REI INK

Vulnerable Housing Markets

  • by
  • Comment Off
  • 431 views

Certain Markets Will Be More Susceptible to Declines in 2022 By ATTOM Staff ATTOM, a leading curator of real estate data nationwide for land and property data, released a Special Housing Risk Report spotlighting county-level housing markets around the United States that are more or less vulnerable to declines, based on home affordability, unemployment and other measures in the first quarter of 2022. The report shows that New Jersey, Illinois, and inland California had the highest concentrations of the most at-risk markets in the first quarter of 2022 — with the biggest clusters in the New York City and Chicago areas. Most southern states were less exposed. The first-quarter 2022 patterns — based on home affordability, underwater mortgages, foreclosures and unemployment — revealed that New Jersey, Illinois and California had 34 of the 50 counties most vulnerable to the potential declines. The 50 most at-risk included eight counties in the Chicago metropolitan area, six near New York City and 10 sprinkled throughout northern, central and southern California. Elsewhere, the rest of the top 50 counties were scattered mainly along the East Coast and in the Midwest. They included three each in the Cleveland, OH, and Philadelphia, PA, metropolitan areas, plus two of Delaware’s three counties. At the other end of the risk spectrum, the South had the highest concentration of markets considered least vulnerable to falling housing markets. “While the housing market has been exceptionally strong over the past few years, that doesn’t mean there aren’t areas of potential vulnerability if economic conditions continue to weaken,” said Rick Sharga, executive vice president of market intelligence at ATTOM. “Housing markets with poor affordability and relatively high rates of unemployment, under-water loans, and foreclosure activity could be at risk if we enter a recession or even face a more modest downturn.” Counties were considered more or less at risk based on the percentage of homes facing possible foreclosure, the portion with mortgage balances that exceeded estimated property values, the percentage of average local wages required to pay for major home ownership expenses on median-priced single-family homes and local unemployment rates. The conclusions were drawn from an analysis of the most recent home affordability, equity and foreclosure reports prepared by ATTOM. Unemployment rates came from federal government data. Rankings were based on a combination of those four categories in 586 counties around the United States with sufficient data to analyze in the first quarter of 2022. Counties were ranked in each category, from lowest to highest, with the overall conclusion based on a combination of the four ranks. The wide disparities in risks come at a time when the U.S. housing market remains relatively strong but shows signs that a decade-long boom may be easing. Home prices have climbed more than 15% in most of the country over the past year, with new highs hit in about half the nation, boosting homeowner equity to record levels. But as interest rates on 30-year mortgages rates have climbed to 6%, worsening affordability for prospective homebuyers, home sales have declined every month in 2022, and home price appreciation is showing signs of retreating rapidly. “The housing market has been one of the strongest components of the U.S. economy since the onset of the COVID-19 pandemic,” Sharga noted. “But Federal Reserve actions aimed at bringing inflation down from its 41-year high are having an immediate impact on home affordability, sales, and pricing. Whether the Fed can execute a relatively soft landing, or inadvertently steers the economy into a recession will determine the fate of the housing market over the next 12-18 months.” Amid that backdrop, the national median home value rose up just 3% from late-2021 through early-2022, seller profits are starting to dip and home affordability is inching downward. Lender foreclosures against delinquent mortgages also are up.

