Home Flipping Dips Across U.S.

Raw Profits on Home Flips Jump to New High By ATTOM Staff ATTOM, a leading curator of real estate data nationwide for land and property data, released its second-quarter 2022 U.S. Home Flipping Report showing that 115,198 single-family houses and condominiums in the United States were flipped in the second quarter. Those transactions represented 8.2% of all home sales in the second quarter of 2022, or one in 12 transactions. The latest portion was down from 9.7%, or one in every 10 home sales, in the nation during the first quarter of 2022, but still up from 5.3%, or one in 19 sales, in the second quarter of last year. Despite the decline, the home-flipping rate during the second quarter of this year still stood at the third-highest level since 2000, below the high point registered in the first quarter of 2022. “The second quarter was another strong showing for fix-and-flip investors. The total number of properties flipped was the second-highest total we’ve recorded in the past 22 years, and the median sales price of a flipped property — $328,000 — was the highest ever,” said Rick Sharga, executive vice president of market intelligence for ATTOM. “The big question is whether the fix-and-flip market will begin to lose steam as overall home sales have declined dramatically over the past few months, and the cost of financing has virtually doubled over the past year.” Typical profit margins, meanwhile, rose during the second quarter of this year after six straight periods when they had fallen or virtually stayed the same. The typical gross-flipping profit of $73,700 in the second quarter of 2022 translated into a 29% return on investment compared to the original acquisition price. While that remained down from 33% a year earlier —w and far below the peak of 53.1% this century, which hit in 2016 — the latest margin was up from 25.8% in the first quarter of 2022. Profit margins improved in the second quarter of 2022 as median resale prices trends on flipped homes improved compared to what was happening when investors were buying homes. Specifically, in the second quarter of 2022, the typical resale price on flipped homes reached another all-time high of $328,000. That was up slightly from $327,000 in the first quarter of 2022 and 21.5% from $270,000 a year earlier. The quarterly gain, while tiny, was better than the 2% decline in prices that investors were seeing when they originally bought their properties. The price-change gap between buying and selling resulted in profit margins going up from the first to the second quarter of 2022. Home flipping rates drop in 80% of local markets Home flips as a portion of all home sales decreased from the first quarter of 2022 to the second quarter of 2022 in 161 of the 202 metropolitan statistical areas around the U.S. analyzed for this report (80%). Rates mostly were down by less than percentages points. Among those metros, the largest flipping rates during the second quarter of 2022 were in: »          Tucson, AZ (flips comprised 14.5% of all home sales) »          Phoenix, AZ (14.1%) »          Jacksonville, FL (13.8%) »          Atlanta, GA (13.6%) »          Gainesville, GA (13.5%) Aside from Tucson, Phoenix, Jacksonville and Atlanta, three other metro areas with a population of more than 1 million ranked in the top 10 for highest flipping rates in the second quarter. They were: »          Charlotte, NC (13.1%) »          Tampa, FL (12.2%) »          San Antonio, TX (11.9%) The smallest home-flipping rates among metro areas analyzed in the second quarter were in: »          Honolulu, HI (1.7%) »          Hilo, HI (3.1%) »          Wichita, KS (3.5%) »          Bremerton, WA (4%) »          Seattle, WA (4.3%) “Fix-and-flip activity is mirroring overall housing market trends, with much of the activity, and the highest returns largely coming from the West and Southeast,” Sharga noted. “In fact, even though the highest gross profits came from the most expensive states, 14 of the 18 states where flips accounted for a higher percentage of overall home sales than the national average were in the South, Southeast, and Western states.

