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Zombie Foreclosures on the Upswing

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More U.S. homes fall into vacant zombie foreclosure realm in third quarter of 2020. ATTOM Data Solutions’ third quarter 2020 Vacant Property and Zombie Foreclosure Report revealed that 1,570,265 residential properties in the U.S. are vacant. That’s 1.6% of all homes. The report analyzespublicly recorded real estate data collected by ATTOM Data Solutions, including foreclosure status, equity and owner-occupancy status, matched against monthly updated vacancy data. The third quarter analysis shows that about 216,000 homes are in the process of foreclosure, with about 7,960, or 3.7%, sitting empty as so-called “zombie foreclosures.” The count of properties in the process of foreclosure (215,886) in third quarter 2020 is down 16% from the second quarter of 2020 (258,024). But the percentage of those properties that have been abandoned as zombie foreclosures is up from 3% in the second quarter of 2020. Despite the increase, the 7,961 zombie foreclosure properties continue to represent a small portion of the nation’s stock of 99.4 million residential properties—just one of every 12,500 homes. The third quarter 2020 data shows a drop in the number of homes at some point in the foreclosure process, but an increase in the level sitting vacant at a time when the federal government is trying to shield the housing market from an economic slide stemming from the coronavirus pandemic. Among the government’s key measures is a temporary prohibition against lenders foreclosing on government-backed mortgages. The ban, which is set to expire Aug. 31, 2020 and affects about 70% of U.S. homes, was enacted under the CARES Act Congress passed in March. It was later extended to help borrowers who have lost jobs or other sources of income during the pandemic. “Abandoned homes in foreclosure remain little more than a spot on the radar screen in most parts of the United States, posing few, if any, problems from neighborhood to neighborhood. But the latest numbers do throw a small potential red flag into the air, given the increase in the percentage of zombie foreclosures,” said Todd Teta, chief product officer with ATTOM Data Solutions. Highest Zombie Foreclosures Rates Owners nationwide have vacated a total of 7,961 residential properties facing possible foreclosure in third quarter 2020. That figure comprises 3.7%, or one in 27, of all properties in the foreclosure process. Those numbers are up from 3%, or one in 34, in second quarter 2020, and 3.2%, or one in 32, in third quarter 2019. States where zombie foreclosure rates exceed the national percentage are clustered in the Midwest and South (Kansas, 15%, or one in seven, properties in the foreclosure process; Missouri,11.2%, or one in nine; Georgia, 11%, or one in nine; Kentucky, 10.7%, or one in nine; and Tennessee, 10.3%, or one in 10). States where the rates fall below the national level are mainly in the Northeast and West. Those states include Utah (1.1%, or one in 87 properties in the foreclosure process), Idaho (1.2%, or one in 84), New Jersey (1.6%, or one in 62), Colorado (1.8%, or one in 56) and California (2%, or one in 50). Increases in All But One State Zombie-foreclosure rates rose from the second to the third quarter of 2020 in every state except Hawaii. Rates also decreased in the District of Columbia. States with the largest increases included Kansas (up from 7.4% to 15% of all properties in the foreclosure process), Missouri (up from 4% to 11.2%), Georgia (up from 3.9% to 11%), Kentucky (up from 3.9% to 10.7%) and Nebraska (up from 4% to 10.3%). “It appears that an increased number of vacant foreclosure properties may be an unintended consequence of the foreclosure moratoria put in place by federal, state and local governments,” said Rick Sharga, executive vice president at RealtyTrac. “Vacant properties can contribute to neighborhood blight and become safety hazards, especially during a pandemic. So, the sooner these abandoned properties can be processed and sold to homebuyers or investors, the better it will be for communities and neighborhoods across the country.” Northeast and Midwest Lead New York continues to have the highest actual number of zombie properties (2,136), followed by Florida (1,028), Illinois (971), Ohio (887) and New Jersey (356). California leads in the West, with 265. Oklahoma leads the South, with 133. Highest Ratios Despite increases in the rates of zombie foreclosures in third quarter 2020, those properties represent just one in every 12,486 residential properties of all kinds in the U.S., including those not facing possible bank takeover. States with the highest ratios are concentrated in the Northeast and Midwest, including New York (one in 1,934 properties), Illinois (one in 4,077), Ohio (one in 4,328), Florida (one in 6,747) and New Jersey (one in 7,476). States with the lowest ratios include Idaho (one in 188,805 properties), Utah (one in 98,766), Arkansas (one in 78,267), Texas (one in 70,746) and Virginia (one in 69,686). High-level Findings Based on third quarter data, the report revealed the following: Among 158 metropolitan areas with at least 100,000 