Month: November 2016

by Tim Herriage Tim Herriage No Comments

Is November 2016 Really a Month of Surprises?

First the result of the presidential election has been greeted with shock by parts of society that was told this was impossible. Anyone living outside “the insider bubble” could see this election was going to be more about rebalancing American domestic priorities and not taking a back seat to globalist goals than politics and personalities.  All traditional bets were off.
foreclosure-stepsSecond, the ATTOM Data Solutions October 2016 Foreclosure Market Report (reported in November) saw a surprising 30% jump in month-over-month foreclosure RELATED activity. The report totals 105,481 foreclosure filings, default notices, scheduled auctions or bank repossessions.
MAYBE NOT
It is important to understand the different steps a homeowner/house takes in the process to becoming a foreclosure. Not all homeowners going delinquent progress to the point of receiving a “notice of intent to foreclose.” Some fix the issue by bringing payments current after receiving a delinquency notice. Similarly not all notices of intent to file become foreclosures as many homeowners also remedy this or arrange a short sale of their property and thereby avoid foreclosure proceedings. The transaction composition of this 105,481 is relevant to forecasting real foreclosures.
NATURAL FORECLOSURE INVENTORY
As long as property records have been kept and traditional underwriting and mortgage practices followed, about one percent of total housing inventory has flirted with foreclosure actions in the course of a year. Far fewer are repossessed and sold “on the courthouse steps” or in other lender disposition processes. The housing bubble changed these ratios. It is generally accepted that lax underwriting and lending standards leading up to 2007 allowed many financially fragile borrowers to get into long term loan commitments they were unable to keep. Delinquencies and foreclosures spiked as these loans went bad. That era is mostly behind us as we have reverted to tighter lending standards although a number of low down payment FHA and VA loans are becoming problems. Expect foreclosure rates to revert to the norm of about 1% of total inventory per year so offering a buying opportunity for investors.  Investable Realty is working with Auction.com to teach serious investors how to buy at auction. Or sign up for our newsletter to find out about future dates. For more……..

by Tim Herriage Tim Herriage No Comments

Are You a Big Deal? – You May Be A More Important Real Estate Investor Than You Think.

SMALL IS BIG – INVESTORS OWNING 1 TO 5 PROPERTY DOMINATE
If you own one investment property you are an significant investor and contributor to the American economy. The engaged (as opposed to “aspiring,”) real estate investor population is estimated to be at 11.1 million individuals and companies.  Together this tier of investors owns $3.1 trillion in SFR asset value representing 13.3 million homes. If you own more than six SFR properties you are in the top 19% of real estate investors meaning 81% of investors own fewer than 6 properties and are an incredibly meaningful factor to American life.
If you own more than 100 SFR properties you are in the top 2.45% of investors. What is probably more astounding is that for all the noise generated by the Wall Street buying activity, they only own and manage just over 1% of SFR investment properties.
sfr-i-market-segments

The 2020 REI Companies is part of forthcoming The Iceberg Report that surveys and discusses investor behavior, acquisition style, goods and services preferences.*
GREAT DATA
Thanks is due to Altisource Division – RentRange, Realty Trac (Attom Data Solutions) and the National Multi-Housing Council for separate publishing this recent data. When put these together and compare this allows to us publish a ranking of investors by the market size and number by their single-family residential investments. We use each of these separate sources to cross compare and arrive at a sounder number, as real estate investing data has a history of  using “scientific estimates.”  These three companies gather their data from various sources such as county records, U.S. Census Bureau data and membership surveys. They then apply proprietary algorithms to smooth out data lumps to offer defensible data.
BIG IS SMALL (ACTUALLY VERY SMALL COMPARED TO MARKET MASS)
Their impact that was initially dismissed as simply a Wall Street profit play brought real value to the housing market. During their peak buying years they dominated buyer activity, helped stabilize the market by putting a floor in housing prices, and gave credibility to investing in single family residential rentals. Thank you Wall Street. They lifted the perception and discipline of our industry and helped the visibility of this asset class as a mainstream investment.
If you want to learn more about how you can participate in this market, add a property, buy or sell a performing  portfolio or get advice on how your investments can perform better, go to www.2020rei.com or www.Investable Realty.com
The 2020 REI Companies is part of forthcoming The Iceberg Report that discusses investor behavior* needs and wants and will serve as a guide to what, where, who and how investors engage with various goods and services providers. Other sponsors include Homevestors, Renters Warehouse, Real Property Management and OwnAmerica. To learn more contact andrew@2020rei.com or Tim@2020rei.com

