TASTE TESTER INVESTOR
REI INK at IMN East Co-Hosted by REI INK and RCN Capital Sponsored by National Real Estate Insurance Group
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Homeowner Equity Grows
Ratio of Equity Rich to Seriously Underwater Properties Now at 14 to 1 By ATTOM Staff ATTOM, a leading curator of real estate data nationwide for land and property data, released its first-quarter 2022 U.S. Home Equity & Underwater Report, which shows that 44.9% of mortgaged residential properties in the United States were considered equity-rich in the first quarter, meaning that the combined estimated amount of loan balances secured by those properties was no more than 50% of their homes estimated market values. The portion of mortgaged homes that were equity-rich in the first quarter of 2022 inched close to half, up from 41.9% in the fourth quarter of 2021 and from 31.9% in the first quarter of 2021. “Homeowners continue to benefit from rising home prices,” said Rick Sharga, executive vice president of market intelligence for ATTOM. “Record levels of home equity provide financial security for millions of families and minimize the chance of another housing market crash like the one we saw in 2008. But these higher home prices and rising interest rates make it extremely challenging for first time buyers to enter the market.” The report shows that just 3.2% of mortgaged homes, or one in 31, were considered seriously underwater in the first quarter of 2022, with a combined estimated balance of loans secured by the property of at least 25% more than the property’s estimated market value. That was virtually the same as the 3.1% level of all U.S. homes with a mortgage in the prior quarter, but still well down from 4.7%, or one in 21 properties, a year earlier. Across the country, 45 states saw equity-rich levels increase from the fourth quarter of 2021 to the first quarter of 2022 while seriously underwater percentages increased in 28 states, albeit by less than 1% in most cases. Year over year, equity-rich levels rose in 48 states and seriously underwater portions dropped in 46 states. “It’s likely that equity will continue to grow through the rest of 2022, although home price increases should moderate as the year goes on,” Sharga said. “Rising interest rates, the highest inflation in 40 years, and the ongoing supply chain disruptions due to the war in Ukraine are likely to weaken demand and slow down home price appreciation.” Biggest improvements in equity-rich share of mortgages in West and South The 15 states where the equity-rich share of mortgaged homes rose most from the fourth quarter of 2021 to the first quarter of 2022 were all in the western and southern regions of the U.S. States, with the biggest increases in: » New Mexico, where the portion of mortgaged homes considered equity-rich rose from 35.3% in the fourth quarter to 43.4% in the first quarter of 2022 » Florida (up from 46.6% to 53.6%) » California (up from 53.7% to 60.5%) » South Carolina (up from 35% to 41.2%) » Montana (up from 40.5% to 45.7%) States where the equity-rich share of mortgaged homes decreased from the fourth quarter of last year to the first quarter of this year were: » South Dakota (down from 36% to 32.3%) » Mississippi (down from 26.3% to 23.5%) » Louisiana (down from 22.5% to 21.6%) » North Dakota (down from 29.3% to 28.6%) » Pennsylvania (down from 35.49% to 35.46%). Largest increases in seriously underwater properties across South and Midwest Twelve of the 15 states with the biggest increases in the percentage of mortgaged homes considered seriously underwater from the fourth quarter of 2021 to the first quarter of 2022 were spread across the South and Midwest. They were led by: » Mississippi (share of mortgaged homes seriously underwater up from 12.2% to 17%) » Missouri (up from 5.1% to 6.6%) » Louisiana (up from 10% to 11.3%) » Pennsylvania (up from 4.2% to 5.2%) » Delaware (up from 3.7% to 4.5%). States where the percentage of seriously underwater homes declined the most from the fourth quarter of last year to the first quarter of this year were: » Wyoming (down from 14.3% to 10%) » Maine (down from 4.4% to 3.1%) » Oklahoma (down from 5.5% to 4.8%) » Alabama (down from 5.1% to 4.6%) » Montana (down from 3.4% to 3%)
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Following a Calling