residential properties in third quarter 2020, the highest zombie-foreclosure rates include Peoria, Illinois (16.4% of properties in the foreclosure process); Wichita, Kansas (15.3%); Kansas City, Missouri (13.4%); Omaha, Nebraska (12.7%); and Cleveland, Ohio (12.6%). Among major metro areas with at least 500,000 residential properties, the lowest zombie foreclosure rates are in Austin, Texas (no zombie foreclosure properties); San Francisco, California (0.7%); Philadelphia, Pennsylvania (1.6%); Los Angeles, California (1.7%) and Charlotte, North Carolina (1.8%). The top zombie-foreclosure rates in counties with at least 500 properties in foreclosure include Cuyahoga County (Cleveland), Ohio (14.1%); Broome County (Binghamton), New York (10.9%); Onondaga County (Syracuse), New York (10%); Pinellas County (Clearwater), Florida (8.5%) and Summit County (Akron), Ohio (7.8%). Among ZIP codes with at least 100 properties in foreclosure, those where the zombie foreclosure rate exceeds 5% remain concentrated in New York, Florida, Ohio and Illinois. Those ZIP codes with the top percentages include 44108, 44112 and 44105, all in Cleveland, Ohio; 61604 in Peoria, Illinois; and 13601 in Watertown, New York. The highest levels of vacant

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Committed to the Vision

“Once you’re in, it’s hard to break out.” “What a long, strange trip it’s been.” Those two phrases have stuck with me throughout my career. Granted, one is more of a cliché and the other is a lyric from the famous Grateful Dead song “Truckin’.” But they are both relevant as I reflect on my default mortgage and distressed real estate journey, which began when I was about 7 years old. Real estate has been a theme throughout my life. As the son of a contractor and a real estate agent who focused on selling properties for banks and GSEs, real estate was a livelihood. I have early memories of sitting in the car during inspections or walking through older vacant properties. And my chores and/or punishment for misdeeds were to file or scan BPOs, documents and pictures into the office computer or pick up nails and shingles at a construction site. Hindsight being 20/20, these activities taught me about project and task management as well as the personal value of building something tangible, whether a business operation or a remodel. Deciding to Bite My interest in creative problem-solving and number patterns led me to learn about business and analytics in high-school. Given my early ties to the industry, this is also when I learned that Fannie Mae—a name I’d heard often growing up—is not a person but rather a government conservatorship. After graduating college, I was at a crossroads of wanting to pursue a business venture or continue my education, perhaps earning an MBA and teaching at the high school or college level. While I was exploring graduate programs around the Philadelphia area, a former Keystone Asset Management manager contacted me, seeking assistance in expanding vendor management practices. My initial response was to decline because I wanted to dive into other areas. After several back-and-forth correspondences, I agreed to assist in vendor management—cementing the “no looking back” hold this industry has on you. As I dove into asset management and valuation, we worked to ensure stronger oversight of the third-party industry partners (e.g., real estate brokers and agents) we engaged.  The initial “hook” for me was leveraging the analytical side of aggregating performance data, building stronger evaluation reports on industry partners, exploring the logistics of contractual agreements and aiding in creating and holding various trainings. The “reel” that brought me in was engaging and presenting developments with current and prospective clients and business partners. In true trial-by-fire fashion, I gained exposure to this part of the industry by participating in industry events and traveling to client and affiliate offices. Opportunity Everywhere I am beyond fortunate to have had this exposure at an early point through an established firm such as Keystone Asset Management. They expected a level of professional maturity from me and I worked hard to meet that expectation. As I worked my way through the company, I gained experience coordinating and integrating business and product lines for new projections and contracts, collaborating on industry patterns and trends for corporate development and positioning, and identifying and procuring various growth opportunities. Beyond what any classroom environment could teach, these opportunities provided a wealth of education and a concrete foundation to understand business, entity structures, legalese and the key administrative and leadership requirements needed to maintain a successful foundation, regardless of the ebbs and flows of the industry. We are part of a very cyclical industry. We’ve seen waves of consolidations and expansions in both mortgage and real estate. These have ranged from the housingbubble burst, which yielded a drastic regulatory influence on compliance, to investors looking to leverage enhanced technology, resources, government first-look programs and a combination of debt and equity to expand their investment