by Tim Herriage Tim Herriage No Comments

MorningStar Ratings First for SFR Property Management Company

money-in-house-profileFor as long as most of us can remember, leaders in our industry wanted single-family residential real estate real estate investment to be defined as a mainstream investment.  We all know that well-managed rentals can be a stable and profitable asset class. Now MorningStar the respected fund and investment rating agency has added further credence to the industry by scoring Renters Warehouse, first SFR portfolio and property manager in the U. S. to receive a MOR RV2 residential-vendor ranking. You may know Renters Warehouse from their effective “rent-estate” radio campaign.
BACKGROUND
The Recession of 2007 appeared to throw the assumption of rentals as stable assets into question until you realize that the billions that were made by Wall Street companies on the mortgage origination frenzy, House Price Appreciation run up, the bust and then shorting of the mortgage backed securities.
Out of the rubble came investment funds backed by major Wall Street funds who saw a significant spread between the capital cost of buying a distressed house and the potential income available from holding and renting this same house, while waiting for a market recovery. This was a major Wall Street endorsement of single-family homes as an asset class, however beyond the favorable math there was a practical gap between the idea of rental ownership and property management. With few exceptions, property management was mostly a localized business lacking uniform operational standards and certainly unfamiliar with the asset transparency and fiduciary rules necessary to serve fund business who intended to securitize and manage these performing rental homes as a public fund.
JUMPING AHEAD
Today there are at least 17 million rental houses (plus du-, tri-, four-plexes and mobile homes) in the hands of rental investors. Millions are small do-it-yourself investors managing for their own benefit. This segment amounts to nearly two thirds of all investors. Other investors have chosen not to landlord directly but to select a professional third-party property manager. Until now this was a trial and error process as there was little guidance in selecting a property manager short of word of mouth, testimonials and Yelp-style reviews.  MorningStar is beginning to change this.
In October Renters Warehouse received a favorable ranking from Morningstar Credit Ratings. Morningstar is a  nationally recognized statistical rating organization (NRSRO) offering operational risk assessments. They  assigned Renters Warehouse a MOR RV2 residential-vendor ranking indicating that the company demonstrates proficiency in managing key areas of operational risk. This is the first time Renters Warehouse has been evaluated and reviewed by Morningstar Credit Ratings.
“We’re proud to have been awarded this ranking from Morningstar Credit Ratings as it is an affirmation of our strong brand, team and commitment to excellence,” says Kevin Ortner, CEO of Renters Warehouse. The ranking considers the company’s experience; it’s management team, proprietary technology and ability to manage properties for individuals or institutions with a full suite of services. Operations and management standards are uniformly supported and measured across the company with property management, vendor management and call center systems. These systems have been customized to ensure high visibility and adherence to tenant relationship standards and success.
Unique in property management Renters Warehouse has implemented a specialized Portfolio Services Division led by Chief Investment Officer and President of the division, Anthony Cazazian. “Investors with fiduciary duties can take particular comfort in knowing that our operations have been evaluated by an independent third party, something all investors should take into consideration when selecting a property manager,”
The company, formerly a franchisor, has restructured as a single entity, buying back franchises and acquiring other strategically positioned property managers. Renters Warehouse has doubled its national footprint in the last 18 months, now operates 32 offices in 18 states.
WHAT CAN INVESTORS EXPECT?
Expect this trend to expand as property management and other single-family residential investor focused businesses improve service standards and seek third party operational and credit recognition from entities like Morning. This is long overdue in our business and is endorsed by 2020 REI Group of Companies. In full disclosure, 2020 REI uses Renters Warehouse for property and portfolio management services.

by Tim Herriage Tim Herriage No Comments

How Does New Home Build Upside Surprise Effect Investors?