When A New Business Opportunity Called, Ross Herman Went All In Ross Herman, the proud owner of a HomeVestors® franchise based in Minneapolis/St. Paul, started out in business as a public accountant. However, he always knew he would use that expertise to chase bigger dreams. “I went the CPA route in order to see different businesses, operations, and management styles,” Herman said. “I always wanted to do my own thing, and used the accounting skills to watch for my next opportunity.” Herman’s first opportunity came in the form of a startup food-service business that he successfully founded and later sold to a partner before heading back into accounting. He did not remain there long; HomeVestors appeared and was far too perfect a fit to resist. The Beginning Herman had a background in and affinity for real estate, albeit not residential property, thanks to his family’s ownership and management of commercial assets. “I had grown up seeing my grandfather and father invest in and manage neighborhood retail shopping centers, so I always knew I would be intrigued by an opportunity to build an investment portfolio,” Herman said. He opted to build an investment portfolio of single-family homes when he joined up with HomeVestors in 2002. “I had always wanted to invest in single-family, and I immediately enjoyed spending time building, improving properties, providing opportunities for myself and my family, and providing opportunities for other families — whether they were buying or renting — to have a good place to call home,” Herman said. Although the early 2000s were tough for many real estate investors due to the heat of the pre-2008 market, Herman benefitted from HomeVestors systems, which began generating leads for his new business and enabled him to use HomeVestors financing for acquisitions. “That was absolutely critical at that time, and new franchisees should always follow the systems that are laid out because they work,” Herman said. “When the markets change in unexpected ways [as they did in 2008 and again in 2020], following the system is what will ensure you survive those changes.” Building Stability for Family & Community When Herman first started out with HomeVestors, he focused mainly on buying, rehabbing, and reselling homes. “Business was good,” he recalled. He also began acquiring rental properties and began to build up his own real estate portfolio. “When the market crashed, it was extremely challenging,” he said, adding that joining up with his present-day investment partner and mentor helped him refine his strategy and increase focus on improving systems and processes while acquiring more single-family rentals. Herman said the best advice he could give new HomeVestors franchise owners is to stick with the systems in place for their success. “Do not deviate. Focus on buying homes, and be consistent,” he said. “Be conscious of cash flow. Remember, if you turn your marketing on and off, you will miss opportunities to generate cash flow.” He concluded, “There will always be real estate cycles and there will always be changes in real estate, but housing is housing, and everyone needs a place to call home. I see a strong future in this franchise, and I am excited to continue to follow the systems, revitalize houses, and create homes.” Homevestors What exactly does it mean to be aHomeVestors® 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.
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How to Automate SFRs
Quit Wasting Valuable Time and Resources By Kori Covrigaru Could you be wasting 2-4 hours a day on manual marketing processes? We recently conducted research on the time spent on manual processes during a rental turnover and found that marketing departments are losing days of their time on processes that could be automated. For example, let’s say a company has a marketing coordinator who is managing these processes, and they get paid $60 an hour. You are spending up to $480 a day on manual frontend and backend tasks that could be automated through a simple integration. Instead of wasting eight hours on manual processes, you could re-allocate those hours toward more strategic initiatives. From acquisition to tenant turnover, we will inspect each part of the process, enabling you to streamline your steps and save you thousands of dollars each quarter. Single-Family Rental Workflows Single-family rentals (SFR) go through the same cycles repeatedly: acquisition, renovation, tenant acquisition, and tenant turnover. So, you have workflows for every stage of that SFR cycle, but are those workflows fully optimized? Acquisition Acquiring new properties is time-consuming when done in the traditional way. There might be travel time, showings, inspections, and contract negotiations involved that could take months. But with a good system in place, you could acquire new properties 100% virtually. PlanOmatic’s Property Insights does the legwork for you. We collect property data for due diligence, renovations, and leasing decisions and provide you with reports to help make property acquisition decisions. Not only do you get the property condition report, but you also get a Matterport 3D tour. You get accurate property details that you would not otherwise know, and you will better understand the layout, condition, and measurements of the property you are considering. Renovation You have found the right property. It is in the perfect location but needs a little beautification. So, it’s time to start the renovation process. How do you keep proper oversight while you are managing your properties from a distance? Try Matterport 3D tours. Schedule a virtual walk-through during different periods of the renovation so you can oversee the construction without