footprint. We’ve also seen increased influence from large-scale purchases of loan and asset pools engaging special and subservicers to mitigate debt or implement a strategic disposition alternative that maximizes return and/or mitigates loss. Navigating these cycles as well as facing other challenges and pivotal growth points require you to constantly evaluate where your services fit within the industry. Keystone Asset Management was one of the first national firms to support asset management and disposition, as well as valuation alternatives to appraisals. It also has a history of working with top-tier banks and regional institutions by helping to conceptualize Fannie Mae’s AMP program. Although Keystone built its reputation and foundation on these early opportunities, they also provide leverage for proactively identifying and seizing additional opportunities amid industry fluctuations. For example, we have adjusted to the market and migrated into acting more as real estate strategists that determine optimal disposition avenues based on value and key inputs. The Benefits of Being “All In” The experience I’ve gained at Keystone has provided professional growth I’ll forever be grateful for. The networks I’ve been able to build have produced some great friendships and growth opportunities. Likewise, I’ve been able to build and maintain a core team of trusted colleagues and partners that drive our business. I’ve developed the confidence to be flexible, even if it requires reinvention, yet remain true to the initial purpose of my journey: maintaining focus and ensuring adaptability to new opportunities. Finally, what I struggle with the most is continuously listening to colleagues—there is definitely more to learn than to share. In addition to affording me professional growth and advancement, this industry has offered personal growth. I entered it at a young age and was often referred to as “the baby.” I was introduced to the woman who is now my wife on a business trip tied to this industry. I’ve also had the good fortune to diversify into related businesses and projects. As I continue my journey, I make a point to remember that operating in real estate means that I am working with one of the few tangible investment opportunities that everyone shares a common interest in. And there is opportunity for all of us.

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Valuation Options for Lending

As an alternative to traditional appraisals, faster and cheaper valuation options are available to keep your pipeline flowing and your confidence high. In this day in age, where time is of the essence and deals can be completed in a matter of days rather than weeks, there is still one part of the process that can hit a snag rather frequently: Full appraisals can take time and are expensive. However, there are ways to obtain an accurate valuation in a timely manner, without having to break the bank. Hybrid appraisals and evaluations open an opportunity to give your business an edge. They enable you to obtain a valuation quickly to assess risk and to proceed without having to wait a week or more. In addition, many companies allow custom options that allow you to request the kind of information most important to you when assessing risk. Evaluations Evaluations are the fastest and cheapest option in many cases. These can be completed by in-office experts in various companies or local market experts such as real estate agents. They are typically supported by robust data sets and put through rigorous quality control practices. The process can be bifurcated, leveraging a third-party inspection from an inspector, real estate agent or tenant/borrower. The valuations specialist will perform the valuation component and provide a value based on their comparable analysis and the inspection. The advantage of an evaluation is that you do not have to sacrifice valuation accuracy for the time and cost savings. Companies today are using many tools that empower valuations experts to perform consistently accurate valuations. If you have any apprehension about using evaluations, test these products against your appraisals and see if you are getting similar or better results. Dodd-Frank recognizes evaluations as a credible valuation source for transactions below $400,000. There is no transaction limit for any portfolio lending or nonlending transactions. Hybrid Appraisals Hybrid appraisals are another way to reduce cost and timelines and obtain an accurate valuation. This product still leverages the expertise of an appraiser, while obtaining the inspection from another party—either a local inspector, real estate agent or borrower/tenant. The appraiser reviews the inspection and performs the comparative analysis to provide a value. Timelines on hybrid appraisals typically are much shorter than traditional appraisals. They typically cost less as well. If your investor requires an appraisal, this may be a good step in the direction of using alternative products in many situations. When to Use Alternatives Leveraging alternative products is not always the way to go. For complex properties, it makes sense to order an appraisal and have an appraiser perform the inspection. Alternative products should be used in