July 2021 – REI INK

May Foreclosure Starts Up 36 Percent Year-Over-Year

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ATTOM, licensor of the nation’s most comprehensive foreclosure data released its May 2021 U.S. Foreclosure Market Report, which shows there were a total of 10,821 U.S. properties with foreclosure filings— default notices, scheduled auctions or bank repossessions—down 8 percent from a month ago but up 23 percent from a year ago. Foreclosure starts, which represent the initial notice of default, grew by 36 percent year-over-year. “While the increase in foreclosure activity is significant, it’s important to keep these numbers in perspective,” said RealtyTrac Executive Vice President Rick Sharga. “Last year’s numbers were extraordinarily low due to the implementation of the foreclosure moratorium and the CARES Act mortgage forbearance program, so the year-over-year numbers look a lot more dramatic than they are. And May foreclosure activity actually declined compared to April.” The ATTOM May 2021 U.S. Foreclosure Market Report shows that nationwide one in every 12,700 housing units had a foreclosure filing. States with the highest foreclosure rates in May 2021 were Nevada (one in every 5,535 housing units with a foreclosure filing); Delaware (one in every 5,854 housing units); Illinois (one in every 5,903 housing units); Florida (one in every 7,207 housing units); and New Jersey (one in every 7,679 housing units). Among the 220 metro areas with a population of at least 200,000, those with the highest foreclosure rates in May 2021 were Champaign, IL (one in every 2,420 housing units with a foreclosure filing); Peoria, IL (one in every 3,030 housing units); Cleveland, OH (one in every 3,715 housing units); Bakersfield, CA (one in every 3,774 housing units); and Mobile, AL (one in every 4,174 housing units). Additionally, lenders started the foreclosure process on 5,909 U.S. properties in May 2021, down 7 percent from last month and up 36 percent from a year ago. Counter to the national trend, states that had at least 100 foreclosure starts in May 2021 and saw the greatest monthly increase in foreclosure starts included: Ohio (up 96 percent); Alabama (up 78 percent); Michigan (up 65 percent); Georgia (up 61 percent); and Virginia (up 50 percent).

Home Flipping Rate and Gross Profits Decline Across U.S. in First Quarter of 2021