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Breaking the Status Quo

From Dreams of Baseball to Leaving the Insurance Industry Better Than He Found It Shawn Woedl’s journey to becoming the President and CEO of National Real Estate Insurance Group (NREIG) has been guided by one saying by Rear Admiral Grace Hopper: “The most dangerous phrase in the language is, ‘We’ve always done it this way.’” Woedl took this same approach when entering the insurance industry many years ago. NREIG provides insurance solutions for nearly every type of investment property. The company had humble beginnings in an Ohio basement office in 2008. Woedl and Tim Norris, the founder of NREIG, had initially built the business by speaking at different Real Estate Investment Association (REIA) groups across Ohio. The company has grown to over 140,000 locations across all 50 states, with over 20,000 investors enrolled in their programs. Woedl’s “all or nothing” approach has helped him achieve great success in the insurance industry. Although, when he was young, he had his sights set elsewhere. Woedl spent his youth dedicated to baseball; it was all he ever thought he would do. He had huge dreams of making it to “the show,” but it wasn’t in the cards for him. As he put it, “I did things the hard way, but I’m better off for it.” While driving one night in high school, he was struck by a drunk driver who ran a red light. He sustained significant damage to his right shoulder, requiring surgery and extensive rehabilitation. Although he experienced constant pain in his shoulder, Woedl was committed to rebuilding his swing. He signed to play baseball at DePauw University, a Division III school in Greencastle, Indiana. “But like many other times in my life where I chose the hard way,” he joked, “I decided that having all of my college paid for was too easy, and I left DePauw.” After fumbling around for a few months, he enrolled at a junior college in an attempt to save his dream of making it to the major leagues. Unfortunately, he had missed too much time during rehab to catch up. It was time he came up with a plan B. Finding a new dream A few years later, after finishing a shift at JCPenney (one of three jobs at the time), he ran into an acquaintance at Best Buy loading several high-ticket electronics into his $100,000 SUV. “So, of course, I asked him what he was doing,” said Woedl. “We met up a couple of days later, and he explained that he owned a few insurance agencies and offered me a job.” The agencies were mainly comprised of home and auto accounts, an area Woedl had very little interest in, but commercial real estate immediately stuck out to him. The two started an independent agency focused primarily on large apartment complexes. With a $10,000 investment and a list of apartment owners and property management companies across the country, “I started smiling and dialing, and that was the beginning of my career,” said Woedl. “I’ll admit that in the beginning I was in it for the money,” said Woedl. “But that didn’t last long.” He recalled one of his first encounters with an investor who is still a client to this day: “He nearly got destroyed on a property claim because his insurance agent at the time did not explain to him the limitations of his coverage and how it would affect him following a loss. I watched as he only recovered about $28,000 from what should have been $250,000 because of all the things he got dinged for. He was under-insured, he had coinsurance, and his deductibles were too high. I thought to myself, ‘What the hell is going on?’ “ Woedl began having every new client send over their existing policy so he could do a line-by-line comparison. If the client’s needs were not being adequately addressed, Woedl would point out where he could set them up with better coverage. Though he spent three to four hours on each policy, reading these contracts is how Woedl taught himself about insurance policies and how to identify trap doors that could harm his clients. He strongly believed that the industry had to change. “The more I read into some of these insurance policies, the more disgusted I was at the state of affairs in the industry. I developed a passion for insurance that I never expected, and it set the stage for me to move into the insurance program space.” As time passed, Woedl gained traction in the insurance industry. Instead of just brokering one-off deals, he began building programs. “This was where the revelation really started to hit me, and I realized how impactful my profession could be. I learned how to build programs for the benefit of investor clients, and a whole world opened.” By this time, Woedl had joined up with Tim Norris, the founder of NREIG, who had also discovered this real estate investor niche in the market. The two realized that many insurance carriers were hesitant to work with investor clients for two main reasons. “Insurance is a transfer of risk. Insurance companies are trying to minimize risk. And as for investors, there is plenty of risk to account for,” Woedl explained. For example, a tenant is more likely to burn down a rental property than the owner. A vacant building is more likely to be vandalized than one that is occupied. And a property under construction is more likely to have accidents. The second major factor — a lot of time for little money. “Here’s how it works. Investors will buy a property that is occupied. Two months later, the tenant will move out, and the investor needs to renovate it. And that means a policy will have to be canceled and replaced by a whole new policy, which brings a slew of paperwork for little money,” explained Woedl. He recognized that an investor’s insurance needs are just as unique and challenging as the properties they hold. It