data rich areas where risk is lower than it would be in a more complex scenario. Appraisals may be necessary if you need more information about the asset, such as obtaining a full sketch. However, if the property is in a data-rich market and you have an acceptable amount of knowledge about the asset, then an alternative product could be much more reasonable. Understanding the applicable uses for each product will help determine what should be used and when. In addition to using an alternative valuation as the primary product for the transaction, it is also becoming more popular to introduce different types of alternative products throughout the process for due diligence or initial risk analysis. You may need to learn more before deciding to lend on a particular property. Leveraging an alternative valuation at the beginning of your process may be a low-cost way to eliminate deals that exceed your risk tolerance. Alternative valuations are used commonly as the first sniff test on many transactions, especially in the fix-and-flip space. Getting an initial review of the package from a valuation standpoint can help determine whether a deal is worth pursuing, given the kind of lending you want to perform. Allowing for that kind of early quality check allows your pipeline to flow more quickly and prevents wasted time and effort on deals you may not want to pursue. When it comes to investing, risk is everything. That is why choosing the right product that adequately assesses the risk is paramount. That doesn’t mean an appraisal is always necessary—or even the best product to use. In addition, COVID-19 has created the need for changes throughout the valuation process. Those changes have created opportunities as well as challenges. Many providers now allow the option of having a borrower/tenant perform the inspection. When cooperative parties are involved, that can expedite the inspection process exponentially. Then, leveraging that inspection, you can combine it with several valuation products that are appropriate for the type of asset you are dealing with. These tenant-performed inspections typically leverage a web-based application or an app that can be downloaded that will walk the tenant/borrower through a basic inspection process. Many apps will capture the location of where the photos were taken for confirmation. Knowing when and where the photos were taken provides yet another degree of confidence. These kinds of developments have been game-changers in the age of COVID-19, not only by reducing timelines but also by increasing safety for occupants. When it comes to lending in the current landscape, creativity is necessary for differentiation, competitive advantage and customer service. There are many creative products in the marketplace. Consider testing them out and seeing how they can benefit you, your processes and your customers. Your competition will wonder how you got across the finish line so much faster.

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Real Estate Investing Outlook

What’s the industry look like for the fourth quarter of 2020 and beyond? Heading into the fourth quarter of 2020 is the perfect time to evaluate what impact, if any, the pandemic has had on the real estate industry as well as predict what investors should be prepared for as this tumultuous year comes to a close. Is the Housing Market Recovering? Let’s get right to the question that so many in the real estate professionals are wondering about: Has the housing market recovered from the coronavirus? According to Realtor.com, “the Realtor.com Housing Market Recovery Index reached 103.7 nationwide for the week ending July 25, posting a 2.7 point increase over last week and bringing the index 3.7 points above the pre-COVID baseline.” So, in short, yes. Real estate activity in the U.S. has increased throughout the summer, with buyers and sellers hitting their stride in July and August as they began to recover from any disruptions the pandemic caused earlier in the year. In fact, growth in sales, demand and prices have moved well above 2019 levels. Buyers are now ready to take advantage of historically low mortgage rates, which in turn has given sellers confidence to list again, usually at record prices, due to the lack of supply that existed long before the pandemic. According to an Auction.com analysis of weekly MLS data conducted in early August, “home prices have increased an average of 3% compared to a year ago in the nine weeks since the pandemic and national emergency declarations.” Although home prices may have dipped in late April, they quickly rebounded, with no long-lasting harm done. Across the board, key housing indicators are showing that the market has recovered and will continue on a positive trend. However, real estate professionals should keep a close eye on the market heading into the fall as a looming second wave of COVID-19 could easily affect this rebound. This remains the biggest concern when predicting what the end of 2020 and first quarter 2021 will look like. Will Supply Rebound? Although sellers are reentering the market, they are doing so cautiously, and their comeback has not created a significant increase in housing supply. A Realtor.com national housing report