On November 17th 2016, U.S. Census Bureau reports that builders have increased construction in October by 26% to an annualized rate of 1.32 million units.
10-16-housing-startsThis covers both single and multifamily homes (or doors) for all four regions. This is the highest level since August 2007 and the biggest monthly jump since July 1982.  How will this effect investors?
Building new single- and multi-family homes has two positive effects. This creates more housing inventory but more importantly, the economic activity that is pulled through by land purchase and entitlement, ground breaking and construction. House construction is widely recognized as an essential economic driver that has been absent over the years since the 2008 housing recession. The housing market is being driven by a tightening labor market, which is starting to drive up wages and income generally.
“Controlling the number of households in the U.S., housing starts are only about 66% of their 50-year average,” says Trulia Chief Economist Ralph McLaughlin said. “Clearly, the homebuilding sector represents an industry that has potential to grow under a Trump stimulus plan.”
UNPACKING THE NUMBERS
2016-sfr-start-rateSingle-family home building jumped 10.7 percent to an 869,000-unit pace in October. This is the highest build rate since October 2007 and accounted for the largest share of the residential housing market.
Two important facts are the reported 1.32 million rate includes multi-family dwelling units that are not candidates for an upwardly mobile homeowner or families as tenants. Housing starts for this volatile multi-family segment soared 68.8 percent to a 454,000-unit pace. Starts for buildings with five units or more hit their highest level since June 2015.
WHAT THIS MEANS
When the U. S. Commerce Department discusses homebuilding rates they report these as relative numbers. If the October 2016 building pace was a constant throughout 2016, rain, shine, seasonal buying, etc., 1.32 million dwelling units would be built at the end of 2016, of which 869,000 homes across all fifty states. This will not be the reality.
REAL IMPACT
First, 870,000 new homes are a drop in the bucket against the approximately 130 million homes in America. This number does not even come close to 2016 demand based on household formation (U. S. Census Bureau forecasts 1.45 million for 2016,) plus those couples becoming families wishing to move from multifamily housing to a single family home.
Homebuilding is regional and dependent on available land, with commute friendly near-burbs preferred. All of this reduces options and adds upward price pressure good for homebuilders and SFR investors offering competitive rents.
Homebuilders prefer profitable projects causing them to prefer mid-market to luxury homes. Building affordable housing is more work for less profit.
WHAT NEXT?
Barring some “black swan” economic shock, it is most likely that new administration policies will stimulate business and the required incomes. The current need for housing (new and refurbished) across the country will require both renovation, rebuilding and new building on already scarce urban and near-burb locations around economic hubs.
Expect a comprehensive review of mortgage lending policies and processes to enable more buyers to become qualified borrowers and builders and landlords to do businesses. Again barring some unforeseen economic upheaval, being a landlord in a vital economic hub. Texas will remain a bright spot for the foreseeable future. For help in finding property go to Investable Realty. For investor friendly loans go to 3L Finance.

by Tim Herriage Tim Herriage No Comments

Are Homeownership Rates as Bad as Reported?

home-ownership-1995-to-2016
An October 27th HousingWire article reports U. S. Census Bureau data as showing Homeownership rate continues to hover near 50-year low with the homebuilding and real estate sales industries waiting for Millennial home buyers to materialize.
The U.S. Census Bureau reports that Homeownership rates remain near lows not seen since 1965 at 63.5% of households owning versus renting.  It is interesting to note that these numbers are settling back close to natural numbers when the market is not stimulated with aggressive to unrealistic mortgage rates.
Rental vacancy rates at a national level decreased to 6.8%, down 0.5 percentage points from last year. The homeowner vacancy rate remained unchanged from last quarter and last year at 1.8% in the third quarter.
HELP IS ON THE WAY, BUT WHEN?
“Given other evidence from the (U.S. Census Bureau release,) my views swing more with the optimists than the pessimists,” Trulia Chief Economist Ralph McLaughlin said. “Household formation surpassed 1.1 million, climbing from 944,000 last quarter. About 560,000 – or nearly half – of these households were owners, up from a loss of 22,000 last quarter.”
“I think this is good news in light of the fact that Millenials now make up the largest pool of potential new households,” McLaughlin said. “Though many are still living with their parents, they eventually will move out.”
“First, they will rent, and as they settle down, and then they will buy,” he said. “While we can’t know for sure they will own at rates of older generations, our survey work at Trulia shows 80% of Millennials want to own a home – the highest share of any cohort and the highest in the seven years we’ve run the survey.”
D/FW & JOBS ATTRACTING MILLENIALS
For investors, picking dynamic markets adds income and appreciation as well as reduces risk. Texas and most particularly is going to continue to attract companies, jobs and skilled people to fill them. Having visited Dallas frequently, it is astounding to me how much commercial and middle market housing has and is being built, and yet shortages remain. 2020 REI is expert in this market and can help any investor find and profit from this opportunity.