having to be there. Tenant Acquisition Tenant acquisition is the single most important piece of your workflow: without tenants, you have no income. There is a lot of work involved in marketing your rental property – and photography, virtual tours, and listings take time – but you can streamline these processes. You can schedule your photography through PlanOmatic and use an API integration to manage the process easily. The API integration works like this: PlanOmatic’s system tells your system the photos and virtual tour are ready, then it will automatically syndicate it across your different distribution channels. In a recent study, PlanOmatic found this process saved time equivalent to three full-time employees. Tenant Turnover When a tenant leaves, the entire process begins again. Often, property managers need to renovate, acquire new tenants, and onboard new tenants – all of which take a sizable chunk of time. But let’s look at this process holistically with automation in place. Manual Process • The construction team or property manager sends a communication (by email or spreadsheet), letting the marketing team know the renovation is complete. Marketing gathers the communication daily, spending about 2-4 hours on this process. • Then, your system automatically orders photography and 3D tours. PlanOmatic automatically emails to communicate that the photography is finished and ready to download. The marketing team downloads the assets and uploads them to Dropbox. This process takes an additional 2-4 hours per day. Automation • The construction team or property manager simply sends an alert through the client’s system to PlanOmatic, informing them that the house is ready for photography. This will automatically schedule photography. • When the photography is ready, PlanOmatic’s system will automatically tell the client’s system that the order is ready and then it will automatically syndicate it. One client confirmed that after implementing PlanOmatic’s integration, they could reallocate three full-time employees’ time to new, more exciting marketing activities. PlanOmatic Automates SFR Management PlanOmatic is obsessed with helping property managers and real estate investors be more efficient. Our latest API integration makes it easy to streamline your workflows to save time and money. Learn more about how PlanOmatic integrates with your internal systems by visiting www.planomatic.com/our-services/api-integrations/.
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Q&A with Mark Walser
Streamlining Real Estate Appraisals in an Active Market In today’s active real estate investment market, the evolution of the appraisal industry is having a direct effect on the speed and ease of transactions. To help investors capitalize on new developments, REI INK interviewed Mark Walser, President, Incenter Appraisal Management, a major national provider of valuations, inspections and data products. As the President of a national appraisal management company, what is keeping you up at night these days? The pace of change in the real estate investment industry, and the importance of helping investors, lenders, and appraisers to immediately seize new opportunities, are top of mind. As Ron Burgundy in the movie Anchorman says, “Well, that escalated quickly.” The recent rapid rise in mortgage rates accompanied by inflation is rocking the mortgage lending profession. At the same time, lenders and investors stand to benefit from the creation of new pathways to wealth creation, such as single-family rentals. Sellers in this environment are looking for fast, easy transactions that allow them to obtain the best price and move on. Investors are able to get great deals on properties and fix them up to sell or rent, benefiting the community and the buyers looking for homes in markets where scarcity of inventory is a real issue. The appraisal management industry plays a critical role in ensuring that transactions proceed seamlessly in this environment. Many lenders are experiencing two-week valuation backlogs, which factor into final closing dates. Appraisal leaders have innovated new approaches to reduce those backlogs and help investors and lenders pick up the transaction pace. Where are backlogs coming from? The industry has been dealing with a talent shortage at a time of stepped-up demandfor appraisers’ services. According to the Appraisal Institute, there were roughly 73,000 active appraisers in the industry in the U.S. in 2021, down from a peak of 85,000 in 2010. Freddie Mac/Fannie Mae released similar studies showing that in 2014, the number of unique active appraisers that handled all of the GSE volume was approximately 43,000, and that in 2020-2021 that number declined to 40,230. They also anticipate a decrease of 800 appraisers per year given the age range and projected retirements after factoring new appraiser entrants into the profession, with the average age being 59 years old. A wave of retirements over the next five to ten years, accompanied by a lag in the number of