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Business Analyst to Business Owner

Finding a New Passion and Success in Real Estate Adom Rosengarten enjoyed a lucrative career as a corporate executive in the world of finance before becoming a HomeVestors® of America, Inc. independent business owner in March 2018. Armed with an undergraduate degree in Math and Economics from the State University of New York–Geneseo in 1999, Rosengarten began his career working in consulting before attending the University of North Carolina–Chapel Hill where he earned his MBA in Finance. At UNC, he also met his future wife, Megan, who was studying Marketing. Upon graduation and after a one-year stint with IBM, Rosengarten’s corporate career began to accelerate. For twelve years, he worked at Standard & Poor Ratings (S&P) beginning as an analyst of financial institutions and later managing other analysts of the leisure and hospitality industries. Rosengarten then moved into the Public Finance Group division of S&P. While at S&P, Rosengarten was in a position, due to his access to insider information, where he was not allowed to actively invest in the stock market without a great deal of scrutiny. He and his wife were interested in increasing their passive income, so they decided to invest in real estate instead. The Beginning of a Career in Real Estate They bought their first investment property in 2009, one they still own and collect rent on today. Due to this initial success, Rosengarten decided to buy more investment properties each time he received an annual bonus. Now, getting very serious about becoming an entrepreneur, Rosengarten began the research and due diligence on buying a franchise. According to Rosengarten, “I learned a lot about franchises during my time at S&P. Established franchises have the benefit of name recognition and solid procedures and systems already in place.” During his research he discovered HomeVestors. The Beginnings Rosengarten bought his HomeVestors franchise in March of 2018, attracted by, in part, the strong funding relationships available to assist with the buying and rehabbing of investment properties. His company, Hedgerow Properties LLC, focuses on the Lower Hudson Valley Region, which encompasses four counties in New York and two in Connecticut. The first year started off slowly but then the business began to grow significantly. He bought his first property against the advice of his Development Agent (DA) and lost money but learned from the experience. Rosengarten has benefitted from the HomeVestors system, his mentors, and his coaches — in his second year, 2019, he bought five times as many homes than he did in 2018. The Present Situation and Market Rosengarten experienced exponential growth in 2020 and 2021 and forecasts 2022 as being just as productive. In 2018 and 2019, Hedgerow Properties focused primarily on fix-and-flips. Today, the focus is on wholesaling and “wholetailing,” a mix of wholesale and retail. “The regulatory requirements in New York and Connecticut are complex and help to create some barriers to entry for competition,” explained Rosengarten. “Additionally, it takes a lot of capital to enter and be successful in these markets. However, it’s worth it to weather those challenges because you can make more money per deal.” Rosengarten currently has three employees — a coordinator, buyer and project manager. Says Rosengarten, “As the business has grown, having a strong team has been crucial to our success. I rely on my team, and I could not do business without them.” “You have the opportunity to be the light at the end of the tunnel for people in a dark part of their lives, or just ready to move on to a new beginning. It truly has been one of the most rewarding experiences of my life to be able to help with that transition.” 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 855-454-4518, email Sales@homevestorsfranchise.com or visit www.homevestorsfranchise.com. Each franchise office is independently owned and operated.

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Seven Rental Features to Reduce Vacancies