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Home Flipping Rate Falls in First Quarter to Lowest Level Since 2000 Prices on Flipped Homes Drop, Leading to Smallest Profit Margin in 10 Years ATTOM, curator of the nation’s premier property database, released its first-quarter 2021 U.S. Home Flipping Report showing that 32,526 single-family homes and condominiums in the United States were flipped in the first quarter. Those transactions represented only 2.7 percent of all home sales in the first quarter of 2021, or one in 37 transactions—the lowest level since 2000. The latest figure was down from 4.8 percent, or one in every 21 home sales in the nation during the fourth quarter of 2020 and from 7.5 percent, or one in 13 sales, in the first quarter of last year. The quarterly and yearly drops in the flipping rate marked the largest decreases since at least 2000. As the flipping rate dropped, both profits and profit margins also declined. The gross profit on the typical home flip nationwide (the difference between the median sales price and the median price paid by investors) declined in the first quarter of 2021 to $63,500. That amount was down from $71,000 in the fourth quarter of 2020, although still up slightly from $62,000 in the first quarter of last year. The slide pushed profit margin returns down, with the typical gross flipping profit of $63,500 in the first quarter of 2021 translating into a 37.8 percent return on investment compared to the original acquisition price. The gross flipping ROI was down from 41.8 percent in the fourth quarter of 2020, and from 38.8 percent a year earlier, to its lowest point since the second quarter of 2011 when the housing market was still mired in the aftereffects of the Great Recession in the late 2000s. Profits and profit margins went down in the first quarter as median prices on flipped homes decreased quarterly for the first time in two years. Homes flipped in the first quarter of 2021 were sold for a median price of $231,500, down 3.9 percent from $241,000 in the fourth quarter of 2020. That marked the first quarterly decrease in typical resale prices since the fourth quarter of 2018 and the largest quarterly decline since the first quarter 2011. The first quarter-of-2021 median, however, was still up from $222,000 in the first quarter of last year. Home flipping and profit margins dropped in the first quarter of 2021 amid an ongoing housing boom that spiked housing prices but created conditions less favorable for investors. Median values of single-family houses and condominiums shot up more than 10 percent across most of the nation last year as a rush of house hunters jumped into the market, chasing an already-tight supply of homes squeezed further by the Coronavirus pandemic that hit early in 2020. The glut of buyers came as mortgage rates dipped below 3 percent and many households sought houses as a way to escape virus-prone areas and gain space for developing work-at-home lifestyles. That price run-up also raised the possibility that home values during the housing boom, now in its 10th year, had increased to the point where they could flatten out during the roughly six-month period most investors need to renovate and flip homes. Two Perspectives “It’s too early to say for sure whether home flippers indeed have gone into an extended holding pattern. But the first quarter of 2021 certainly marked a notable downturn for the flipping industry, with the big drop in activity suggesting that investors may be worried that prices have simply gone up too high,” said Todd Teta, chief product officer at ATTOM. “After riding the housing boom along with others for years, they now might be having second thoughts. Whether this is the leading edge of a broader market downturn is little more than speculation. But ATTOM will be following all market measures very closely over the coming months to find out.” William Tessar, president of CIVIC Financial Services, offered this perspective: “Today’s report from ATTOM reflects an interesting shift occurring in the real estate investment space. With the recent runup in home prices, fewer first-time investors are able to enter the fix-and-flip arena. That doesn’t mean the fix and flip market is gone; in fact we’re experiencing record volumes with experienced investors continuing to do high-end flips. In addition, themarket for single-family rentals is off the charts, especially as more first-time buyers get priced out of the market and plan on longer-term rental strategies. Therefore fix-and-hold is a very lucrative space for real estate investors.” Home flipping rates down in 70 percent of local markets Home flips as a portion of all home sales decreased from the fourth quarter of 2020 to the first quarter of 2021 in 76 of the 108 metropolitan statistical areas analyzed in the report (70.4 percent). The rate commonly dropped from about 5 percent to 3 percent. (Metro areas were included if they had at a population of 200,000 or more and at least 50 home flips in the first quarter of 2021.) Among those metro areas, the largest quarterly decreases in the home flipping rate came in Memphis, TN (rate down 80 percent); Lakeland, FL (down 75 percent); San Francisco,CA (down 74 percent); Columbia, SC (down 73 percent) and Palm Bay, FL (down 73 percent). Aside from Memphis and San Francisco, the biggest quarterly flipping-rate decreases in 51 metro areas with a population of 1 million or more were in Dallas, TX (rate down 72 percent); Orlando, FL (down 71 percent) and Tampa, FL (down 69 percent). The biggest increases in home-flipping rates were in Springfield, MA (rate up 114 percent); Albuquerque, NM (up 103 percent); Springfield, IL (up 95 percent); South Bend, IN (up 86 percent) and Boston, MA (up 79 percent). ATTOM provides premium property data to power products that improve transparency, innovation, efficiency and disruption in a data-driven economy. ATTOM multi-sources property tax, deed, mortgage, foreclosure, environmental risk, natural hazard, and neighborhood data for more than 155 million U.S. residential and

