Month: October 2016

by Tim Herriage Tim Herriage 2 Comments

Landlords & Investors Win. Homeownership Tenure Up, Churn Down

A recent study from The National Association of Realtors found that homebuyers are staying in their homes twice as long as they were in 2006. home-tenure-1985-2006This may be great news for families, communities and landlords when it comes to mid-market steadily employed renters, but it’s a real downer for realtors in stable neighborhoods and markets and probably a negative for the American economy.
This is good for rental investors with existing rentals and bad for realtors and homebuyers who can no longer depend on inventory being created by move-up buyers. Homeowners are holding longer and maybe renovating to accommodate family expansion. This keeps desirable house inventory off the market, as these families are less likely to be in move-up or migration mode.
30 YEARS OF DATA
The NAR began these surveys in 1985 and “In 2006, we started asking first-time and repeat buyers how long they expected to remain in the home they just bought,” says a spokesperson for the NAR. “First-time buyers reported that their median expected tenure was just six years and nine years for repeat buyers, the lowest since we started collecting the data for both buyer types. For repeat buyers, that bumped up to 10 years in 2007, 12 years in 2009, and then up to 15 years in 2010 where it has remained steady for the past six years.
median-tenureFor first-time buyers, the median expected tenure in the home jumped to 10 years in 2008 where it has remained ever since. It is no surprise that repeat buyers expect to remain in their home longer than first-time buyers. It is interesting, however, to see that first-time buyers in 2006 expected to sell in just six years. Fast-forward a decade to 2015 and first-time buyers expect to sell in almost double the amount of time.”
PROPERTY LADDER OR CROWDED STEP STOOL?
The answer is first regulation has made the buying and borrowing process more harrowing for the everyday family. This has lowered housing expectations for many aspiring to climb the property ladder to a larger home. Families have also learned the disruption of a home sale, purchase and move to family lifestyle, schools, employment and community connection may not be worth it if the home structure can be expanded to meet growing needs, while not reaping them outsized sale profits.
The majority of renters still hold on to the American dream but with the current obstacles of tight household budgets, mortgage regulation, savings hurdles and stagnant wage growth as a result of a less than 2% GDP economic environment, their view of the property ladder looks like a step stool.
HOUSING IS AN ECONOMIC LOCOMOTIVE
Building new houses depends on commercial and construction loans. Existing sales depend on accessible mortgage credit.  Lending is currently shackled by banking rules resulting from boom-bust mentality of post Glass-Steagall deregulation which took down the wall between banking and brokerage. This moved banks from traditional depository and trust activity to a new bank model as a brokerage using loan origination, lending and asset spreads to become securities traders. It took less than a decade from Clinton 1999 to Bush 2008 for this legislated financial conflict to bite back. The core reasons for regulation may have been logical by the restrictive implementation has had negative effects on the economy, especially for the mid-market and affordable housing segments.
Americans have seen what happened and for the first time in living memory have become hesitant about housing. Now the notion of selling a house, moving up and taking a larger loan, betting that incomes would improve to meet future mortgage and credit obligations has been tempered. The “new normal” is the result.
INVESTORS WIN
Investing should always be about making the best of any situation and this has never been more true.  Patient cash flow investors are at a major advantage because the midmarket housing (80% of America) never loses its utility and value as a rental, simply by maintaining cash flow, taking advantage of buy-to-rent leverage and cautiously adding sound income rental properties when they come available. You may want to climb the property ladder and expand your portfolios. Take breathe and relax, time and demographics are on the side of the patient investor.
If you are looking for mid-market properties or a way to participate in this market directly or indirectly, 2020 REI Group can help. Go here…

by Tim Herriage Tim Herriage No Comments

Selling Your Flip? Listen to Prospective Buyer Feedback, But Acting Too Fast Can Cost Profits

side-17So you have completed the renovation. You are excited. The house (product) is genuinely impressive and well presented (presentation) you expect some retail buyer to snap it up as the price compares well with new properties in this neighborhood (price.)
It’s listed and on the market. You (or your agent) are ready to show…..but you are greeted by “crickets” or a few people that are nowhere near as excited to buy it as you are to sell it. The visitors over the first open house weekend give you lame feedback most of which is criticism about the price.
This is your first project and in the back of your mind you know the hard money clock is running. Should you drop the price and see if that stimulates more interest and excitement that will lead to a buyer? In a word, NO.
THE MAGIC OF SEVENTEENS
Tim Herriage, CEO of 2020 REI and veteran of over 1200 single-family home sales knows you cannot comprehend, process or react to prospective buyers impressions too quickly. “First, they have not qualified themselves as real buyers or even good critics,” says Herriage. “Second, as a seller you probably do not have enough time and/or feedback to make a decision about any price adjustment. We use a rule of 17 showings or 17 days before we consider modifying any of the 3P’s (product, pricing, or presentaion) on a property that is not leaping off the proverbial shelf.”
Seventeen days allows a property to be shown over the course of nearly three weeks and certainly two full weekends. “This amount of time is needed to validate buyer feedback (product, presentation and price.) Seventeen showings over a shorter period with a decent amount of meaningful feedback may make the seventeen days timeframe less critical. Expect a third of visitors to give you some sort of useful response. No more.
If there are no offers then and there is a distinct and unprompted response about pricing being too high (or other items that can be changed easily), after seventeen days a price reduction may now be justifiably considered, but not before. This discipline has helped us and our investors protect our margins.”
Getting Product, Presentation and Price balance right is key to maximizing flip profits.  2020 REI and Investable Realty can help you both understand and execute for better margins.