Create an Experience Your Tenants will Love By Kori Covrigaru Highlights •          SFR tenants stay over double the amount of time that multi-family renters stay. •          3D tours and digital leasing processes remove the friction of finding a new rental home. •          Properties with family-friendly features like good school districts and pet amenities have more appeal. Single-family rentals (SFR) have less turnover and more demand than multi-family homes. SFR tenants typically stay in their rental for 5-6 years instead of two years for the average multi-family tenant. But the key factor in ensuring tenants stay longer is creating an experience they love. In this round-up, we have discovered the top seven features SFR tenants want in their rental. 1. Add 3D Walking Tours According to Poplar, people prefer proactive listings that allow them to virtually tour your property. It takes a lot of time to schedule walkthroughs, travel to multiple properties, and make a decision. Being able to save time when searching for a home is important, so make it easy for prospective tenants to understand the layout and condition of your property without having to tour in person. 2. Pet-friendly Design Choices SFR renters are pet people, so make sure your rental is pet friendly. Allowing pets is not enough. You also need to ensure your home is ready for tenants with pets. They want fenced-in yards, custom pet nooks, and storage space for leashes, pet food, or litter boxes. 3. Include Parking Tenants do not want to have to deal with lugging groceries from three blocks away. Make sure you have parking options for tenants. This is usually easy enough in suburban environments, but some homes do not have driveways or garages. If that is the case, arrange a permanent spot for tenants nearby, so they do not need to worry about street sweeping day or an unexpected snowfall. 4. Invest in Great Schools When you are renting single-family homes, your tenant is likely a family. So, choose to expand your SFR portfolio into good school districts. This gives families who might not be able to buy into the school district a way to get their kids better educational opportunities. These tenants are extra motivated to find a home they can stay in long-term so their kids can stay within their school, so turnover will be fairly low. 5. Smart Home Automation Tenants want smart home automation for convenience and sustainability. They want to adjust their thermostat, get dishwasher status updates, and open the front door from their phone. Adding smart home automation like a Nest thermostat, smart appliances, and a keyless entry option are all big wins for tenants. 6. In-community Property Managers According to Jeff Pintar, President of Pintar Investment, single-family rental tenants stay for 5-6 years, on average. Pintar said, “Residents with a better experience want to stay longer.” He says that residents want a community, not just a house. So, hire a property manager who is active in the local community. They could be the coach of the youth baseball team or on the PTA. Pintar says, “The personal relationship is really powerful.” 7. Streamlined Leasing Process Develop an optimized leasing system that makes it easy for tenants to choose your property. The system should accommodate for quickly responding to inquiries, scheduling tours, and allowing them to sign the lease online. How can PlanOmatic help you create a positive tenant experience? Start your tenant-landlord relationship on the right foot with informative listings. PlanOmatic provides rental photography, 3D walkthrough tours, and floor plans all within one appointment. You get your assets within 48 hours, so you can market your vacancy fast. Find out how PlanOmatic can help you reduce your listing’s time on the market.