from July showed that “national inventory declined by 32.6% year-over-year, and inventory in large markets decreased by 34.8%.” As there was already a shortage pre-COVID, it is not surprising that supply has not rebounded; however, this continued lack of housing only exacerbates investor concerns over overinflated housing prices and lack of affordability in the market. Although some investors have forged ahead despite market challenges, with some buying up more properties than ever before, many are waiting. The biggest question mark right now is whether an abundance of distressed inventory will flood the market once federal forbearance programs and foreclosure moratoriums end and give investors a larger buying opportunity. Many experts believe this will absolutely be the case. In a U.S. Foreclosure Market Report that ATTOM Data Solutions released in July, Rick Sharga, ATTOM’s executive vice president, said, “It’s inevitable that there will be a significant increase in foreclosures once these moratoria have expired, although it’s unlikely that we’ll see default rates reach the levels we saw during the Great Recession.” Sharga attributes this to the fact that current and projected market factors, including record levels of homeowner equity and high demand, will make it easier for distressed owners to sell their property as opposed to losing it in foreclosure. So, while it may not be a question of if an increase in inventory will happen, investors are still left wondering exactly when it will happen. How Will Commercial Real Estate Fare? One area of the market hit particularly hard by the pandemic is commercial real estate. Investors retreated from this space around mid-March and have yet to return. According to data from CoStar Group, a commercial real estate analytics group, “transaction volumes for commercial property remain severely depressed and changes in pricing are moving slower than expected” with a predicted 65% to 70% decline year-over-year. The biggest obstacle that seems to be standing in the way of a commercial real estate rebound is differing opinions on prices between buyers and sellers. Commercial real estate price growth, particularly in retail and multifamily, was already showing signs of deceleration before the pandemic. With the coronavirus hitting retail extremely hard, it remains the most susceptible to further declines in prices. Multifamily is also at risk due to uncertainty as to how it will fare once government assistance for renters runs out. At this point, investors continue to take a wait-and-see approach, causing the general outlook for commercial real estate to remain much less optimistic than other parts of the market. Predictions for 2021 Much uncertainty still exists about the coronavirus pandemic and how it will continue to affect the U.S. housing market. But that has not stopped experts from weighing in on what 2021 will look like. Many economists believe 2021 will be the year we finally see a drop in home prices, mainly because the federal government lacks a long-term plan to extend many of the policies that were implemented in 2020 to keep the housing market afloat. However, these predictions continue to trend in a more positive direction as we get further into 2020. The initial doom-and-gloom that was forecast continues to lift. For example, Corelogic’s Home Price insights Forecast from May predicted a “6.6% year-over-year home price decline through May 2021.” Just a month later, Corelogic revised its forecast, predicting only a 1% year-over-year decline in home prices through June 2021, with 33 states showing decreases. Many economists remain optimistic, predicting that if the market experiences overall declines in housing prices at the beginning of 2021, by the end of next year, it will rebound and experience strong year-over-year growth. At this point, only time will tell. But one thing is certain: The U.S. housing market is resilient and should continue to hold strong despite the challenges and remaining impacts of

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Mortgage Forbearance: A Sign of the Times?

Why the COVID-19 pandemic might not lead to a wave of foreclosures The U.S. economy dropped by almost 32% in the second quarter of 2020, leading 55 million Americans to file for unemployment. Under normal circumstances, the disastrous economic consequences of the COVID-19 pandemic would lead to a massive wave of foreclosures. But if anything is true of 2020, it’s this: The phrase “under normal circumstances” simply doesn’t apply. Historically, there’s been an unfailingly strong correlation between unemployment and foreclosures: Job loss results in income loss, which results in mortgage delinquencies, which lead to defaults and, ultimately, to foreclosures. So, it’s not surprising that many people may be expecting to see foreclosure activity reach, or possibly even surpass, the record levels seen during the Great Recession. But this recession is different from prior recessions, and there’s strong evidence suggesting the resulting level of foreclosure activity may be quite different as well. Unemployment and Default The COVID-19 recession is unlike almost any other recession in recent history. It stopped a strong economy in