new trainees, illustrates why costs and turn times have been rising. How is the industry solving the problem? The movement toward the digital mortgage, which advanced during the pandemic, is helping to address this. The introduction of remote/desktop appraisal inspections is part of this evolution. These technology-enabled processes are in use for everything from disaster inspections to appraisal inspections for Non-QM/Non-Agency loans. The big “watershed event” happened when Fannie Mae and Freddie Mac approved them for many mortgages last March. That has spurred a new wave of appraisers to sign up for remote appraisal training and begin using different solutions to fulfill assignments. This kind of technology empowers appraisers to conduct appraisal inspections from their desks, rather than onsite. Up to 50% of an appraiser’s workday involves driving from property to property to perform appraisal inspections. Now, they are able to spend their days inspecting and analyzing, rather than driving, and delivering reports much faster. These are solutions that keep them in control of the process from start to finish, even when they are offsite. That is important to professional appraisers, whose training and reputations are on the line with each report. They must be able to trust the integrity of the data that the technologies are delivering. Some solutions make this especially easy — enabling appraisers to look through a property contact’s (e.g., homeowners’ or realtors’) smartphone camera, capture and upload time-stamped and geographically verified photos, videos and closeups as the contacts walk around, and provide a detailed floor plan with walls, along with the functional layout of a home. When lenders work with appraisers who are capitalizing on these technological capabilities, they are able to stream-line service for their investor clients. What other challenges are remote/desktop appraisal inspections helping to solve? One major goal that mortgage lenders and appraisers share is fostering diversity. Incenter Appraisal Management is proud that its parent company, Incenter LLC, is a Diamond Sponsor of the National Association of Minority Mortgage Bankers of America (NAMMBA), which is focused on bringing more women and minorities into the profession and ensuring that everyone has equal access to the American Dream of homeownership. Technologies like remote appraisals support the goal of putting everyone on a level playing field when it comes to homebuying. These tools can help eliminate any inadvertent perceptions/misperceptions of bias. That is because during a remote appraisal inspection, appraisers and property contacts (homeowners or realtors) never have to see one another. The appraiser looks at the property, and not the person. Moreover, in underrepresented neighborhoods, where it is difficult to find a nearby appraiser, in-person inspections can be costly, and lenders often pass the extra expenses on to prospective homebuyers. That problem is eliminated, too, with remote appraisals. What about inflation? Do remote appraisals help ease some of that pain? Definitely. Those rising costs impact appraisals as well. A great current example is the rising cost of gas—which affects appraisers driving far from the city into rural areas or navigating bumper-to-bumper traffic in cities like Los Angeles. These drive appraiser fees higher, and the additional costs are then passed on to the borrower/real estate investor. Speaking of inflation, with skyrocketing home sale prices, what happens when an appraisal comes in lower than expected? Rapidly appreciating home prices have this happening much more frequently than usual – and until appraisers can see comparable property sales hit the MLS that help support those values, it is a possibility that every buyer/real estate investor needs to consider. When an appraisal does not reach the expected value, investors must first understand that this could indeed be a legitimate
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Green Bay, Wisconsin
The Packer City is Ripe for Portfolio Expansion…If an Investor is Creative By Carole VanSickle Ellis During the Great Depression, Green Bay, Wisconsin, avoided the worst of the economic downturn thanks to the prevalence of toilet paper companies in the city. In fact, with the introduction of splinter-free toilet paper in the early 1930s, the city’s recession-resistance was all but guaranteed. Today, the “Toilet Paper City” is known more popularly as “Packer City” for its wildly popular football team, the Green Bay Packers, considered among the last of the “small-town teams” and valuable thanks to the winningest record in NFL history (13 league championship wins and four Super Bowl victories) and an exceptionally loyal fan base that has sold out every regular and playoff home game since 1960 regardless of team performance. This record is, of course, marred by the 2020 COVID-19 pandemic, during which Packers fans were forced to stay home and watch their team play in an empty stadium out