Read More

Overcoming Obstacles

  • by
  • Comment Off
  • 872 views

From Prom Dresses to Real Estate By Brittney Fairweather My career started out quite differently than most. For one, I was a teenager. Second, I wasn’t exactly seeking a lifetime career.  I had been asked to the prom and I was thrilled. I had the exact dress picked out that I wanted. However, dresses cost money — more than most 14-year-olds have from an allowance. I had to earn some money, and fast. To earn that money, I approached a local gym owner, Trixy Castro, about running their “kids club” that provided childcare while patrons worked out. Unfortunately, that gym did not offer childcare. When Trixy saw the discouraged look on my face as I sulked toward to door, she said that if I wanted a job, I could jump on the phones and help sell gym memberships. She handed me a phone and the yellow pages, and I got immediately to work. Not only was I able to buy the prom dress I was after, but I made a life-long friend and colleague. I have worked for Trixy for more than 15 years now, and her willingness to give me that first opportunity to prove myself has made all the difference in how I approach challenges, personally and professionally.  An Unlikely Career Path with an Unlikely (and Hugely Talented) Team After taking on sales at the gym, I began working with Trixy across different small business ventures throughout high school and during college. I attended college in Southern California, but went right back to work with Trixie after graduation. This time, I was working in my first real estate role. I was the receptionist at Rightway Financial Group (I got the job after completing my very first professional interview in a blazer I borrowed from my mom), but reception was not where I wanted to stay. I set out to expand my understanding of the industry and began to study for my real estate license. Every day, I would stay late to teach myself the ins and outs of loan processing. By 2007, it was becoming evident to all of us that a market shift was imminent. We shifted our business model away from conventional loans toward more investor-oriented styles. Where the market was heading, it was imperative to build a firm with its own capital or we would not survive the economic downturn on the horizon. First, we made short-term loans to investors who needed to access funds quickly in order to compete in buying homes at auction. Then, in 2008, we launched our first mortgage fund, Genesis, offering a product that met the needs of local real estate investors while keeping our core underwriting standards intact. Soon, making risk-averse loans to bankable clients who simply could not wait for the archaic lending system took over our conventional mortgage platform. There was such strong demand, we knew we had to duplicate the idea elsewhere, and with hard workdays and nights, our team pulled together and exceeded everything we believed we were capable of.  Just one year after Genesis launched, a valued team-member, father figure, and mentor passed away without warning. Suddenly, we were a young, exclusively female team operating in an industry that was notoriously unreceptive to female entrepreneurs. It was a struggle to be taken seriously, but we leaned on mentors, clients, and vendors to vouch for our credibility and overcame many obstacles that could have overwhelmed our business. We eventually started Genesis Auctions to supply discounted inventory from banks and servicers to investors. Evolution at Lightning Speed By this time, my personal life was changing and evolving as well. In 2010, I had a son and was pregnant again, with my daughter, while working around the clock to build a business. I felt like I was running as fast as I could to keep our business ahead of the curve and secure our position as a key player in the space. Those were challenging, sometimes brutal years, but they taught me perseverance and grit. I grew both personally and professionally, and so did the business. The success of Genesis Auctions led to the 2015 acquisition of Hudson & Marshall, LLC, a leading real estate auction platform. In 2016, I moved to Philadelphia to expand Genesis into Northeastern markets, including New York and D.C. We sold Genesis Auctions to Fidelity National Title in 2017, and, in 2018, we sold Genesis Capital to Goldman Sachs.  After the sale of Genesis, I dedicated some time to learning about the mechanics of long-term rentals, wholesaling, and purchasing land for development. By 2019, I was back working with Trixy and the team as a consultant on investment deals. We worked with builders all over California and, in the midst of the COVID-19 pandemic, it became very clear we needed a lending company once again. Thus, in the summer of 2021, Aureus Finance Group, a complete debt partner across all facets of residential and multifamily real estate development, was born. Good Chances Pay Off Over and Over Again Through the years, I have had two more children, lost more loved ones, and settled with our family on the East Coast far from where I grew up, all while pushing ahead and climbing over hurdles simply based on gender stereotypes. Over those ten years working alongside Trixy and the team, I had the incredible experience of creating and building high-demand entities and was a part of so many pivotal moments within the real estate and finance verticals to date.  But these moments would not have been possible had I not been that teenaged girl looking for a way to buy her prom dress, or if Trixy had not taken a chance on that young girl. SIDEBAR Brittney Fairweather’s Tips for Building a Stellar Team The biggest piece of advice I can offer to new entrepreneurs is to build a team with which you can walk through fire. Hereare a few tips for accomplishing this: » Find at least one person (hopefully more)

