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How Home Service Plans Can Help Protect Your Investment

The Importance of Implementing A Risk Management Plan By: Brett Worthington In the world of real estate investing, finding the right property at the right time is just the tip of the iceberg when it comes to building and protecting your portfolio. Successful investors understand the importance of implementing an effective risk management plan along with strategies focused on value appreciation, expense management, occupancy and many other critical functions. For those in the residential space, solving for maintenance and repair issues is likely near the top of the list of priorities. Unexpected breakdowns to components of major home systems and appliances can lead to time-consuming, costly and frustrating experiences for tenants and owners alike. No matter how thorough the inspection or how well-maintained the property, minimizing the risk associated with ongoing repairs and maintenance is vital to managing expenses, minimizing gaps in occupancy, and protecting the value of the property. Home service plans (also known as home warranties), are a cost-effective and budget-minded option for investors who do not want to build their own network of repair services and technicians. Originally introduced 50 years ago to help give homebuyers peace of mind when purchasing a pre-owned property, home service plans ensure that if a covered item breaks down, the owner enjoys the benefits of budget protection and convenient, professional repairs. Members simply pay a pre-determined fee when placing a service request, and the company taps its network of qualified service contractors to diagnose and repair covered items that have malfunctioned due to normal usage. And, if a covered item can’t be repaired, it’s replaced, or they find an alternative solution. Relieving property management headaches Today, a home service plan can also help property investors manage their own budgets for repairs. The ability to be onsite or remotely manage the repair process can be challenging, especially when your portfolio is geographically distributed. Recruiting and onboarding a network of service providers to do the work is a labor-intense proposition and resolving maintenance issues in a timely fashion for your tenants is critical. Adding value by simplifying Along with protecting your cash flow and helping to alleviate operational headaches, partnering with the right home service plan provider can drive value in a variety of other critical areas, too. Some home service plan companies are expanding the scope of services to cover recurring maintenance concerns like HVAC and furnace tune-ups, or re-key services required when changing tenants.  An additional benefit of a home service plan is that, while it can be purchased at any time in the lifecycle of property ownership, it can also be paid for as part of escrow, simplifying your list of payments to track, and ensuring that you won’t have a waiting period for coverage to start. Some companies offer a choice of a two-year plan as well. Do your homework. Providers and plans vary significantly. A one-size fits all approach rarely works in life, and it’s certainly not the way to find the partner that’s right for you. You likely have a trusted team to work with throughout a real estate transaction: your real estate professional, title company, and inspector. Consider adding a home services company to that list. Talk to your real estate professional to get more details on the home service plan options available to you and do your homework. Here are a few additional – and very important things to keep in mind: Comprehensive coverage: It sounds simple – a plan covering systems and appliances should cover all systems and appliances in the home. But coverage can vary widely. Review a sample contract and make sure your plan has the per-item coverage you expect, and no surprise limitations on “wear and tear.” Property types covered: Some home service plan companies cover more than just single-family homes; make sure the types of properties you invest in can be covered by your home service plan partner, whether condos, duplexes, or new construction. Customizable options: Consider the add-on coverage and other services available, like roof protection, maintenance services like HVAC and furnace tune-ups, or convenience services like re-key. Innovation: Some home service plan companies are keeping things “business as usual,” requiring a phone call to request service and check on status, while others are focused on leveraging technology to simplify and improve the member experience. When it comes to requesting service, look for those not only offering obvious conveniences like an online portal to submit a request and track status, but also those offering remote troubleshooting and diagnosis. This minimizes the number of onsite visits required to resolve your repair, possibly eliminating them entirely, keeping your to-do list short and your tenants happy. Track record: Make sure the company you’re considering has a proven track record – a partner worth considering should have a sizable number of service requests and claims paid worth bragging about. With this checklist in hand, talk to your real estate professional and find a company and a plan that offers the most comprehensive coverage and works best for you. When you find your next investment property, you will be ready to order a home service plan prior to closing and be confident that your budget line for maintenance and repairs won’t be a guess anymore.

