REI INK at IMN East
Taste Tester Investor Another great culinary networking event with our wonderful friends, clients and supporters. Co-Hosted by RCN Capital & REI INK Sponsored by Home Depot Pro, BCHH, and Swidget
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How Technology has Changed the Construction, Repair & Remodeling Industries
But There is No Replacement for Professionalism By Clint Lien As history shows, technology has a way of making things faster, easier, and much more efficient, in most cases. However, it usually takes time to get these benefits to the masses. If you look back a little way in history, for example, 40 years or so ago, you would rarely find a battery-operated drill in a home or on a construction site. But as they started to become more mass produced, less expensive, and easier to find, more contractors, handymen, and skilled laborers of all types began investing in them. They are much more portable and easier to use and require fewer ancillary tools or support to use them, such as electricity, cords, generators, etc. Now that battery technology has been around for a while and more manufacturers have jumped into the market, you can find almost any tool you may need or want that is battery operated and not nearly as many corded tools. Technology and Materials Now staying with that model of thinking, technology also affects the materials that are being used in today’s construction, repair & remodeling industries and you will see the same type of progression. For example, when I first started working with my dad, there were basic flathead and Philips screws in all different sizes. There were several types of basic nails that required a hammer. They had different screws and nails for different applications, but they all only required basic tools to use them. In today’s market you will see specialty fasteners for specialty types of materials, and this may require specialty tools to install those materials. This process can be very difficult to keep up with and have expensive start-up costs. Some “old school” contractors are sometimes very weary of these new materials and will wait a while before investing in them and selling them to their clients. And in the short term this may save the contractor a little money and time, but this may also limit him, and he might be forced to upgrade regardless. But in the long term it can be very beneficial for the contractor by: » making the job faster, » providing his client with a superior product that may last longer or be recycled and more accessible, and » providing a completely new look that the client desires. There are new materials being developed daily and the true professionals invest and take advantage of these in every way they can and in turn they can make more money faster. Technology and Labor Let’s not forget how technology can affect the labor in this industry. With tools and materials continually improving, training methods and the way labor is tracked and estimated is being directly affected as well. A worker who may have a particular skill set and is trained on a specific new tool may demand more money. With tracking through GPS on phones, vehicles, tools, etc., the contractor can refine his efficiencies much better and cut back on loss of time, workers wasting time by making unnecessary stops, or what route is the fastest to the job or why did it take so long for his crew to get to the job. Also with computers, phones or tablets the contractor can understand, track and record how long a project may take, and when the same project comes up again, he may have that information waiting at the tip of his fingers. This can help the contractor to be much faster and eliminate the guess work while also allowing the contractor to bid on jobs with more confidence and be more competitive. Technology and Estimates Let’s not forget the software and AI developments that have occurred in the last few years. In the past, a contractor may have needed three things to write an estimate: a pen or pencil, paper and a measuring tape. But this typically meant the contractor would have to know in his mind how long the job would take, what are the needed materials and how much do they cost. He may have to spend time looking up materials or calling sub-contractors to validate his thoughts. This process can be very time-consuming and inaccurate, causing undue worry and stress for the contractor. Also, this may prolong the time for delivery of his estimates causing him to lose the job to someone else. In today’s world we have many different estimating systems that are loaded with tools to make this process much more efficient, faster, easier and more repeatable than ever. With the use of cameras, laser measuring tools, blueprint readers, email, text, etc., everything moves at a much quicker pace, even receiving money from the client or paying workers. In today’s world almost anything can be made faster, easier or cheaper using technology. And with how rapidly AI is advancing and the tools that are already being used to validate status, feasibility, times frames, quality, damage or condition simply by feeding photos into your system, the sky is the limit. Understanding that technology has always been a driver of change in various industries, it is an even bigger driver in the construction industry today. As housing shortages and demands increase and as the market seems to be out of control in so many ways, the cost just to be able to have a roof over your head and live somewhat comfortably is increasing by the day and the cost of everything else goes up with it, such as your workers’ wages and his associated work expenses. The contractors’ costs also go up, so he can support his workers, family and his company’s growth. In conclusion, though technology may help in many incredible ways with making things faster, easier and longer lasting, it does not mean that the cost savings are passed directly to the consumer. Furthermore, the demands on the contractor could not be higher. With expectations rising due to more options and the average consumers access to much more information
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Driving Real Estate Tech Forward