Read More

Having an Impact

  • by
  • Comment Off
  • 1,137 views

When “Nothing But The Best” in Life Will Do When David Offutt describes his experience in real estate, it immediately becomes clear that the two-decades-plus veteran of the industry is not just experiencing a great deal of success; he is having a great deal of fun. “I love what I do,” he explained. “I know that every day I’m going to find an opportunity where I am going to impact someone or they are going to impact me. I love that.” Offutt got started in real estate in the early 2000s after spotting what he hoped would be a great piece of investment property and being flabbergasted at the price tag. He jumped into the industry with both feet, taking his real estate exam, getting his broker’s license, and buying two real estate franchises all within about two years of that initial encounter. Shortly after the housing crash, Offutt found HomeVestors and has been with the company ever since. “It has been an amazing journey in the real estate space,” he said. A Family Operation One of the things Offutt likes best about real estate is it enables him to spend plenty of quality time with his family — especially his wife, Detra, who is a top-performing agent and partner with him in the family’s HomeVestors business. “She helps me with everything; beginning to end she is the best partner I could ever ask for,” Offutt said. The two have been serial entrepreneurs throughout the duration of their relationship. However, Offutt said, “[Homevestors] is the last one. We won’t do any more from this point forward — just own real estate and run the franchise.” Offutt’s son, Devante, recently joined the Offutt real estate team as a property coordinator. “I’m thrilled for him and my wife,” Offutt said, noting that he expects a change in the housing market in the near future. “[At present], we are putting ourselves in a better cash position, strengthening our relationships with local lenders, and building our relationships in the community.” Devante will play a key role in that process, Offutt said. Nothing But the Best When it comes to doing and being the best, Offutt applies that mentality to his real estate portfolio just as he has to his personal and professional life. This means that when he acquires properties as long-term investments, they must be what he describes as “‘A’ properties in ‘A’ locations.” In almost all cases, he prefers small multifamily properties ranging from four to six units. Offutt’s class-A-only approach to his long-term investments does not preclude the short-term acquisition of other promising pieces of real estate. Anything less than “prime” is relegated to the cash-flow division of the business. Offutt also cultivates relationships within the local HomeVestors community, where he is an enthusiastic participant in a variety of networking and educational programs. Making An Impact Every Day Offutt also loves the positive impact real estate investors have on individuals and on the communities in which they operate. “So many of the people we meet are in distressed situations,” he said, recalling a deal with a senior homeowner hoping to sell her extremely “cluttered” home. Offutt bought the house and assisted with the homeowner’s transition to a new home. Then, after the renovation, he invited her back. She was thrilled. Offutt makes it a policy to involve the former homeowner and any nearby neighbors in the investing process whenever possible, believing that this helps build community. “Often the folks we work with are in distressed situations, and that means the neighbors are usually kind of stressed, too,” he explained. “We introduce ourselves, let them know what we are doing, and then we address the exterior of the home first thing so that everyone can benefit.” 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 for qualifying purchases and repairs, 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 with a focus toward your individual business goals. If you are interested in a franchise, call 855-454-4578. Each franchise office is independently owned and operated.

Read More

Sparrow: 3D Study

Executive Summary By Kori Covrigaru PlanOmatic, the biggest and fastest provider of Property Insights and marketing services for the single-family rental industry nationwide, partnered with their client, Sparrow, a leading provider of well-kept single-family rental homes nationwide, to measure the impact of using a Matterport 3D Tour for rental property marketing. Challenge Sparrow had 2 main challenges to address in this study: 1. They needed to determine if there would be an ROI if they invested in 3D tours on all properties nationwide. The ROI would be measured in lead generation, self-showing tour activity, website views, and days on market. 2. They wanted to pilot the operations and technology needed to roll-out 3D. Could PlanOmatic perform the 3D service in Sparrow markets? Could the Sparrow IT team accept the 3D tour and include it in the feed to their website and to Zillow? Solution The data showed that using a Matterport 3D tour to market a property online has a significantly positive impact on leasing activity. Additionally, we confirmed that the operations and technology needed for a nationwide roll-out is ready to go. Details ROI The data showed a positive impact on leasing activity, specifically: • Zillow Leads per day per property increased 18% when a Matterport Tour was used to market the property in Charlotte, NC, compared with properties that only had photos • Website page views per day per property increased 66% in Charlotte, NC and increased 58% in Dallas, TX when a Matterport Tour was used to market the property, compared with properties that only had photos • Days On Market decreased 25% in Charlotte, NC and decreased 9% in Dallas, TX when a Matterport Tour was used to market the property, compared with properties that only had photos. Operations & Technology The PlanOmatic team was able to perform the 3D service in all markets for Sparrow, while keeping a consistent turnaround time and meeting the standard SLA expectations. The Sparrow IT team was able to retrieve the 3D tour URL, embed it into the Sparrownow.com website, and also include it in the feed to the Zillow Group Rentals Platform. We confirmed that the 3D tour was visible on the following websites: • Sparrow • Zillow • Trulia • HotPads 3D Tour Concentration One additional finding from the study is that 3D Tours are gaining traction in the Single Family Rental Marketing space. In 2021, in Maricopa County (Phoenix, AZ), 3% of all available Single Family Rental Homes used a 3D tour to market. In 2022, that number has more than doubled to 8%. Here is the current 3D Tour concentration of each marketin the study: % of all available Single-Family Home Rentals that have a 3D tour San Antonio, TX — 15% Charlotte, NC — 12% Phoenix, AZ — 8% Dallas, TX — 6% Method We tracked 233 properties across four markets: Charlotte, NC, Dallas, TX, Phoenix, AZ, and San Antonio, TX. We created a test group in each market by adding a Matterport 3D Tour on approximately half the properties in each market, and compared that to a control group (the other half) that received the normal marketing services from Sparrow’s existing solution. We created this test group and tracked the properties from January 10, 2022 to March 23, 2022.