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Investor Profile

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Almas and Asif (AJ) Jadavji THE ENTREPRENURIAL SPIRIT Prior to becoming independent HomeVestors® business owners, Almas and Asif (AJ) Jadavji already possessed the two main ingredients for success: THE ENTREPRENURIAL SPIRIT and WORK ETHIC. While still living in Canada (they both have dual citizenship), Almas worked as an Accountant and later as an IT Director. However, both Almas and AJ came from entrepreneurial families and knew that eventually they would want to own their own business. In 2006, that opportunity presented itself when Almas and AJ moved to San Antonio, Texas, and along with Almas’ father, opened a Sprint store. That one Sprint store grew into twenty stores stretching from San Antonio to Houston. When the stores were at their peak, they decided to sell them. According to Almas, “In the first six months of my daughter’s life, I never once changed her diaper…my mother did all that. My career was so time consuming.” A NEW BEGINNING WITH ZERO EXPERIENCE While still in San Antonio, Almas and AJ attended a “franchise expo” where HomeVestors had a display. After listening to a presentation, they decided to give it a try. So, in 2015, Almas and AJ became HomeVestors independent business owners and started Raw Capital LLC. With absolutely zero experience in real estate, except for AJ being a huge fan of HGTV, they jumped right in with a positive attitude and a little apprehension. Their attitude was that “every failure was like a trial run, so let’s just trust the tools we’ve been given and follow the process.” Beginning a real estate career with a HomeVestors franchise, with little or no experience, is not uncommon. Many of the independent business owners came from the military or other private industries/sectors and built strong and profitable organizations. Contrary to the advice of experienced mentors, Almas and AJ decided that their very first deal would be a “fix and flip” (probably an HGTV influence). They bought a house, rehabbed it, and then it took them a year to sell it. Having learned a lesson by not “following the process”, they then made a self-correction and proceeded to add 12-15 rental properties to their personal portfolio. “If I could do it again, I would follow the process from day one,” explained Almas. Now, AJ does all the buying and Almas does the rehabbing. They have also started doing short-term rentals in addition to the traditional long-term rentals. Recently they began financing properties and hold the notes for passive income with no landlord headaches. MOVING INTO 2021 Almas and AJ are extremely optimistic about 2021. Having just achieved their five-year milestone with HomeVestors, they have zero apprehensions moving forward. Even though there is a shortage of inventory currently in San Antonio which affects their ability to buy homes at a rate they’d like, the selling side of the business right now is very profitable. Almas’ only regret is not having started sooner. “If we started this business sooner, we could have hit our goals sooner,” she explained. The Jadavji’s advice to new investors entering 2021: “Don’t be scared, listen to people who know more than you, and trust the tools you’ve been given.” HOMEVESTORS What exactly does it mean to be a HomeVestors business owner? Owning a real estate business is life changing and naturally comes with risks! When you become a HomeVestors® business owner, you get immediate access to motivated seller leads, financing resources, one-on-one coaching with your local Development Agent, proprietary software for analyzing properties and deals, and access to a nationwide network of coaches and peers. Your house-buying business is yours and you run it as your own venture. Almas, AJ, and their two children (Ayden, 12; Ariyanna, 10) currently reside in San Antonio, TX. If you wish to contact Almas, she can be reached at Almas.Jadavji@homevestors.com.  If you’re interested in a franchise, contact April Nealey at april.nealey@homevestors.com Each franchise office is independently owned and operated.