of concern for public safety. The Packers bring in roughly $15 million in economic impact per playoff home game and have an outsized impact on the regional economy and the local real estate market. Green Bay is a relatively small market, described by its own chamber of commerce as being “much more than two cities, nine villages, and 13 towns.” The city is the third-largest in the state of Wisconsin, however, and tends to outperform the rest of the state in terms of employment and income. In fact, for 2022, Best Places reported Green Bay’s future job growth rate would likely exceed that of Chicago, Illinois, by nearly 10 percentage points and would edge out national growth as well. Although Green Bay’s median income is about $15,000 less, annually, than the national median and is $6,000 below that of Chicago, the town benefits from a relatively low cost of living (82.3 on a scale of 100) and the massive influx of football-driven spending during the NFL season. That influx represents huge opportunity for real estate investors on all scales, from individual short-term rental owners to investors with larger portfolios. For example, one local retiree rents her property near Lambeau Field out on weekends when the Packers play at home. One weekend during the playoffs earns her around $5,500, and regular-season game rates can be hundreds or thousands of dollars for a weekend. That rental income represents most of her retirement budget, said her son, noting that this is the only thing his mother has “lined up” other than social security. So far, it has been enough, and she, like local businesses and the Green Bay government, is determined to keep Packers fans happy – and coming back for years to come. “Our hope and our goal are to ensure that visitors have a very, very positive experience while they are here, and then they want to come back,” said Nick Meisner, vice president of marketing and communications for hospitality group Discover Green Bay. The result of this concerted effort is a strong, stable market that is both resilient and relatively affordable. More than Just a Football Town While the Green Bay Packers certainly are the “headliners” when it comes to a discussion of Green Bay real estate, they are not the only game in town when it comes to investment opportunities. Jeff Cichocki, a Green Bay real estate investor who also runs a hard-money investing fund, emphasized that while the Packers certainly boast an outsized economic impact, Green Bay offers much more than just football. People come to Green Bay and stay for years as well as just for the weekend, he said. “Single-family homes have been flying off the shelves and the amount of cash flooding into the market for investment properties has impacted the Green Bay market in unique ways,” Cichocki said, observing that long-term rentals are a viable option in the area although short-term rentals tend to garner more attention due to the sky-high rates associated with Packers games. “Investors in a position to pay cash for properties will pick up the good deals,” he added, “but we also are seeing investors trying to acquire [over-valued] deals that do not pencil out.” This is due in large part to the very limited residential inventory in the area at present. Cichocki, a private lender himself, also said many buyers are finding themselves unable to finance homes using traditional bank loans because home values are rising so quickly and they are being beaten to the punch by other buyers willing to make purchases without contingencies or for cash. According to Redfin, Green Bay home prices rose by more than 13% at the end of Q1 2022, and average homes are selling about 5% over list price in just about a month’s time. Investors should beware of the temptation to jump at any deal just because it is available since sellers are optimistically pricing properties at present. This type of “fever” can be dangerous, especially in volatile markets where many factors are in play at once. “There is a lot of shakeup in the U.S. economy right now,” Cichocki said. “Markets are moving fast in lots of directions at once with the biggest challenges in the middle. That is why we are still seeing a lot of speculative pricing from sellers looking to see if anyone bites.” Green Bay’s local economy is more diversified than many investors realize thanks to the prevalence of manufacturing jobs in the city and a municipal emphasis on attracting and supporting a startup community. At the end of 2021, county executive Troy Streckenbach announced a variety of workforce investment packages and building projects, including a $15 million STEP Innovation Center and another $5.6 million for an “innovation park” named for Fox River Papermaking and Green Bay Packaging. He reported that GDP baseline projections for Green Bay were “optimistic.” The presence of the Port of Green Bay, a multimodal distribution center connecting marine freight with highway and railroad transport has also contributed to
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