by Tim Herriage Tim Herriage No Comments

Investor Alert – America Faces an Acute Housing Shortage

us-housing-shortageThis is salutary news (10/18/16) for the nation and most affects those households that specifically need affordable housing. An ample supply of affordable housing in the foreseeable future is hard to forecast, unless the incoming Trump administration moves to address housing shortages relatively quickly.
WHAT DOES THIS MEAN TO INVESTORS?
Investors in single-family residential rentals can be reassured that the demand for existing well located mid- and affordable rentals will not wane over the mid- to long-term.
For those in the construction business, building affordable houses is not economically attractive as mid-market or luxury homes, whether it is for sale or for rent. By the time land is acquired and entitled, a house or housing is built to meet affordable expectations, are profit margins to slim to make this worthwhile?
LOCATION FIRST
Given the lack of land availability in relation to employment hubs, insatiable local body entitlement expense needs, tight labor and rising materials costs, plus tight financing, expect that existing stock (houses or land) will remain in high demand. Do not expect significant relief from new builds, especially in “far-burbs.”
With all the obstacles removed, it takes 12-18 months from financing and a land purchase to deliver occupier ready homes. This means existing stock will appreciate faster than usual in desirable locations. The purchase of mid-market homes at market prices means cash flow and investment returns require the investor to raise operating efficiency and discipline.
Then there are investors who appreciate location over property condition. Institutions and mid-cap investors originally tried to limit their house purchases to production properties that were built after 1990. This rule is being bent due to lack of affordable inventory. Older homes are now becoming more desirable, in spite of higher renovation costs to modernize and make them market ready. For some if these homes are in poor condition and do not fit current homeowner or renter expectations, they are removed and new rental stock built, again putting affordability out of reach.
CITY HOUSING & REGULATORY CONTRADICTION
The City of Dallas, (not DFW at large) just passed air conditioning regulation that governs effectiveness for rental properties in the City. Modern AC standards were applied to substandard construction, making these properties technically uninhabitable in high temperatures. The fix is to completely reinsulate, replace windows and maybe air conditioners on apartments generating around $500 a month. One landlord’s solution was to evict 300 already economically stressed families and tear down the non-complying buildings. The landlord warned the City this could be an unintended consequence. The land is now vacant until an economic alternative is found that does not depend on non-existent government money.
WHAT DOES THIS MEAN TO YOU?
You have three choices for SFR real estate investing: personal hands-on individual investment and operating responsibility, buying a turnkey rental in a particular city with a qualified turnkey operator or participating in a small fund where the management understands operating in tight markets, working to average risk and solid returns. Each with a declining degree of direct involvement and personal risk but investment returns that beat any traded asset.
“When you learn to look at the SFR rental as nothing more than an inflation indexed annuity, this industry makes a lot more sense,” says Tim Herriage founder and CEO of 2020 REI.
2020 REI offers to help you find and sell you rental houses in Dallas/Fort Worth, unquestionably one of the hottest markets in the U. S. Investable Realty are investment experts. As an investor interested  that combines cash generation through fix & flip as well as longer term returns through a growing rental focus, Elevate Private Capital Fund may be a better alternative.

by Tim Herriage Tim Herriage No Comments

Housing Data Demystified with help from National Multi-Housing Council

house-in-handThis is a great discussion from the National Multi-Housing Council’s Director of Research, Caitlin Walter, on how to evaluate research with a more discerning eye.

 (Ed. NMHC is a leading national association for serious apartment owners.
Because single-family residential rentals are increasingly recognized as an apartment housing alternative, they track the SFR market conscientiously.)
“It seems as though nearly every day there are new articles or blog posts discussing rental trends. Oftentimes, the trends highlighted in these posts and articles appear to contradict one another. This inconsistency likely traces not only to the different sources of analysis but also differences in the underlying data. In many cases, it is less about one piece being more correct than another and more about different research teams measuring different pieces of information, making for incongruent comparisons of the trends.
Given this nuanced data landscape, here are four things that the NMHC research team considers when reading these types of articles to determine what the findings truly show.
Housing types. The big question to ask is whether the piece is discussing only professionally managed apartments or are all housing types (i.e., owned and rented, single-family housing, small apartment properties, etc.) included in the analysis? NMHC most often defines apartments as rental units in buildings with five or more units, but others include rental units in buildings with two or more units. Most government data are not broken down further than the “5+” delineation.