its tracks. Unemployment rates went from 50-year lows to record highs virtually overnight, not because of weakness in the economy, but because the government essentially shut the economy down in an effort to limit the spread of the coronavirus. Like the cause of the recession itself, unemployment trends are far different than usual. This time, certain industries were hit much harder than others (e.g., travel and tourism, hospitality, retail, restaurants and personal services). These industries are made up of relatively low-earning, hourly wage employees who tend to be renters, not homeowners. Homeownership rates are lower for young adults, adults without a college education and households earning less than the median income—all fairly typical traits of employees within the most affected industries. What this means is that homeowners and the pool of potential homeowners are less likely to be unemployed than renters, unless the recession is longer and more severe than expected. Second, many of the jobless claims made this year were filed as “temporary” job loss. This is a huge distinction compared to prior recessions, where virtually every job loss was permanent. More than 20 million jobs were lost in the first few months of the pandemic, but over half of those jobs have already been reinstated. Unemployment claims, while still very high, appear to have peaked. Continuing claims have fallen off significantly, and job growth has been stronger and faster than most economists had predicted. Unlike a more typical recession, it’s likely that many workers will be back at work sooner rather than later. Mortgage Forbearance: A Sign of the Times? Is mortgage forbearance a sign of a massive future wave of foreclosures? The CARES Act provided a safety net for homeowners whose income had been impacted by COVID-10. The law called for lenders to provide forbearance—deferral of loan payments—for up to 180 days, with an option for another 180, if needed. By mid-June, the percentage of homeowners in forbearance had swelled to 8.55%, or almost 4.3 million borrowers. A look inside the numbers tells a slightly less desperate story, however. First, the number of borrowers in the program peaked at 8.55%. That number has been coming down steadily over the past few months. The Mortgage Bankers Association (MBA) recently reported that the percentage of borrowers in the program stood at 7.02%. Second, the number of borrowers entering the program has gone down on a weekly basis since the end of March, just before April mortgage payments came due. Instead of seeing a similar spike in forbearance applications at the end of each subsequent month, entrance into the program has steadily declined every week. Still, 3 or 4 million people asking for forbearance is a large number. Isn’t it reasonable to assume that many, perhaps most, of them will simply default at the end of the forbearance period? Again, the MBA numbers suggest not. As borrowers have exited the forbearance program, fewer than 8% have gone delinquent on their loans. According to a study conducted by LendingTree, some 70% of the borrowers in the program didn’t necessarily need to be in forbearance, but had opted in to hedge their bets, just in case they did fall on hard times economically. And interestingly, 24% of borrowers in forbearance have made on-time, monthly mortgage payments while in the program. Finally, the nature of the repayment plans for borrowers in the forbearance program are designed to minimize default. For all government-backed loans, the deferred payments are simply tacked on to the end of the mortgage. They are due when the loan is paid in full, refinanced or the property is sold. Borrowers won’t have to go to extreme measures to “catch up” on payments when they exit the forbearance period. Market Dynamics Favor Distressed Sellers First, let’s be clear: there will definitely be an increase in foreclosure activity. To suggest otherwise would be irresponsible and a bit foolish. The question isn’t whether default rates will rise, but how much. It seems unlikely we’ll see as much default activity as we did in 2008, but we’ll absolutely see more delinquencies and foreclosures than what we’ve seen the past few years. Not all homeowners will escape from an economic downturn as severe as this one. But homeowners entered the pandemic with a record level of equity—over $6.5 trillion. ATTOM Data reports that over 70% of homeowners have more than 20% equity in their homes. Equity gives borrowers options that help them avoid foreclosures. Historically, more distressed properties are resolved through a traditional sale than via foreclosure, and it’s likely this is what will happen again post-COVID-19. Current conditions in the housing market—extremely limited supply of homes for sale combined with strong demand fueled by historically low mortgage rates—definitely favor this sort of disposition strategy for distressed sellers. Another factor weighing against a huge influx of foreclosures is that loan quality today is far superior to loans on the books during the Great Recession. Before the pandemic, both delinquency rates and default

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Should You Invest in Single-Family Rentals in 2020?