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U.S. Foreclosure Activity Drops to 16-Year Low in 2020

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Foreclosure Starts and Completions Hit New Record Lows Nationwide Amid Pandemic ATTOM Data Solutions, licensor of the nation’s most comprehensive foreclosure data and parent company to RealtyTrac (www.realtytrac.com), a foreclosure listings portal, released its Year-End 2020 U.S. Foreclosure Market Report, which shows foreclosure filings—default notices, scheduled auctions and bank repossessions—were reported on 214,323 U.S. properties in 2020, down 57 percent from 2019 and down 93 percent from a peak of nearly 2.9 million in 2010, to the lowest level since tracking began in 2005. Those 214,323 properties with foreclosure filings in 2020 represented 0.16 percent of all U.S. housing units, down from 0.36 percent in 2019 and down from a peak of 2.23 percent in 2010. ATTOM’s year-end foreclosure report provides a unique count of properties with a foreclosure filing during the year based on publicly recorded and published foreclosure filings collected in more than 2,200 counties nationwide, with address-level data on nearly 25 million foreclosure filings historically, also available for license or customized reporting. The report also includes new data for December 2020, showing there were 10,876 U.S. properties with foreclosure filings, up 8 percent from the previous month but down 80 percent from a year ago. “The government’s moratoria have effectively stopped foreclosure activity on everything but vacant and abandoned properties. There is a backlog of foreclosures building up—loans that were in foreclosure prior to the moratoria; loans that would have defaulted under normal circumstances; and loans whose borrowers are in financial distress due to the pandemic,” said Rick Sharga, Executive Vice President of RealtyTrac, an ATTOM Data Solutions company. “While it’s still highly unlikely that we’ll see another wave of foreclosures like the one we had during the Great Recession, we really won’t know how big that backlog is until after the government programs expire.” Bank repossessions decrease 95 percent since their peak in 2010 Lenders repossessed 50,238 properties through foreclosure (REO) in 2020, down 65 percent from 2019 and down 95 percent from a peak of 1,050,500 in 2010, to the lowest level as far back as data is available—2006. Counter to the national trend, there were metropolitan statistical areas with a population greater than 200,000 that saw a year-over-year increase in REOs, including Lake Havasu, Arizona (up 30 percent); Champaign, Illinois (up 29 percent); Chico, California (up 26 percent); and Bremerton, Washington (up 25 percent). Lenders repossessed 1,972 U.S. properties through completed foreclosures (REOs) in December 2020, down 2 percent from last month and down 86 percent from a year ago. Foreclosure starts at new record low nationwide, Idaho only state to see an annual increase Lenders started the foreclosure process on 131,372 U.S. properties in 2020, down 61 percent from 2019 and down 94 percent from a peak of 2,139,005 in 2009, to a new all-time low going back as far as foreclosure starts data is available—2006. “The impact of the government foreclosure moratoria and mortgage forbearance programs is nowhere more obvious than in the foreclosure start numbers from 2020. We ended the year with a near-record number of seriously delinquent loans, but historically low levels of foreclosure activity,” Sharga said. “The good news is that the government and mortgage industry succeeded in working together to prevent unnecessary foreclosures; the question remains how many homeowners whose finances have been affected by the pandemic will ultimately default on their loans, and whether the strength of the housing market will help cushion the fallout.” States that saw declines in foreclosure starts from last year included Oregon (down 79 percent); Kansas (down 77 percent); Arkansas (down 77 percent); Nevada (down 71 percent); and Massachusetts (down 70 percent). Counter to the national trend, Idaho saw a slight uptick (up 4 percent) from last year. Those metropolitan statistical areas with a population greater than 1 million that had at least 500 foreclosure starts in 2020 and saw the greatest decline in foreclosure starts from last year, included Jacksonville, Florida (down 74 percent); Las Vegas, Nevada (down 74 percent); Washington, DC (down 72 percent); Memphis, Tennessee (down 72 percent); and Orlando, Florida (down71 percent). Delaware, New Jersey, Illinois post top state foreclosure rates in 2020 States with the highest foreclosure rates in 2020 were Delaware (0.33 percent of housing units with a foreclosure filing); New Jersey (0.31 percent); Illinois (0.30 percent); Maryland (0.26 percent); and South Carolina (0.24 percent). Rounding out the top 10 states with the highest foreclosure rates were Florida (0.23 percent); Connecticut (0.22 percent); Ohio (0.21 percent); Georgia (0.19 percent); and Indiana (0.18 percent). Peoria, Rockford, Trenton post top metro foreclosure rates in 2020 Among 220 metropolitan statistical areas with a population of at least 200,000, those with the highest foreclosure rates in 2020 were Peoria, Illinois (0.48 percent of housing units with a foreclosure filing); Rockford, Illinois (0.44 percent); Trenton, New Jersey (0.44 percent); Atlantic City, New Jersey (0.40 percent); and McAllen, Texas (0.35 percent). Metro areas with a population greater than 1 million that had the highest foreclosure rate, were, Cleveland, Ohio (0.34 percent); Chicago, Illinois (0.30 percent); Baltimore, Maryland (0.29 percent); Philadelphia, Pennsylvania (0.29 percent); and Riverside, California (0.28 percent). Average time to foreclose increases annually U.S. properties foreclosed in the fourth quarter of 2020 had been in the foreclosure process an average of 857 days, a 3 percent increase from the previous quarter and from a year ago. States with the longest average time to foreclose in Q4 2020 were Hawaii (2,186 days); New York (1,465 days); Kentucky (1,390 days); Pennsylvania (1,275 days); and Massachusetts (1,223 days). 