Read More

Tax Planning

The Secret to “Making Your Own Math” By Teresa Bilsky A business owner is interviewing accountants with a one-question interview, “What is two plus two?” Applicant after applicant answers four until finally an experienced applicant looks directly at the business owner and without any emotional reaction answers, “What do you want it to be?” Though this is intended to be merely humor, those who are experienced in tax planning smile because there is a great deal of truth in that final answer. Yes, you can have your investment and your money too. You can make your own math. You just need to know where to begin. We begin each new business, new investment, or tax plan with the exit strategy Why? Well because we need the destination to formulate the map. Step two is determining the most cost-effective way to achieve that journey. This is where the plan arises to acquire your investment and keep your money. But how? We use special game pieces we call tax laws. Tax planning is much like playing Tetris: New pieces are continually falling; existing pieces are continually changing, and you (the investor and taxpayer) are the player. You start slowly with a blank playing screen where you have more control; but the longer you play, the more the pieces add up, obstacles present themselves, and everything seems to speed up. Know your pieces The falling pieces are tax laws, tax court cases, IRS interpretations of laws, investments, financial resources, time, your desired effort, input and knowledge. Start with where you want to end up » Do you want to acquire wealth through owning and retaining real property? » How much wealth? » Do you want to buy and sell to obtain cash wealth? » How will you make the cash work for you? » Are you investing to accumulate assets for estate purposes? » Will you need the properties to provide cashflow? If so, when and how much? » Do you prefer to work with residential real estate or commercial? All of these questions tell you what type of tools you will need. Knowledge Even though business owners need general knowledge in areas far outside their expertise, remember that investing in real estate does not make you a tax expert. The penalties for tax mistakes – both overpayment and financial losses for underpayment – are serious. The IRS does not care what you know; they only care about the rules and the money. Why do the tools change? The market changes, future earning capabilities change, buyers change, and Congress goes into session and the rules change. However, the most important factor is you. You change. Your knowledge and experience grow. Your portfolio grows. Your plan changes. Let’s start with some basics: You need to know what your assets are and what they are worth. All of your assets should be working for you in some way. I have yet to see that money stuffed in a coffee can duplicates in any way. Identify your assets and their value, then put them to work. Understand that the same piece of real estate may be presented with three different values depending on who is viewing the value and the purpose for the valuation. A written appraisal is based on the opinion of the market value by a professional trained to make those determinations which generally satisfies lending requirements. A valuation of the same property may arrive at a different number because it includes influences such as location, zoning restrictions, life expectancy of the building, and other permanent factors. Valuations have legal standing because they provide a definitive value. A good example of this is the tax court case for the Estate of Michael Jackson. The entire case was a dispute about the valuation of his assets at the time of his death. Finally, a financial statement would reflect the value in terms of basis without regard to market value. Let’s talk money. How do you keep more of your own money? You plan. The difference between tax preparation and tax planning is the answer to the question of “How much is two plus two?” Taxpayers in general should not wait for the tax return to be prepared before knowing where they will be for the year. They should already know. Tax preparation is reporting the results of the decisions you made in the prior year. Tax planning is impacting the outcome. We begin in the fall because it is late enough to project the income and early enough to achieve the desired results. Take charge of your pieces to impact the outcome by using the different tools available. If you are planning to acquire real estate to leave in your estate then know that the basis is stepped up at the time of your passing. A stepped-up basis means your beneficiaries get the tax benefit of the value of the asset at time of your death and not the basis you possess in the property, hence the dispute on the Michael Jackson case. A 1031 Exchange is a good tool to defer taxes on gains. As with any tax tool in the toolbox there are rules. The idea is simple: If you are allowed to defer tax on a gain by reinvesting into a bigger project that generates a larger gain, then government will see a larger return in the form of more tax. This is a great tool but it isn’t designed to help you, it is designed to generate more tax. However, it does benefit you because there is value in the use of money, also known as interest. The longer you get to defer taxes, the longer you get to use your money. You win. The more you grow an asset to produce a larger income, the more tax you generate, then they win. Investment in an Opportunity Zone is an advanced tool with rules by way of tax savings; this program encourages you to invest in economically depressed areas. Again,