Utilizing a Collaborative Approach to Venture Capital By Aaron Ru Over the past decade, there has been an explosion in the number of technology tools available to the real estate industry. Innovation has occurred in all facets of real estate, from new methods of construction to improvements in the leasing process all the way to better technology to manage the full resident and asset lifecycle. Products such as smart locks and 3D tours have improved the touring and leasing process dramatically, enabling prospective residents to view a property either digitally or in-person outside the confines of a leasing agent’s 9 to 5 schedule. Better access to big data and new methods of modular construction have unlocked more efficient asset acquisitions and construction. On the property management side, owners have benefited from maintenance technology platforms that help facilitate better resident communication on maintenance issues and provide better service on the actual maintenance work through leveraging technology such as computer vision to better scope problems. Yet, even with a significant amount of real estate technology development from both startups and incumbents, adoption within the industry has been slower than expected. While some of this is a general technology implementation phenomenon — it is never easy for entrepreneurs to create a product that can perfectly meet end user needs and penetrate the market — there are a number of ways in which it is particularly challenging to roll out technology in the real estate industry. The Challenges of Real Estate Technology As opposed to most industries where operations are based out of either one or several large corporate offices, a huge amount of real estate operations happen at distributed portfolios across a region or country. This slows down tech adoption in a few ways. Let us consider an apartment owner-operator based in Dallas whose construction, leasing, and property management are happening across the eastern seaboard. There might be significant inefficiencies involved in property operations in North Carolina and Georgia, but because corporate decision makers are 1,000+ miles away, gaining approval for a tech expenditure is a challenge. Meanwhile, if the corporate COO is approached directly by a tech vendor and immediately buys into the vision of the technology, onsite teams in another state may be reluctant to use the tech. Even for tech that is easy to deploy, there are inevitably learning and implementation curves, and onsite teams will sometimes roll their eyes at corporate decisions without considering the long-term efficiencies. Another issue is that real estate tech is more than just technology. Typical software products are easy to roll out; once the company has signed up for fintech or martech tools, users receive temporary passwords, and they are able to log in in a matter of minutes. Real estate tech is much more complicated. Because of the nature of real estate, many tech solutions are not pure software, but have a hardware element to them. For example, SmartRent and other smart locks require physical installation in each unit. Similarly, some construction tech tools — even software-heavy ones — require a technician’s presence onsite. Effectively, this means that building a great software product is just the first step. Companies also need to exhibit excellent execution when physically deploying products, which makes the process of scaling that much harder for those technologies. A New Approach to VC Facilitates Improved Innovation and Execution These challenges are not minor, but they are solvable, and we have found that in our investing as a venture capital firm, we are able to create an approach that helps address and mitigate many of these issues. The core of our approach is our close relationship with 50+ institutional real estate firms, which goes all the way back to our founding in 2017. Seven years ago, real estate technology was just beginning to come into its own, but there was a significant disconnect between the “disruptive technologies” Silicon Valley venture capital firms were trying to fund and how the real estate industry actually vetted and deployed technologies to drive value. To address this, RET Ventures was founded with a unique model — instead of being backed by endowments or family offices like most VCs, RET raised money from residential real estate (multifamily and single-family rental) owners and operators. This created an ecosystem of innovation that helps us ameliorate many of the issues that slow down technology deployment. In addition to investing capital into our funds, most of our strategic investors are active partners who help us vet technology startups before we back them financially. More importantly, they typically collaborate with the leadership of our portfolio companies and provide them with guidance to help them deliver a product optimized for the way real estate professionals do business. This has tremendous value to any startup. New companies — whether in real estate or beyond — often pivot repeatedly as they struggle to establish product-market fit. The ability to have leading real estate companies giving them guidance is a huge advantage. With our investment capital coming from leading multifamily and SFR companies, RET is focused largely on technology for those property segments, and that focus helps alleviate many of the rollout and execution issues. Like any VC, we work closely with our portfolio companies to help them scale their growth. But unlike many VCs, we have a thorough understanding of the industry in which our portfolio companies operate. With three dozen plus real estate tech investments, our team has helped numerous startups gain the operational expertise required to roll out combined hardware/software products and get buy-in from groups of tech users distributed across many properties. The Importance of a Collaborative Approach If the approach we have taken has been innovative in the world of VC, the idea behind it could not be more simple: The real estate industry has to work collaboratively to drive real estate tech forward. Real estate has a host of unique processes, quirks and hurdles, and even brilliant tech entrepreneurs will not be able to figure them all out
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Four Myths About the Single-Family Rental Home Industry