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A Q&A with Thomas Price

Deciphering the Complexities of Insurance for Investors, Lenders and Agents When real estate investors secure mortgages for a portfolio of properties, the complexity of their insurance needs may be more than they bargained for. In a changing real estate environment, it has become more challenging to anticipate and cover common risks. Their mortgage lenders, too, often need help untangling the nuances. What should both parties know? REI INK asked Thomas Price, President, Incenter Insurance Solutions, for his insights. Why has insurance coverage become such a complicated issue for real estate investors and lenders? When investors have a portfolio of income properties such as single-family and multifamily rentals, then they need commercial property insurance, which is inherently more complex than residential insurance for individual homeowners. This is due to the greater number of properties involved, their varying locations, and differing state and municipal regulations. Moreover, new risks such as floods, intense storms, supply chain interruptions, and a volatile economy can also make a larger impact, proportionately, on these commercial portfolios. It is not just real estate investors who need to navigate this maze. Their mortgage lenders and insurance agents are continually addressing the complexities, too, and every party has a different outlook and priorities. Could you explain this disparity? Real estate investors understand the importance of insurance, but they have operating margins to maintain. They may see insurance as a cost center that reduces their yields and need education on how a changing risk environment should be prompting a more careful look at their policies. Lenders’ focus, on the other hand, is on market value—both from the origination and trading sides. The amount they have available to lend—and the value that they need to protect—will vary with the direction of the real estate market. The ultimate ownership of these loans is another critical consideration for lenders. If they plan to raise cash by selling portfolios to the secondary market, then every property must have appropriate insurance. Otherwise, lenders could be in violation of their investor covenants, and the financial consequences could be devastating. Insurance agents bring a third perspective to the party—focusing on properties’ insured value, which could be affected by depreciation, geographical location, and a host of other variables. All these different worldviews need to be reconciled. How easy is it to do this? It can be very challenging, especially during periods of heightened investor activity. In February 2022, for example, 28% of all single-family home purchases were made by real estate investors. Lenders, wanting to streamline and speed these transactions, are hard pressed to keep up with the “usual” title, appraisal and related details. They are not insurance experts and may miss a nuance that they will have to deal with after the fact—when they are attempting to securitize and trade these assets. Investors and their insurance agents, too, will push ahead in a competitive marketplace with their own objectives front and center. Limited inventory and competition from new market players, such as Millennials who have turned into “laptop landlords” (Wall Street Journal), could propel investors to value speed and agility while skipping over some of the finer coverage details. It is important for all parties to step back and assess the new or heightened risks that could reduce their yields in this evolving world. As you are interviewing me, for example, I am reading about a major flood that we might not have fathomed just a few short years ago. Now everyone must anticipate these increasingly common scenarios. When a lender uncovers a potential insurance gap, and investors and their agents are alerted, getting all parties onto the same page can be painstaking—but it is worth it in the long run. What kinds of coverage should all parties be reviewing? They should be reviewing all property and casualty coverage to ensure that it is sufficiently comprehensive. There are three general categories:  »         Basic peril, which names exactly what a policy will cover, such as ice, tree damage, and theft. Perils that fall outside of this list will be excluded.  »         Broad peril, which covers a larger group of risks, such as accidental water damage or frozen pipes that burst.  »         Special “blanket” form insurance which accounts for an even broader list, but still excludes specific risks—ranging from war and terrorism to floods and named storms. Lenders tend to scrutinize this coverage and may want investors to supplement it with additional policies. What about valuing potential losses? What are the considerations here? This is where discussions can become especially complicated. To begin with, there are several values that may be more or less important to the parties involved, including:  »         Actual cash value, or what a property is currently worth.  »         Replacement cost to make a property equivalent to what it was before.  »         Market value, which is determined by an appraisal professional.  »         The loan value, or the mortgage that the investor received.  »         Insured value, or how much insurance the property owner has taken out. For example, some lenders might require that investors’ insurance only cover the value of their original loan. In other cases, they may want these investors to be covered for full replacement costs. These lender requirements can lead to issues that should also be addressed upfront. For instance, consider a lender that values properties for insurance purposes by their replacement costs. An investor borrows $450,000 from that lender for a single-family rental, which burns to the ground before it has been refurbished for tenants. Though they would like a $450,000 check from their insurance company, the actual replacement costs are $300,000, so reimbursement will be limited to that amount. To avoid—or at least anticipate—these situations, all parties should be reviewing the insurance on commercial portfolios every year. In today’s investment market, the benefit of protecting lenders’ and investors’ assets, even when potential risks materialize, is too promising to ignore. Thomas Price is President of Incenter Insurance Solutions. The organization’s Lender Insurance Services include real estate investment portfolio reviews of existing insurance, and