Walt and Gina York

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A Whirlwind of Events Leading to Success For North Carolinians Walt and Gina York, to say that 2015 was a whirlwind of life-changing events, would be an understatement! Walt and Gina, knowing they were going to get married, established GW Property Solutions, LLC in March of 2015 with the intention of flipping houses and holding rental properties. They married in September 2015, bought a HomeVestors® (HVA) franchise in October 2015, started their HVA training in November 2015, and started their advertising in January of 2016. Prior to HomeVestors, Gina worked in the insurance industry and home-schooled her two children, and Walt was an independent marketing consultant. The couple purchased their first rehab from friends who happened to be HomeVestors franchise owners. Seeing their friend’s success convinced Walt and Gina to look at the HVA opportunity. The couple wanted to be independent business owners instead of working traditional corporate jobs. From day one with HomeVestors, Walt and Gina decided to forget everything they thought they knew about the real estate business and follow the trusted HomeVestors system and their faith in God. As strong Christians, the GW Property Solutions foundation is firmly rooted in their Christian-based core value system. The Growth of a Team In Walt’s words, they also knew that “it takes a village to build a successful business, and HVA is the best village there is.” They also humbly attribute their success to a great internal team. Walt and Gina look at their first full year (2016) as HomeVestors independent business owners as a “learning” year. In July of that year, they hired Kyle Maloney, who initially started with the company as a painter, as a buyer. They bought 9 houses. At the start of their second year, they hired Mary Parrish as a coordinator, allowing Gina to focus on sales and Walt on lending. They also brought on Lawdy Oaster and David Kennedy as a part of their rehab and renovation team. The year ended with 38 houses being bought and sold. In their third year, Walt and Gina won the “Most Improved Franchise” award. Due to continued growth, they added Sherri Grant as a coordinator and elevated Mary to the position of business manager. That dynamic team ended their third year with 56 purchases and the success continues today. Another key component to their success was their HVA Development Agent, Jim Williams, and other franchisees who shared their knowledge and experiences. As pointed out, “We were buying into a family and not a franchise.” The Future Is Bright After just a few years, Walt became the Development Agent (DA) for the Greensboro, NC area. The DA program provides the necessary field support for both the new business owners as well as the seasoned ones. He is also the chairman for the FAC Technology Committee which works with the HomeVestors IT department to improve technology. The GW Property Solutions team is excited about the future. The real estate industry is in a “ultra-hyper” seller market allowing the team to sell homes for a lot more money. They also see adding more rentals to their ever-growing portfolio, envision more success, and most importantly, they see more joy in the days and years ahead. As they continue to grow and balance their portfolio between rentals and “buy-rehab-sell” properties, their advice to new HomeVestors franchisees is simple: commit to the business, commit to the system, and trust the HVA advertising programs. 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. If you are interested in a franchise, contact April Nealey at april.nealey@homevestors.com Each franchise office is independently owned and operated.

Kairos Living

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Q&A with Phillip Yates, VP of Operations & Head of Leasing & Marketing How Technology Sets Us Apart from the Competition Q: To begin, tell me a little about Kairos Living? A: Kairos Living began operations in July 2019 based out of Chicago. We are a vertically integrated real estate company that handles all aspects of property ownership and operations from sourcing and acquisitions to renovations, leasing and property management. We currently operate in 17 states and over 60 MSAs with a portfolio fast-approaching 2000 single-family homes with more on the horizon. Our biggest market is Oklahoma City, followed by Amarillo, Birmingham, then Dallas. We are also in Houston, Atlanta, and Fayetteville, to name a few. Our approach to utilizing progressive technology eliminates the need for local offices allowing for more freedom to expand our target markets. Our remote structure also significantly reduces the overall cost of the operation. We run a lean but efficient staffing model with just over 40 employees. Q: How long have you been involved and focused on the New Construction niche of the industry? A: Our original sourcing strategy was based on the renovate-to-rent model. As the pandemic hit early last year, we anticipated and quickly shifted our approach to focus on new construction homes acquired through several strategic relationships with national and regional builders. Q: What attracted Kairos Living to New Construction homes? A: The appeal for new construction homes is four-fold. The ability to capture higher rent due to a more desirable product for renters, lower R&M and capital expenses with builder and manufacturer warranties in place, lower turnover costs with superior building products and workmanship, and lower property taxes initially captured. Q: How and when were you introduced to PlanOmatic? A: Our Leasing Manager, Elizabeth Erikson, had used PlanOmatic at a prior company with great success and knew they would be an essential partner for us to successfully grow our portfolio. Consequently, we have been using PlanOmatic since the start in 2019. We consider PlanOmatic a Premier partner. The team at PlanOmatic has been extremely engaged and very responsive with the continued expansion of our processes as we grow. They are eager to find new ways to personalize services, reduce turnaround time and provide a superior product for us to hit the market. We greatly value the impact they bring to our business and really see this as a long-term partnership for years to come. Q: Can you describe how you use the PlanOmatic technology, specifically the 3D Tours? A: We currently utilize the full stack of services from PlanOmatic to help run our business, from new construction inspections using Property Insights to dynamically marketing our homes with Interior/Exterior Photos, Digital Floorplans and of course 3D Tours. Marketing a home is a lot like selling a great novel; the goal when a reader picks up the book is to be drawn into the story and visualize themselves engaged with the content. The more dynamic and accessible the book is, the higher probability you will capture a sale. The same goes with property marketing. For most renters, the point of origin starts online when looking for a place to call home. As you compete against other products, it is crucial to utilize every advantage in your arsenal. 3D Tours with PlanOmatic has done exactly that for us; making a defining statement online and hooking the prospect to tour in person. We see a visible ROI from increased lead generation and overall app volume. Q: Is your focus on technology a key distinction between Kairos and your competitors? A: Yes. Kairos Living sees technology as a key path to achieve a competitive advantage and differentiate ourselves from other industry players by leveraging that tech in every aspect of our business, empowering us to abandon the traditional “boots on the ground” ideology and embrace more of a centralized operating model. Proptech is still young in the SFR sector, but we see that changing everyday with new and seasoned platforms that have been servicing multi-family for years gaining large appetites for SFR growth. Our centralized model allows us to be agile, presenting as the ideal group to partner with as these platforms present themselves. Kairos Living’s success will continue to go hand-in-hand with a culture of innovation and embracing new technologies all while still providing a great experience for our Residents. For more information, you can email Phillip at pyates@kairosliving.com or visit kairosliving.com.