Shedding Light on Reality By David Howard In recent years, the explosive growth of the single-family rental home market has attracted widespread attention from the public, the media, and policymakers alike. Landlords have rented out single-family homes for generations. But the recent professionalization of the industry has transformed the market. For decades, the overwhelming majority of rental homes were owned by landlords who hold a single property. While that’s still the case today, over the past decade or so, companies have emerged that own and operate portfolios of single-family rental homes. These companies have demonstrated that by owning a portfolio of homes, they can provide higher-quality customer and property management services that lead to an enhanced housing experience for all residents. The National Rental Home Council (NRHC) — the nonprofit trade association representing the single-family rental home industry — seeks to educate the public about the economic value and benefits of this dynamic industry. This fact sheet dispels some myths and sheds light on the reality of the market. MYTH #1: THE SFR INDUSTRY IS A PRODUCT OF THE GREAT RECESSION Reality // The SFR industry has been around for decades. In fact, there were more single-family rental homes, as a percentage of total rental housing stock, in 1999 near the height of the dot-com boom than in 2009, during the depths of the recession. It’s certainly true that SFR companies were active buyers of properties during the recession. But their presence brought much needed capital and liquidity to markets undergoing upheaval from bank-directed foreclosures, according to a report by the Federal Reserve Bank of Philadelphia. SFR companies also contributed to a recovery in home values without a significant impact on rental rates or eviction rates, and they supported local labor market conditions by increasing rates of employment in construction and home renovation businesses. MYTH #2: WALL STREET CONTROLS THE SFR INDUSTRY Reality // “Mom-and-pop” investors own 99% of single-family rentals. Institutional investors — including public sector pension funds, private equity firms, and other entities — own just 1%. Almost 90% of SFR investors own fewer than ten units. By contrast, institutional investors own 55% of multifamily rental units. Institutional investors occasionally hold investment positions in SFR companies, just as they do in other major sectors of the economy. The fact that they are drawn, in part, to the single-family rental home industry is a testament to the strength, vibrancy, and legitimacy of the market. MYTH #3: AMERICANS RENT BECAUSE THEY CAN’T AFFORD TO BUY Reality // More and more Americans are renting single-family homes by choice — and it’s easy to see why. SFRs offer families access to newly-renovated homes complete with a range of amenities, including good schools, parks and open spaces, shopping venues, and entertainment destinations. SFRs especially appeal to millennials, who are often focused on paying down student debt and do not want the commitment of buying a house. The median SFR costs just $1,600 a month. By comparison, the median down payment was $15,500 in 2018. SFRs cost less than apartments per square foot. The SFR industry also serves aging Americans hoping to downsize and move closer to their children and grandchildren without incurring the full costs of homeownership. MYTH #4: SFR LANDLORDS OFTEN SPIKE RENTS, PRICING FAMILIES OUT OF THEIR NEIGHBORHOODS Reality // SFR landlords, just like multifamily landlords, set rents based on market dynamics. If they overprice their units, tenants will simply go elsewhere. SFR landlords frequently perform extensive rehabs that make properties more attractive, which benefits tenants, nearby homeowners, and entire local communities. SFR companies have cumulatively poured $4.4 billion into home rehabs — an average of about $21,000 per house. These investments have supported more than 50,000 jobs and generated more than $300 million in local taxes and revenue. For additional information and resources, please visit NRHC online at www.rentalhomecouncil.org.
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Home Prices Hit New High
Buyers Gain Power as Stale Listings Pile Up and Price Drops Become Common By Dana Anderson Housing costs could come down in the coming months, as mortgage rates are coming down a bit and there are signs price growth could slow. Redfin agents report there is room for buyers to negotiate paying under list price for homes that need a bit of work. Pending sales post their biggest decline since the beginning of March // Pending home sales fell 3.8%, the biggest year-over-year decline in nearly four months, during the four weeks ending June 16. Buyers are shying away from earlier steps in the house-hunting process, too: Redfin’s Homebuyer Demand Index, a measure of requests for tours and other buying services from Redfin agents, declined 17% year over year to its lowest level since February. Buyers are backing off largely because housing costs are high // The median U.S. home-sale price is up 4.8% to an all-time high of $396,000, and the median monthly mortgage payment is $2,781, about $60 below its record high. The weekly average mortgage rate declined slightly to 6.95% this week, but it’s still more than double pandemic-era lows. The irony of near-record-high housing costs // They are causing buyers to back off, and enough have backed off to give buyers who remain more negotiating power for certain homes. The other piece of good news for buyers is that housing costs could come down soon. There are signs that price growth could lose some momentum: The share of sellers dropping their list price is at its highest level since November 2022, and asking-price growth has already slowed. Mortgage rates have fallen a bit since last week’s cooler-than-expected inflation report, and they may continue declining. New listings are still near historic lows // Another reason for the decline in pending sales is a lack of new, desirable listings for buyers to choose from. New listings are up 7.7% year over year, but they’re sitting well below typical levels for this time of year; the only time on record listings June listings have been lower was in 2023. Many home listings are becoming stale, sitting on the market for 30 days or longer without going under contract; Redfin agents report that most buyers are willing to pay sky-high housing costs only for move-in ready homes in popular neighborhoods. “A few years ago, I never would have told a seller they need to freshen up their paint, fix their furnace and make sure their roof is up to date before putting their home on the market — but now, I tell them to make the house as pretty as they possibly can,” said Des Bourgeois, a Redfin Premier agent in the Detroit area. “Buyers are still out there and they’re willing to pay today’s high prices, but only if the house is in really good shape. They don’t want to spend extra money on paint or new appliances.” Homes that need work and/or aren’t in the most desirable locations can be a good opportunity for today’s buyers // They are selling under asking price in some places–if they do sell. “Things have reversed since the pandemic,” said Jonathan Ader, a Redfin Premier agent in the Palm Springs, CA area. “Now, most homes — the exception is relatively affordable homes that are move-in ready — are selling under asking price.”