Similarly, most government data sources publish data in terms of units in a building, which is quite different than units in a property. For example, a garden-style property of 20 units could have four buildings of five units or two buildings of 10 units, which would affect the data analysis. There are some private data providers, however, that track data about apartments at the property level; these are usually known as investment-grade apartments and tend to be properties with a larger number of units.
Having a clear understanding of the housing type being measured is critical because rent growth and vacancy rates can vary by structure type, shaping analysis. Single-family rentals and smaller properties typically have a higher vacancy rate than professionally managed apartments; professionally managed apartment property managers most often use leasing software that helps them capture the best rent growth-vacancy rate balance.
Likewise, there can be variation between government rates and those published by private data providers. The U.S. Census Bureau’s vacancy rate for apartments with five units or more has been between 7 percent and 10 percent in the past few years; in contrast, private data providers that track investment grade apartments have reported vacancy rates in the four to five percent range.
Underlying data source. Data can come from a multitude of sources—survey research, government data, listings on a company’s website, internal company data and even a compilation of sources. While all are valid ways of measuring trends, they can measure vastly different data points.
Survey research that is gleaned from employees of private data firms calling individual properties, for instance, often captures asking rents, while government data captures the rents current residents are paying to live in their units. Asking rents can differ from actual rents because they fail to take into account the rents being paid by long-term residents or concessions; residents can often pay different rents based on their lease term as well.
Each different source can have its advantages. Data from private surveys or data from aggregated online listings can be more timely than the government surveys, which can be published a year or two after the data are actually collected. The government surveys, in contrast, can include rents for residents that have been living in their units for a long time and capture other characteristics of interest to researchers.
Geographic area(s). Just like rent growth and vacancy rates can vary by structure type, those trends can also vary by geography. The Western region of the country has typically had faster rent growth than the Northeast and the Mid-Atlantic, for example. A headline based on rent growth data from California would likely differ dramatically from a headline focused on rent growth data from the Washington, D.C., area. Additionally, a so-called national study may in reality not always include everywhere in the United States; it may only be looking at the most populated metro areas or cities.
Context of the findings. Slight changes in wording can result in widely different interpretations of results. A story reporting a decline in rent growth is different than a story reporting a decline in rents. In the first story, rents are still increasing, but at a slower rate than previously, while in the second story, rents are declining. It’s important to pay attention to those contextual details.
While considering these factors in concert with reported trends can help clarify the takeaways, it can often raise more questions. In such case, we recommend digging into the next layer of information, which might be the original published article, the longer report upon which the article is based or even the website of the company that collected the data.
Feel free to email me with any questions,
Caitlin Walter –  Director, Research – 202/974-2343 – cwalter@nmhc.org
Editor – Given that so many reports are national, state- or city-wide, specific property gets lost because the start is generalized data. 2020 REI Group can help any residential investor demystify these real estate investment purchase, hold, or sale puzzles. tim@2020rei.com

by Tim Herriage Tim Herriage No Comments

Helping Others to Make Their Dreams Come True –     

Zig Ziglar, is renown for helping others suceed. This sales entrepreneur and success evangelist expressed this most eloquently saying, “You will get all you want in life, if you help enough other people get what they want.”
How frequently do you meet troubled people frustrated by unsold real estate? How about the investor who is looking for a financially attractive rental?
Investable Realty has a sure-fire method of helping others with their investing businesses, and in turn, helping them make their dreams come true.
MLS AS A GOLDMINE
Investable Realty agents meet many investors wanting houses to add to their rental portfolios or candidates for fix and flip. Realtors often take listings they are not confident in as a favor to a friend or family member, only to find it does not sell quickly. Scouring the MLS by price point, neighborhood and days on market recently allowed Investable Realty agents to meet an agent with a stale listing and a frustrated client.
This basic property did not show well and as expected. Add an agent who was less than confident in the presentation of this less than pristine product and unsurprisingly it had not sold.
HELPING THE SELLING AGENT, SELLER AND AN INVESTOR
The owner had inherited this home and it was fast looking like an “albatross.” After 90 days, this less than aggressive realtor found this listing had also become a chore after a number of low price offers went nowhere with the seller.
The Investable Realty called and said they  could help the agent if he understood the seller and realtor’s goals. The agent’s response was to reinforce the $125,000 asking price and said the client was not interested in “another $100,000 low ball offer.”  The IR already knew what this property could mean financially to an existing investor and immediately responded with a $111,000 offer plus a paid title policy, no contingencies, cash and a promise to close in seven days. Three days later the seller agreed to the offer.
Elapsed time from identifying the property and calling the agent to close, was less than ten days…….Next!
THE LESSON
The lesson to realtors who do not think there are deals on the MLS is to never ignore this motherlode created by unrealistic buyers and sellers and less than effective agents.  As quick and easy as this sounds, dealing with MLS centric agents can be frustrating as often they and their clients are unrealistic. Maintaining the discipline of searching the MLS frequently often leads to these deals and an accelerated route to revenues for agents and their brokerage.
If you want aggressive and effective representation, buying or selling, contact Eric Luneborg at Investable Realty – eric@investablerealty.com – 214-335-1889