by Tim Herriage Tim Herriage No Comments

What Home Buyer Age Group is Most Likely to Buy Your Flip?

This is one of those questions that there could be any number of answers to this question depending on the house (product) location and configuration, presentation and price.  It also applies equally to the age of a renter most likely to rent from you, but also find it easier to move on based on mobility.
lifetime-housing-changesThere is some great data from the U. S. Census Bureau that lets you reverse into the answer.
This chart shows at what stage of life or age, people tend to become settled in their homes, location, jobs, and life style and therefore are less likely to be seeking new jobs, growing out of a home and therefore less likely to be searching for a new home.
Between birth and 20 years of age, it is possible to move 8 to 10 times due to the needs of parents. Between 20 and 40 the number of moves drops to between 8 and 3 moves, then after 50 the likelihood of a change of address drops to two moves or less till end of life.
BUYER (OR RENTER) SWEET SPOT 
Clearly a family with children is a marker indicating a higher likelihood to be on the hunt for a new home. The age of parents, and the moving frequency appears to relate to a family ability to bear children, but once satisfied with a location fitting their family (family friendly location, schools, activities, culture and reasonable commutes) they are less likely to move.
“NEAR-BURB” AS LOCATION SWEET SPOT
A “near-burb” (as opposed to far-burb) suburban location makes most sense, especially as diehard urban Millenials, have decided near-burbs allow them to balance their perceived as desirable and but required practical lifestyles. Add children to the household and suburban budgets beat urban boogie.
Investable Realty has both active seller and buyer lists, as well as representing homes that may suit and investor wishing to flip retail or hold rentals. Go here.

by Tim Herriage Tim Herriage No Comments

Problem Investment? Investment Expert Sells in 14 Days at 97.5% of Asking Price

Selling a Disjointed Portfolio for More Than The Sum of the Parts  – In 2007 an investor who understood his California dollars went further with Texas income real estate, built a small portfolio investing in duplexes in the City of Arlington, near Dallas/Ft Worth.
house-in-handIn 2016 these generated solid positive cash flow but now the investor wanted to move into a larger opportunity. The problem was the investor owned two duplexes outright and three halves of three other duplexes. Each unit or half duplex was titled separately. Explaining this arrangement to the average investor buyer created more questions than answers. The investor’s insurance agent knew of his customers plight and need to sell and shared this with Terry Beck, a Realtor at Investable Realty.
Investment Expert Insight!
Beck looked at this and his first question turned out to be the answer. “Have you talked to any of the other half duplex unit owners? What is their interest in expanding their rentals?” Beck (and the Investable Realty team) had a buyer who would buy the two duplexes but not the duplex halves.
Unsurprisingly when approached all of the other half unit owners responded. They were interested in any changes that could effect their half of the duplex. One of the three responded more positively by saying they specialized in Arlington duplexes and were interested in buying more and was prepared to buy every duplex on offer. This new offer was better, more convenient and faster to close than the offer to buy the two whole duplexes.
14 Days to Close at 97.5% of Asking Price
The rest is predictable, as Beck packaged the deal for the investor buyer, the parties agreed and the seller moved to the next opportunity quickly and profitably. The transaction closed at 97.3% of the $700K asking price and closed in 14 days after Beck go involved.
If you are frustrated with the time it is taking to find and buy, or sell investment properties, especially complex deals needing an innovative investment sales expert, call Investable Realty as Terry and the team may have a solution for you. Go here…..
 
 

by Tim Herriage Tim Herriage No Comments

Is Financing Investors a $3 Billion Dollar Business? At Least! (Part 12.)