Read More

Birmingham, Alabama

There’s Plenty of Charm Left in the South’s “Magic City” By Carole VanSickle Ellis If you were hoping the much-hyped housing “cooldown” would make things more affordable in southeastern cities like Birmingham, Alabama, then it might be time to change your wait-and-see strategy for a faster-paced approach. In the southern “Magic City,” which boasts the largest metropolitan area in Alabama and claims a history of economic growth of nearly 4,000% in its first four decades of existence, the housing market is hotter than ever. “We are seeing a surge in buyers trying to outpace interest rates because their buying power will shrink over the next few months,” observed Richard Grimes, CEO and president of RealtySouth, in a Bham Now-hosted panel in late May. He added, “There is no mechanism in our market to create 1,000 more homes, so supply is still going to be short.” Co-panelist Stuart Norton, associate director for the Alabama Center for Real Estate (ACRE) at the University of Alabama, predicted that upward pressure on home prices might diminish over the coming months while the rate of home sales slowed, but he did not expect prices to fall during the “cooling” period. Birmingham’s biggest real estate-related bottleneck is, as Grimes implied, a lack of new construction in the area. “The 211 new homes sold [during March 2022] represented 13% of all residential sales in the Birmingham area,” noted Marco Santarelli, CEO of Norada Real Estate Investments. The pickings are particularly slim when it comes to affordable housing, and the local housing authority recently reported that building material cost increases are going to delay projects intended to cater to senior residents and families. The authority demolished 29 residential buildings last year but has found itself unable to replace the demolished housing, thus displacing families and other residents and creating more strain on local residential inventory. “We continue to see historically low inventory [and] buyers are bidding more aggressively than they were in 2021,” said Lucy Parker, a local realtor. “It is rare to find a house that has been on the market for more than a few days,” she added, noting the out-of-town buyers are also keeping the housing supply tight. With just under half (49%) of all single-family residences in the city registered as rental properties, many of those buyers are likely investors hoping to leverage the area’s skyrocketing rental rates and relative affordability compared to the rest of the country. According to a recent report from RealEstateWitch, rates are currently rising four times faster than median income in the area for a year-over-year increase of 13%. In fact, in Birmingham it is currently cheaper to buy a home than rent one. Nevertheless, home flipping returns in Birmingham, as in many other areas of the country, have been falling since 2020. According to a Q1 2022 report from ATTOM Data Solutions, although home-flipping volumes skyrocketed in 2021 to higher than had been seen since 2006, profits sank in Birmingham as well as nationally. In Birmingham, fix-and-flip returns fell by seven percentage points between 2020 and 2021 (the most recent annual data available). The “Comeback Market” Comes Back (Again) When Birmingham was founded in 1871, the area was ripe for economic expansion in the wake of the Civil War. Over the first 40 years of its existence, Birmingham earned its “Magic City” nickname thanks to 4,000% economic expansion thanks to a large steel industry presence in the area. While this industry has declined in prominence overall since the late 1800s and early 1900s, the city still supports steelmakers like U.S. Steel, CMC Steel, and Nucor, and U.S. Steel completed the construction and start-up process for an advanced electric arc furnace (EAF) in 2020, adding 1.6 million tons of steelmaking capability to the market. This is increasingly important for markets like Birmingham with large steel industry presence because the ongoing Ukraine-Russia conflict is limiting access to foreign iron-ore products. Although Alabama as a state does not typically call to mind words like “innovation,” “biotechnology hub,” or “financial center,” the truth is that Birmingham boasts strong representation in all of these sectors and many more. During the COVID-19 pandemic, much of the informal work to bring startups, biotechnology employers, and international industry presence to the city was formalized under state governor Kay Ivey’s Alabama Innovation Commission. The commission makes policy recommendations related to attracting job seekers, building an “innovation economy,” supporting entrepreneurs and startup communities, and improving Alabama’s global reputation. Birmingham is ahead of the curve in this effort and benefiting from the head start. From July 7-17, 2022, the city will host the World Games 2022, an 11-day international multi-sport event organized with the support of the International Olympic Committee (IOC). This event alone is expected to bring in more than 3,600 athletes from at least 100 different countries and should lead to significant appreciation in areas in close proximity to the World Games venues, including Avondale Park, Sloss Furnaces, Legion Field, and Central Downtown. Birmingham mayor Randall Woodfin noted that the city’s role as host of the games has been a deliberately thought-out process, saying, “We know about the historical perceptions of Birmingham, and…we are not going to forget our past, but we have evolved…. When a lot of people talk about Birmingham, the images that come to mind are [black-and-white photos from the 1960s], but that is not who we are today.” Woodfin has said on multiple occasions that The World Games 2022 will send a positive “ripple” of information about Birmingham outward around the world. Although The World Games certainly have the potential to be a defining moment for the city, Birmingham already had begun to refurbish its image when it was named host city for the event. The Birmingham-Shuttlesworth International Airport has undergone more than $7 million in improvements; the local transit authority has designed and upgraded miles of heavy and light rail along with the local bus systems, and the city’s City Walk BHAM has recreational space, water features, market space, wine gardens,

Read More