As Americans consider the need for more space, demand for single-family rentals will likely remain strong. Real estate investing requires capital, patience and discipline. It is a sound way to build wealth, but it is not for the faint of heart. Capital Capital is needed both to make the initial investment in a single-family property and to maintain it.  Are you planning to purchase a property outright or to finance it? Will you pay the taxes and insurance on your own, or will it be included in your monthly mortgage payment? The upfront investment required to purchase a single-family home can be significant, despite the infomercials and seminars that claim otherwise. Patience Patience is a must when investing in single-family rentals. Selecting a property, vetting it, screening tenants and engaging the vendors needed to manage the property requires time and careful analysis. Will you be the landlord, or will you engage a property manager to collect rents, field inquiries and so on? Who will maintain the property? Even if you are “handy,” you will need licensed contractors (e.g., plumber, electrician, and a handyman) to address issues that arise with the home. Having a team of trusted partners to manage your rental is essential to ensure positive cash flow. Discipline Discipline is necessary in all investing, but it is paramount when you invest in real estate. With the current strong and appreciating real estate market, will you be tempted to sell if your property appreciates significantly in a short period? Be clear about your investment timeline. Buy and hold in order to realize gains over a period of time. Despite what you hear, real estate is generally not a volatile market. Housing is a sound investment when expectations are realistic. If you cannot afford to have funds tied up in an illiquid asset for several years, real estate is not for you. Owners of single-family rentals need to be disciplined about maintenance too. The last thing any neighbor wants is to live next to a rental property that is not well-kept. If you purchase a property with a yard and landscaping, pay professionals to maintain it. Do not expect your tenants to do so. Know the age of the plumbing and HVAC systems and appliances. Be prepared to replace inefficient or mature systems. It’s always better to be aware of investments that are needed than to respond to an emergency about a mechanical failure. Reinvesting the funds you earn in this way requires discipline, but you are ensuring happier tenants and lower rental turnover rates, potential investment write offs for reinvestment and positive cash flow. If you decide to sell before the property is profitable, you will be able to declare reinvestments as a carry-over loss at sale. Driving Rental Demand Demand for single-family homes is very strong. According to the National Association of Realtors, sales of previously owned homes hit the highest rate since December 2006, surging nearly 25% in July. Nearly 31 million people—or 9.8% of the population—moved in 2019, according to the U.S. Census. In 2020, during the coronavirus pandemic, people have been leaving cities as they question whether it is necessary to reside in expensive metro areas such as New York and San Francisco. After being allowed to work remotely for the last several months, many employees are asking for permission to relocate out of state, seeking more space at a lower cost. Multigenerational households are becoming more common, as the U.S. population ages. As citizens reconsider their location, most do not initially purchase a home. Instead, they rent so they can acclimate to their new locale. Affordability and supply of single-family homes is a challenge for homebuyers. Many Americans chose to rent simply because homeownership is not within their reach, given current circumstances. With COVID-19’s economic impact, potential buyers who suffered unemployment will be on the sidelines for a while. In 2019, more than 45 million people resided in rented single-family homes, almost 40% of the population. As of March 2020, 215.23 million single-family units existed, compared to 38.58 million multifamily units, according to Statisica. Single-family housing units have steadily increased since the beginning of the 21st century and likely will continue to do so. Demand will continue to increase as households form, and as those who are aging downsize. Investing Potential Single-family rental properties are attractive for both income and appreciation potential. Individual investors should consider a rental property a long-term investment. Yes, there are fix-and-flippers who purchase and rehab a property, hopefully for a profit, within a short time. Single-family rentals, however, are retained as an asset, and the rents are used to maintain the property and pay the mortgage, if applicable. A real estate investor should choose a single-family rental property that has positive cash flow as well as potential for appreciation. Consider the following as well. Do you want to invest where you live, or in another market? Evaluate the current and future demand for a neighborhood and its appreciation potential. Suburbs with well-rated schools, low crime rates, access to amenities, transportation and short commute to commercial areas are important to consider. Once you have determined your location and property type, how do you plan to finance the property? Single-family rental investments allow investors to diversify their portfolios and mitigate risk, but the upfront cost can be substantial.  Rates are higher for investment properties than for a primary residence, but with interest rates at historic lows, it is an opportune time to consider adding a rental property to your investment portfolio. Financing for single-family rental is often done through private lenders. Borrowing can enhance your return on the rental property because you do not need to invest the entire purchase price of the property up front. If you can find a property that does not require significant work and can rent it above your mortgage to create positive cash flow, that’s a win-win. Returns on single-family rentals are similar to the stock market, but with significantly less volatility. The housing market

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