This discussion (Part 12. of our discussion on quantifying the economic impact of the investor business,) has found and correlated the many data sources that prove the real estate investment business is a vast, dynamic and growing business that has been in existence since people needed homes and other people had money to invest in housing them. It is larger than most of us understand and financing is what makes much of it work.
Look for this comprehensive NATIONAL ECONOMIC IMPACT OF SINGLE FAMILY REAL ESTATE INVESTORS Report to become available by October 30th 2016. Contact Tim@REI2020.com to get your copyFINANCING SINGLE-FAMILY INVESTMENT CATEGORIES
There are a number of single-family investment activities where financing is needed to make the process work. The investor can always buy for cash, or use a combination of cash and financing. Financing allows leverage for better cash on cash returns as well as expanding the investment capacity of the investing entity.  Financing may be needed when:

  • Purchasing investment property
  • For renovation to prepare for sale (fix & flip)
  • To renovate to hold and rent, or
  • To refinance an exiting property or portfolio to expand an investment business.

FINANCING AVAILABLE TO ENTREPRENEURS & INVESTORS
Conventional bank loans are not typically available to real estate investors. Banks tend not to lend to an entrepreneurial investor or entity unless they fall into a category the bank finds attractive, like a large balance and long-term client or a commercial entity that has a proven track record with this particular class or investment. This emphasizes the necessity to think of real estate investment as more about this being a business rather than real estate.
In 2015 about 1,090,000 were sold to real estate investors (individuals, small-, mid- and large-cap entities.) In 2015 RealtyTrac (a division of Attom Data Solutions,) analyzed recorded sale data and found 179,778 were flips that were sold within 12 months of purchase date, concluding these were the product of an investor fix & flip activity.  This is 5.5% of the total home resale market.
FIX & FLIP LENDING
Looking at more recent but similar data for Q’2 2016 RealtyTrac found more than 51,000 single-family homes and condos making this the highest number of flips in a three month period since 2010. In this sample RealtyTrac also found that 32% of investors engaged in flipping used short-term financing again exceeding the last record set in Q3 of 2008. These 51,000 or so flips were completed by a nine-year high of nearly 40,000 investment entities.
To translate this back to short-term financing we use previous data about the fix & flip market.
In 2015 179,778 houses were flips, the category spread, following rules of thumb that use 2016 RealtyTrac findings and typical margin rules,

Renovation Class Market % Houses Est. $ Value X 32% of F&F Financed @ 65% LTV
$1million +       10% 18,000 $1.8 billion $600 million $390 million
$500K to $ 1 M 15% 27,000 $13.5 billion $4.3 billion $2.8 billion
$100K to $500K (av. =$223K) 60% 108,000 $24.1 billion $7.1 billion $5.5 billion
<$100K (av. =$75K) 15% 27,000 $2.0 billion $648 million $421 million

Based on 32% financed at 65% Loan to value)
– 5,760 Luxury flips needed some $390 billion in short-term loans
– 8,640 high mid market flips needed $2.8 billion in short-term financing
– 34,560 median market flips, needed about $5.5B in financing
– 8,640 affordable flips required $421million in financing.
Following these assumptions fix and flip activity required $9.1 billion in short term or mezzanine financing that is most likely provided by local lenders. These may be private money loans generating around 10% per annum with or without special fees. Hard money lenders also provide short term funding with added fees at an average of around 14%. In any market there are a number of other entities and institutions that are structured to provide funding for real estate investment businesses.
Using simple math, this $9.1 billion in financing at an annualized 10% generates about a billion in interest and fees, and this is just for the fix and flip aspect of the market. It is most likely more than this as the lender want more than one turn a year out of their money.
RENTAL INVESTOR LENDING
The rental investor market is five times the size for both the short-term renovation in preparation of placing in this property as a rental or selling to another investor as a rental.
Purchase Renovation: The fees generated by short-term loans for this activity are not all a simple addition to the fees generated by the fix and flip business. We suspect many of the fix and flip loans may cross categories but clearly safe to assume that at least double the funding is needed for rental renovations that generate interest and fees to the lenders that represent at least another $2 billion in economic.
Rental Refinance: This class of financing has become visible in the last three years as a number of institutions have come to understand the low risk of lending to well managed, cash-flow positive rentals secured by title to the properties. The fees generated by these loans to this potential base of 8 to 10 million investors (serious individuals and investment businesses) owning some $26 million doors valued at around $6 trillion dollars.
Major Wall Street investment funds realize this is an untapped market and are processing hundreds of millions of dollars applications for the early adopters among the investment community. Once the market gets comfortable with this class of asset, asset performance, class of loan, lender and borrower, this market will become one of the high points of the financing industry as a single-family rental are generally accepted as a business asset.
Until this occurs it is safe to assume the investor financing industry is generating at least $3 billion a year and interest and fees for small to medium lenders and individuals willing to make private loans. If you are in need of investor financing from a fix & flip to rental property/portfolio refinance 2020 REI company 3L Finance can help. 

by Tim Herriage Tim Herriage No Comments

Flipping Profits Are Up – Are you getting yours?