Increase Value of your SFR Portfolio with Rent Protection Insurance

by Adam Meshekow
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Improve Your Bottom Line by Offloading Risk by Adam Meshekow Every real estate investor can recall with great clarity and detail a time when a defaulting tenant caused thousands of dollars in damage to an apartment or home rental. While infrequent occurrences, when they do happen, they can ruin an otherwise strong annual financial performance. In a year of unprecedented rent default and massive unemployment, missed rents and bad debt have reduced portfolio returns and humbled investors and operators alike. Furthermore, Rent Reform continues to gain traction across the country, with many sponsored bills coming to statehouse floors in the coming months. The CDC eviction moratorium—an extreme example of rent reform—may wind up costing owner/operators billions of dollars in lost rent. In the midst of all of this adversity, new and innovative rent protection products are helping to deliver economic value and true risk transfer to the SFR industry. Let us start with security deposits, which have been used for generations to limit the amount of risk that a landlord takes when renting out an asset. In most jurisdictions, landlords are required to follow strict rules and regulations governing how large of a deposit they can demand, how to hold cash deposits, and for what they can be used. The process of administering, accounting for, and returning security deposits represents a cost center for landlords across the country, costing $35-$60 per door per year to manage. Landlords have been self-insuring bad debt through the use of cash deposits for generations. This form of self-insurance is useful to cover a small loss or minimal damage to the asset, but fails to cover most losses resulting from skips and evictions, such as rent, utilities, late fees, legal fees, etc. Much of the innovation in rent protection and security deposit replacement insurance is being driven by rent reform. New rent reform legislation limiting the amount of cash deposits and requiring landlords to offer insurance alternatives has passed or will pass in cities such as Atlanta, Cincinnati, Baltimore, and New York. The good news: these new products truly are a win-win for both the operator and the resident. Residents are feeling the pinch from COVID-related loss of employment and reductions in income. Liquidity is at a premium today and residents are loath to fork over one month’s rent to a landlord and have it sit in the bank. Cash security deposits are a highly inefficient use of capital and a poor form of self-insurance when compared to these novel soft-capital products. Security deposit replacement insurance products allow landlords to enjoy as much and often more coverage than what a traditional cash deposit provides and allows the consumer to finance the cost over time by paying a low monthly fee. For example, let’s say the rent on a single-family rental in Florida is $1,800 per month and the landlord wants a $2,500 security deposit to cover damage, utilities, rent, and legal fees. In lieu of cash up front, the resident could pay roughly $25 a month in insurance premiums. Allowing the resident to pay overtime at a rate of approximately 1% of the cash security deposit per month is a true win/win for both the owner/operator and the resident. It gives the resident flexibility to move in without having to come up with all of the cash required, it saves the owner-operator around $50 per door in security deposit administration, and it allows the owner to have almost 50% more coverage in the event of missed rents and fees and damage. When applied across all properties, security deposit replacement insurance improves portfolio value by increasing occupancy, reducing vacancy loss, and improving overall NOI. Owners/Operators across the country are embracing this type of insurance technology across multifamily, student housing, and single-family rentals to boost NOI as much as $900,000 per every 1,000 doors. There are not many products out there that can have this type of impact on your bottom line by offloading the risk to someone else so you can focus on growing the value and operations of your assets.