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Home Flipping Activity and Profits Both Rise in Q1 2024
Investment Returns Still Low but Reach 30% Nationwide By ATTOM Team ATTOM, a leading curator of land, property and real estate data, released its first-quarter 2024 U.S. Home Flipping Report showing that 67,817 single-family homes and condominiums in the United States were flipped in the first quarter. Those transactions represented 8.7%, or one of every 12 home sales nationwide, during the months running from January through March of 2024. The latest portion was up from 7.7% of all home sales in the U.S. during the fourth quarter of 2023 — the second straight quarterly gain. While the portion was still down from 9.8% in the first quarter of last year. As flipping rates went up, fortunes kept improving for investors who buy and quickly resell homes. The latest data showed that home flippers typically earned a 30.2% gross profit nationwide before expenses on homes sold during the first quarter of this year, marking the third time in four quarters that margins increased following a six-year period of mostly uninterrupted declines. The typical first-quarter profit margin — based on the difference between the median purchase and median resale price for home flips — remained about 25 percentage points below peaks hit in 2016. It also stayed within a range that could easily be wiped out by carrying costs that include renovation expenses, mortgage payments and property taxes. But it was up from both the fourth quarter of 2023 and from a low point over the past decade of about 25% in the first quarter of last year. Gross profits on typical flips around the country, meanwhile, increased to $72,375. That remained down from a high of about $80,000 reached in 2022. But it was up from $65,000 in the fourth quarter of 2023 and was about $10,000 above last year’s low point. “The latest numbers show that investors still face an uphill climb to clear significant profits after expenses,” said Rob Barber, CEO for ATTOM. They, like others, also face tenuous times amid a housing market boom that’s cooled down over the past year. But we now have a year’s worth of a trend showing that things have started to turn around for the flipping industry, with clear signs of increasing interest flowing into the market.” The continued improvements in profits and profit margins over the past year reflect a rejuvenated pattern of investors benefitting from shifts in prices going in their favor between the time of purchase to resale. In the first quarter of 2024, the typical nationwide resale price on flipped homes increased to $312,375, a 4.1% improvement over the fourth quarter of 2023. The increase outpaced the 2.1% rise in median prices that recent home flippers were commonly seeing when they were buying their properties. Similar gaps appeared annually as well, leading to the quarterly and yearly improvement in investment returns. Home Flipping Rates Turn Upward in Almost 80% of Nation Home flips as a portion of all home sales increased from the fourth quarter of 2023 to the first quarter of 2024 in 134 of the 173 metropolitan statistical areas around the U.S. with enough data to analyze (77.5%). Most of the declines were by less than two percentage points. Among those metros, the largest flipping rates during the first quarter of 2024 were in: » Warner Robins, GA (flips comprised 18.7% of all home sales) » Macon, GA (17.1%) » Fayetteville, NC (15.8%) » Atlanta, GA (14.7%) » Memphis, TN (14.6%) Aside from Atlanta and Memphis, the highest flipping rates among metro areas with a population of more than 1 million were in: » Columbus, OH (12.8%) » Birmingham, AL (12.7%) » Kansas City, MO (12.1%) The smallest home-flipping rates among metro areas analyzed in the first quarter were in: » Honolulu, HI (3.7%) » Oxnard, CA (5.3%) » Naples, FL (5.4%) » Des Moines, IA (5.5%) » Seattle, WA (5.5%)
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