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From Dentist to Real Estate Executive

Five Brothers’ Nickie Kalas is Dedicated to Growth & Service by Carole VanSickle Ellis Nickie Badalamenti-Kalas grew up in the business of real estate. As the youngest child of Joseph “Joe Bada” Badalamenti, founder and present-day chairman emeritus of field service solutions provider Five Brothers Asset Management Solutions, the industry was always operating in the background of her childhood home. “My dad started [Five Brothers] with my mom, who worked hand-in-hand with him. We always had contractors coming to the house to get paid, and my dad did all of his delegating from home in the early days of the business,” Kalas recalled. However, this did not mean she planned to join the family business. Instead, long before becoming president and CEO of Five Brothers, she started a career in another family business: dentistry. “My brother is an orthodontist. My older sister is a dental hygienist, and my other sister is also a dentist, so I landed in dentistry,” Kalas explained. After Kalas finished dental school, the two sisters started a dental practice. Then, the housing crash happened. Five Brothers weathered the storm. Due to the ensuing tidal wave of new compliance requirements, their clients and investors needed field solutions more than ever. Joe Bada began to realize it was time to bring in the next generation of the family. “When my dad turned 85 in 2014, we were still on the recovery track from the recession in a lot of ways,” Kalas said. “He realized that things were going to continue to be different in the industry. He was going to need some help.” The siblings decided Kalas would be the one to train in the business, spending part of her time at Five Brothers and part of her time at the dental practice. Stretched thin, the family decided Kalas would leave the practice she ran with her sister to work full-time at Five Brothers. “You cannot be as effective as you want to be when you are trying to do two full-time jobs part-time,” Kalas said bluntly. “We had to decide where it was more important I spend my time. What we did know was that Five Brothers had to be a priority. We had—and still have—a lot of employees relying on our business to support their families. That is how I ultimately came on with Five Brothers full-time. Those employees are our family.” Treating Life and Business as a Journey Many people might have struggled with stepping into a learning role at a family company, but Kalas thrived at Five Brothers, which she knew from the start was going to be her new and permanent location. “This is a business that requires all hands on deck. After my first year in the business, I knew it was going to be my home,” she said. “When you are running a business with this many people involved, you quickly understand the responsibility that goes along with running that business. You can’t take anything lightly.” That mindset has served the company well for more than 50 years, enabling it to weather multiple economic cycles and, at present, continue operations during an ongoing global pandemic. “When the pandemic hit, we moved very quickly to protect our employees and our clients. Everyone moved to remote work. We got ready to help our clients deal with moratoriums on evictions and foreclosures and help them weather the storm,” Kalas said. “We’re all in the same boat, and we are making our best decisions based on the best information available.” Because she entered the business with relatively “fresh” eyes after planning and training for a career in dentistry, Kalas has a uniquely effective manner of communicating about tough decisions and changing regulatory environments. She is clear, concise, and honest about her relatively short tenure in the business. In fact, she says, that new, somewhat unusual perspective can be an advantage. “I always say that if I understand what we are doing or trying to accomplish on a large or small scale, anyone can. I don’t think it is ever easy to have someone come into a business fresh like I did and learn on the job, but everyone was so supportive of that process,” she recalled. These days, Kalas brings a combination of that learner’s attitude and a trained-on-site mentality to tough challenges like meeting client expectations in one of the toughest servicing environments in history. As public health intersects with real estate and housing policy in unprecedented ways, investors must have confidence in their servicing and field services providers, because so much of the industry spent 2020 in a holding pattern while politicians and health providers tried to work out the best way to “stop the spread” without devastating the economy in the process. “We had to make quick decisions in order to provide the best benefit to our clients,” Kalas explained. “We pride ourselves on our level of integrity, and that integrity has provided us with a level of flexibility when it comes to conforming to what specific clients need.” This flexibility has served Five Brothers clients and vendors well, providing the former with a relative degree of peace of mind and keeping the latter actively working in the field wherever health policy permits. “Dealing with COVID is a real, daily thing for these vendors,” Kalas said. “They have to keep their crews healthy, handle quarantines, and keep projects on schedule. On top of all that, when the moratoriums expire, they are going to have a substantial uptick in volume to deal with.” Kalas insists Five Brothers keep in close, consistent contact with vendors to make sure they are ready for anything in 2021, and the company does the same thing with employees and clients. A Firm Foundation for Future Opportunity That close contact has been and will continue to be essential in 2021 and beyond when the predicted uptick manifests. “We believe we are about to see some big numbers in terms of foreclosures, initiations of foreclosures, evictions, and defaults,” Kalas