Single Family Rental Strategies in a Hot Market

by Adam Stern
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Act Quickly, Honestly, and Decisively by Adam Stern The residential housing market is HOT. Inventory is down in all major markets acrossthe country, prices have risen precipitously for consecutive years since the late 2010’s, and the influx of capital into the rental housing space has been steady and ever increasing. Low inventory, cheap money, and the driver? People are renting homes at a faster pace than ever before. The confluence of these market factors could make it hard for incumbent firms with existing rental property assets to acquire new homes and make it difficult for newly emerging investment firms to find an entry point into the asset class. It all comes down to strategy. As a broker that has been focused on identifying capital sources active in the Single-Family Rental space and, on the flip side, identifying, engaging, and servicing those who own, manage and build rental housing, my firm, Strata SFR, has a unique perspective of the various strategies that firms employ across the country. Since Strata does not generally act as a principal in transactions, the velocity of our movement in the space is extremely high vs investment firms that generally stick to a single strategy for buying and/or selling. Strategy of the Biggs Incumbent firms that have been in the space since the downturn in 2008, many of them public REITs and privately held real estate investment companies, are a good place to start. Their strategies generally have to do with building onto existing footprints, growing market share in the areas they currently operate, pruning their holdings to create higher margins through improving operational efficiencies, and in some cases breaking into new markets while leveraging existing infrastructure. Firms who do not have the scale that these bigger companies possess may think that their tasks are somehow easier than firms that are just starting out, but I find generally it is quite the opposite. After all, once you set the level at which revenue is generated from owned assets, there is only one direction these firms can move to keep investors happy and coming back and keep companies thriving. If progress is not made through continual revenue growth, the market tends to notice. Lots of attention means a higher level of scrutiny from all sides. Forward progress is the only surefire way to ensure long term survival. When my company is engaged by larger firms with existing portfolios, it is generally geared toward the disposition of assets no longer viewed as essential to their long-term strategy. That means pruning existing holdings to redeploy capital into areas that have a better opportunity for future growth. The strategy is to sell those assets and move capital into higher growth areas, including transitional areas, where inventory is of lower cost and higher yielding or where the acquisition of new assets is easier to come by due to higher availability or lower competition. Very often assets are sold to other firms with a more regional focus thereby allowing competing firms to grow to scale. Many firms opt to add new build strategies in areas where one-off or portfolio acquisitions are harder to come by. This strategy, Build-For-Rent, is a longer and more involved way to eventually own and operate assets at the end of the process, but the benefits of venturing into these types of deals provide a huge long term competitive advantage. While cash flow is further out than buying existing assets, often the price that firms pay, on a per asset basis, is lower and at the end of the process, they own a new home that will appreciate faster in a rising market than older homes. An added benefit of moving into the new build space is the experience and know-how achieved buy completing such transactions. Once you have the infrastructure to source land or lots and the resources to erect new communities, the barrier to entering new areas of existing markets or new markets all together with a Build-For-Rent strategy are much lower than competitors without such experience. Once these firms learn how to ride that bike, that skill set cannot be unlearned, and the benefits of this acquired ability will pay dividends for years to come. Strategy of New Firms For newly minted firms, raising capital, whether easy due to reputation or contacts or hard due to lack of experience, is seen by many who have raised it as the easier part of the equation. Once capital is committed, then comes the challenging part of choosing markets, setting up acquisition and sourcing channels, and managing assets. Many firms coming from alternate asset types such as multifamily are making the switch, looking to use their resources to address the challenges of entering the Single-Family Rental space. At Strata SFR, we love these new firms. They provide an opportunity to source brand new large and medium sized portfolios from some of our smaller regional investment clients looking to exit in a seemingly overheated market. The way these relationships often play out is, the firmidentifies a market or markets they are bullish on; we identify the largest owners of SFR in those markets; and approach them with an exit opportunity. For many owners, the presence of these new buyers is a welcome site as they give smaller operators a path to sell their portfolios at an attractive price, in one transaction, to one buyer. The ability to bring to the table a buyer with deep pockets, a relatively low Cap Rate threshold, and the ability to take down large numbers of rented houses is enough to get an opportunityon the table for our new fund clients. Once an initial portfolio trade happens, setting upon the task of helping these new funds build on early success is the next stage. Often this entails helping them create on-market acquisition strategies or connecting these firms with land developers and builders to build single-site communities. Whatever the method, the goal is clear: fast growth, rapid capital deployment into assets that will deliver a