day’s drive of the metro area. “[It] makes distribution a good option,” he explained, noting that the park is close to the interstate and rail transport options. A Strong Market for Rental & Fix-and-Flip Investors Thanks to proximity to Fort Campbell, there is a strong military presence in Clarksville that keeps the economy resilient and the local rental market particularly strong. Slightly more than half (55%) of Clarksville residents are renters, and rents are still rising in the area although they appear likely to level off sometime in 2023 as the residential retail market softens nationally. With the local population still growing (it rose by more than 6% between 2020 and 2021 and appears on track to do so again), the need for single-family residential housing is likely to be stronger than ever in 2023. Investors who can help meet this need will find a place for themselves quickly in the Clarksville market. Justin Cory, a local broker and former combat medic who has been working in real estate in the area since 2008, observed, “The number of jobs and median salaries are higher in Clarksville compared to its rural surroundings, [and] the unemployment rate has been in alignment with the national average, demonstrating a low historical risk for rental owners.” He also noted that out-of-state investors, like residents, will likely pay relatively low property taxes. “The average Tennessee property-tax bill is the fifteenth-lowest in

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