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Design Tips: Accent Walls

Renovating a Room With Just a Little Bit of Work by Alyssa Sprague Accent walls have become an increasingly popular way to give your home a unique and personal touch. And they can be designed to renovate any space or style. The walls can range from varying levels of difficulty as well, making it a perfect homeowner DIY project that elevates a room to a more upscale feel that fits into any budget. The designs homeowners use can be individually tailored from subtle to bold. So, if you are not quite ready to take a big leap, you can always start small and add into it as your style changes! The easiest way to add an accent wall is as simple as applying a coat of paint. Paint one wall in a room a different color and consider using a different finish on the paint to really make it stand out. This color can be just a couple shades darker (or lighter) than the remaining walls in the room. Or you can go as far as using a bright bold color like yellow to brighten the space and make the room feel bigger. Since an accent wall is meant to be different, consider using a dark color like navy blue or black on a single wall. When combined with lighter colors through the rest of the room, a dark accent wall can add depth without overpowering the entire room. While wallpapering your entire home (or a whole room) is definitely a thing of the past, homeowners have been impressed by the ability of a single wall of wallpaper used as an accent wall. The right wallpaper will give a space a more interesting design without having to fill the wall with décor. Especially with a temporary wallpaper (no long-term commitment) that can be easily removed, this is a huge opportunity to add in personal touches with a design that could be subtle or quirky—completely dependent on your personality! If you are looking to take on a bigger project, there are many ways to personally design and create an accent wall using varying wood materials— reclaimed wood, shiplap, or even using 1″x2″s to give a textured design without using paneling. While this will be more time consuming, with additional planning the final product is more than worthwhile. This type of project also allows for many pattern options: square/rectangle, herringbone, or even any pattern you create yourself! The wood design will naturally add more texture to the wall and painting it semi-gloss white can give it the same feel as upgraded chair rail or wainscoting. You can also consider painting this designed wall a bold color! When combined with a bold color, the wall will really pop and have a more glamorous outcome. Overall, adding an accent wall to your space can completely renovate the room with just a little bit of work! This will make the room have more dimension—whether it be your bedroom, living room, or dining room. The possibilities are endless! 