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Gainesville, Florida

This Hotbed of Growth Needs Real Estate Solutions By Carole VanSickle Ellis In June of this year, Gainesville, Florida’s home prices were on their way up, much as they have been for the last decade. However, this past June’s median sale price of $365,000 was a far cry from a decade earlier when median homes sales were less than one-third of today’s price tag. Alachua County, which contains the majority of the Gainesville metro area, has been a popular market for real estate investors for years due to the inherent benefits of investing in the southeastern United States, in general, and in the state of Florida, in particular. The combination of low cost-of-living expenses, no state income tax, low sales tax rates, and an extremely temperate climate have created a demand for Florida housing for decades. With the advent of the COVID-19 pandemic, housing demand skyrocketed. Even with many companies partially or entirely abandoning remote work practices in 2022 and calling employees back to offices in larger metro areas, that demand continues to create a white-hot market in central Florida as well as on the coastlines. Gainesville, with its central location (two hours of driving from Orlando and Jacksonville), the local presence of the University of Florida, and its position in the north central region of the Florida High Tech Corridor, is set to remain a market where housing demand is high and availability is scarce for the foreseeable future. “For every home based on a [given] price point, you will have possibly 10 buyers that want that home,” observed one local agent in May of this year. She noted that listings had plummeted to only about a fifth of the volume the area has seen in previous years. Although listing volumes have risen slightly since Spring 2022, rising interest rates will likely keep many buyers out of the market, keeping competition fierce even if the bidding wars involve three or five buyers instead of 10. Realtor.com analysts still rate the Gainesville market as a clear sellers’ market, noting that at the end of the summer, homes were on the market only 49 days. However, investors should note that homes are selling slightly below list price. In August, the median list price was $320,000, while median sales prices were just under $290,000. Given that the national median home price exceeded $440,000 midway through this year, however, demand in Gainesville is unlikely to ease to the point that prices will fall in the near future. A strong demand for housing from multiple, distinct populations of residents and ongoing scarcity issues have created an environment in Gainesville where fix-and-flip investors are thriving. While much of the rest of the country has posted falling returns for fix-and-flip deals, Gainesville flipping rates are still high. In fact, nearly one-sixth of all transactions are flips, according to ATTOM Data’s Q1 2022 “U.S. Home Flipping Report,” and cash buyers have a distinct advantage. “As interest rates continue to go up, cash buyers should be in an even greater position of competitive advantage in the fix-and-flip market,” wrote ATTOM Data executive vice president of market intelligence Rick Sharga. He added that investors with “larger, better capitalized” businesses could begin to increase their activities in the coming months. In the category of markets with a population of less than 1 million, only Durham, North Carolina, had higher flip rates than Gainesville. As of August 2022, available inventory was still falling, with 5.6% fewer homes for sale in the area than there were in July. While interest rates may be decreasing the volume of competition for properties, those still in the thick of things are highly competitive. A Prime Location for Education & Tech Gainesville is not necessarily the first market most investors might think of when they think of the sunny state of Florida. It is located in the northern, central part of Florida, without beach access (although Flagler Beach is about 90 minutes away, which places the city solidly in the “beach-proximal” category so important to many COVID-fueled moves), and about two hours from Disney World. However, Gainesville is home to the University of Florida and a clear landmark on the Florida High Tech Corridor, a 23-county region anchored by three of the largest research institutions in the country: the University of Central Florida (UCF), the University of South Florida (USF), and the University of Florida (UF). Of those three, Gainesville’s hometown university, the University of Florida, is ranked fifth on the U.S. News & World Report list of best public universities in the country, boasts an on-site student population of roughly 75,000, and is highly affordable. The Florida High-Tech Corridor was founded by the Florida legislature in 1996 as an economic development project intended to attract and retain technology companies. At that time, several companies in residence in the state were being actively courted by other states and even countries. The corridor was originally conceived as part of a larger plan to incentivize existing companies to reinvest in the area rather than relocate and to also bring in new tech companies from other areas. Gainesville’s University of Florida has served as a full partner and co-chair on the Florida High Tech Corridor Council since 2005. The institution also plays an active role in chairing and supporting the growth of related initiatives including grant-matching programs, STEM programs that connect students with experts in industry and help the state retain young, professional talent, and a variety of magnet programs in the Gainesville area centered around the life-sciences industry and artificial intelligence innovation. Gainesville has benefitted from the corridor and UF’s position as an anchor in its development both directly and indirectly. There are many nonprofits dedicated to innovation and business incubation now located in the Gainesville area, while the university itself prioritizes workforce development programs that create and sustain valuable jobs in sectors known for creating more employment and lasting opportunities. At time of writing, UF had recently made headlines for surpassing $1 billion in research spending

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