flipp
As resale house inventory becomes tighter, smart flippers are making more money. Are you among these? “Home flippers are realizing a much bigger gross ROI in 2016, averaging 49% in the first two quarters,” says Daren Blomquist, ATTOM Data Solutions SVP. (Average 2006 gross ROI was 27%.) “An increasing number of flippers are financing their purchases, more than two-thirds still use cash compared to about one-third using cash to purchase back in 2006.”
FLIP STEADY
Attom Data Solutions, the new corporate parent name for RealtyTrac, reports that there are more flippers participating in the market in Q’2 2016. “The total number of investors that completed at least one home flip increased to 39,775, the highest number of home flippers since 2007,” says Blomquist.
Because RealtyTrac has been a consistent source of data we have this to help scope the size of the fix and flip and F&F finance market.
Look for this comprehensive NATIONAL ECONOMIC IMPACT OF SINGLE FAMILY REAL ESTATE INVESTORS Report to become available by October 30th 2016. Contact Tim@REI2020.com to get your copy
RealtyTrac reports that home flipping sales increased to 51,434 single-family homes and condos in Q’2 adding 14% over the Q’1 run rate of 44,234 homes sold. Averaging these two number is predicts the fix and flip sales run rate for 2016 to be at 191,000, or 1% ahead of 2015.
Homes flipped in the second quarter made up 5.5% of total home sales. This is down from 6.7% of total home sales last quarter, but up from 5.4% in the second quarter of 2015.
SHOULD INVESTORS BE CONCERNED?
“Home flipping is becoming more accessible …. with more loan options for real estate investors, who are also benefitting from the historically low mortgage interest rates,” said Blomquist.
“We’re starting to see home flipping hit some milestones not seen since prior to the financial crisis, which is somewhat concerning, but there are a couple of important differences in the home flipping of 2016 compared to 2006 when home flipping peaked during the last housing boom,” Blomquist said. In Q’2 2016 investors using cash decreased to 68.3%, down from 71.1% last quarter and 69.6% last year. This marks the lowest level of those using cash for their investment since 2008 and is probably a result of growing investor sophistication, more entrepreneurial loans and the desire to use leverage to get better returns.
If you are in need of a fix & flip loan, 3L Finance can help. Go here.
*(The industry defines flips as a property that is sold in an arms-length sale twice in a 12-month period based on publicly recorded sales and deed data. Attom collects data from the 950 (of 3200) most populous counties where 80% of the U.S. population lives.)

by Tim Herriage Tim Herriage 2 Comments

Opportunity Passing You By? Don't let Occupied or Slow Moving Rental Sale Slow You Down?

Here is another case of an real estate sales expert quickly helping an investor unlock value and liquidity for existing, occupied rental properties in need of some maintenance, so this investor could take take advantage of a new opportunity.
RELATIONSHIPS
An agent at Investable Realty was talking to a traditional broker who had a client with about 120 affordable rentals, a number of which were rented under housing assistance programs. The owner wanted to sell some of these to take advantage of a commercial opportunity, but these properties were occupied, under-rented and in need of some maintenance. Combined or individually, these conditions discouraged a quick sale. What was needed was an experience investor agent understood the path to a solution.
PRACTICAL SELLER
The seller understood that in order to maximize property resale value, these properties required renovation which was only really possible when the rental became vacant. This meant waiting for leases to expire or evicting tenants and then investing in renovation of the vacant non-cash flowing property. To do this meant delay making a quick sale illusory not to mention lost rental cash flow.
MAKING THE NUMBERS & THE DEAL WORK
Eric Luneborg at Investable Realty has the investment property experience that enabled IR to offer a better solution to the seller by proposing a bulk sale to a single portfolio investor. This involved a discount from after-repaired-value, but eliminated any waiting for vacancies and little to no investment in renovation by the seller. This path could mean the best of both worlds by maximizing value and accelerating time to money.
Lundborg and the IR team analyzed the portfolio by property to arrive at viable cap rate for a buyer that presented an accelerated sale for the owner who quickly approved the plan. The agent quickly found a buyer and completed the transaction that yielded the seller about 90% ARV for all the properties in a single transaction that allowed them to take advantage of their next opportunity.
The new buyer and investor assumed the existing leases, the government assistance responsibilities associated with this million-dollar transaction and captured an immediate 10% to 12% net equity. The lease assumption allowed renovations to occur on the natural vacancy cycle and on the new buyer’s terms. These renovations, now done at the buyer’s discretion, allowed renting to the next tenant at better market rates therefore improving long term portfolio performance.
Testimony to the seller’s satisfaction is the fact they have brought another 40 properties to Investable Realty to present to investors in a desirable rental market.
GO FOR YOUR GOAL
When you buy and sell investment property, investment expert realtors and brokers matter.  If you need to sell quickly, have a tenanted or slow selling investment property (or properties,) expertise in packaging, buying for, and selling to investors is required. Investable Realty is proving to be expert at this.  Can Investable Realty help you? For more information or contact Eric at eric@investablerealty.com – 214-335-1889