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The Single-Family Rental Market Has Become a Search for Supply

Investors Are Exploring New Ways to Expand Supply by Greg Godderidge The durability and stability of the Single-Family Rental (SFR) market is one of the few real estate investment bright spots of the past year. If the 2020 trend continues, the SFR asset class is positioned to be one of the biggest stories of 2021. With the backdrop of a national housing supply/demand imbalance, the SFR growth trend is so strong that a new Build-to-Rent (BTR) micro-SFR market has been created by enterprising and forward-looking market participants for the purposes of creating additional rental housing stock. Build-to-Rent single-family homes coupled with traditional single-family properties are forming the backbone for a vibrant SFR industry. What is driving this demand for tenants, builders, and investors? And is there a role for evaluation service providers? According to the Census Bureau, occupancy rates across all single-family rentals averaged 95.3 percent in the third quarter of 2020, holding steady from the second quarter, following a 100-basis points spike from the first quarter. That is the highest reading for the SFR market since 1994. From their 2007 lows, occupancy rates for all SFR properties are up by 5.6 percent. What’s driving occupancy rates skyward is a combination of relentless demand and evaporating supply. Increasing numbers of Millennials have been fueling demand as they have formed families and moved out of multifamily properties. The COVID crisis accelerated demand for SFR properties as tenants have moved from cities in search of more indoor and outdoor space. At the same time the traditional sources of rental property inventory have dried up. Foreclosures are on hold nationwide, retirees who are usually looking to downsize are staying put during the pandemic, and it is getting increasingly difficult to find mom-and-pop property owners seeking to sell. Creating New Supply Together, those pressures have spurred home builders to create additional supply. Build-to-rent properties have been on an upward trend for the last two decades but have skyrocketed in the past year. There were more than 14,000 BTR starts in the third quarter of 2020, representing a 27 percent pop over the previous year, according to the National Association of Home Builders. Investors have taken notice, attracted not only to the steady cash flow of rental properties but also its stability. The most attractive element is opportunity. The SFR market is still small and fragmented with the 20 biggest single-family rental operators controlling only about 300,000 units. That leaves roughly 16 million rental units nationwide that have not yet been aggregated and securitized. Expansion into this vast untapped sector of the market is dependent on the ability to review and evaluate properties at scale. This has been a challenge during a public health crisis when in-person and on-site inspections are limited. Radian offers a range of services to facilitate securitization of SFR and BTR properties. Our collateral review and validation services include a thorough review and validation of sponsor and/or borrower data, property documentation and loan files. This is especially important for large institutional investors. In fact, we have served as diligence agent for every institutional SFR securitization transaction to date. Professional due diligence services allow buyers to have more control over their acquisitions and at the same time give lenders an extra level of confidence in the quality of the transactions they underwrite. SFR Market Being Driven to New Heights Currently, approximately only 6 percent of new single-family homes are purpose-BTR, which should contribute about 700,000 new units over the next 10 years. That is not nearly enough to meet demand, says real estate advisor RCLCO. Based on current trends, RCLCO believes the SFR market will likely be undersupplied over the next decade, despite the increased attention the segment is currently receiving. A historic confluence of economic, demographic, and public health trends is driving the SFR market to new heights. As the market matures and earns more recognition as its own asset class, new investors including institutional players, will explore new ways to expand supply, either by aggregating existing properties or building new ones. One prediction seems certain: The industry will continue to rely on professional collateral review and diligence services to make that search for supply more profitable.

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