Month: December 2016

by Tim Herriage Tim Herriage No Comments

Wildly Out of Sync – New Builds versus New Households

This analysis release 12/19/16 shows that new builds look like they have exceeded household formation so all will be well?  Not so fast.
household-creationWhen you look at the cold hard numbers, it appears we have finally turned to the positive on creating housing.  What is neglected in these number are the realities of American geography and the need to report single numbers.  Then the aggregation of unlike units to get to a general housing creation number.
New Homes Are Not New Houses
This apparent 1.2 million new builds counts new apartment residence as the same as a new single-family residence. Yes there is a front door and it offers living space, but they do not attract the same type of resident. Apartments are rentals. That is 100% rentals, while around 63% of single-family residential homes are owned. Right off the top after you remove new rental homes from the number, you arrive at 845,00 as the expected 2016 rate of delivery for SFR new builds so we are hardly keeping abreast of household creation for 2016. This does not cover pent up demand as Millennials who have deferred life events such as marriage, children and a home purchase make the move into a single-family residence, yard and school district. Add the fact that every year about 420,000 (of 130 million) existing homes are demolished to make way for new construction from new communities, commercial or transportation expansion.  This is a negative number against the new house construction of 845,000 in 2016.  This adds to increasing rent pressure in major economic hubs. http://www.2020rei.com/how-can-rent-costs-continue-like-this/ 
Supply & Demand in The Disconnected Markets of America
Not to be political, but geographically America is not a monolithic nation or a united market. When this data of households and new builds is reported, it is rolled up as a national number. This unconsciously implies housing supply and housing demand matches up. Try telling that to someone looking for the ideal home in their specific market.
Job and families creation on the demand side are seldom synchronized with newly built homes supply. Even if  there is any market efficiency with builders chasing demand by geographic need, they are still restricted by land availability, financing, entitlement and build time before they can supply new houses.  This lag time creates price pressure and investment opportunity in the specific market where this family is seeking a new home.
Finding and filling these gaps with flips or rentals is where investor opportunity lies. For help in finding opportunities Texas markets, especially in the Dallas Fort Worth Metroplex go to www.InvestableRealty.com.
 
 

by Tim Herriage Tim Herriage No Comments

How Can Rent Costs Continue Like This?

shelter-cpi-to-incomeThis chart from The Daily Shot shows the evolution of the overall “shelter CPI” (as the housing cost of the consumer price index) vs. hourly earnings.  The increases in the cost of housing now are 40% higher than the increases in all wages – and the gap is widening.
The question becomes, can this continue down this path especially as greater pressure is placed on existing housing stock with 13 million new households due to be created in the foreseeable future without a commensurate increase in new and existing supply.
SHORT ANSWER
In the short term the answer is yes, absolutely as the lack of new supply makes the existing supply more valuable.  The variable is increasing income, but given the professional demographic that is renting investment grade single-family residences, income increases to meet rising cost of living is more likely.
LONG ANSWER
“Depending on whose estimate you’re looking at, we’re talking about 13 million to 16 million additional households in the U.S.,” says Lynn Fisher, the Mortgage Bankers Association’s VP Research & Economics. “The question is ‘How are we going to actually deliver housing units for all of these people?”
It is reported by survey sample that 93% of 75.3 million Millenials state they want to own a home in the near future, or at least over the next decade! Divide 68 million souls by 2 people per family, then add 1.6 children and a dog over the next decade and this quickly equals 123 million souls that will move to find another home over the next decade.
GOOD NEWS FOR INVESTORS
The pressure on housing markets is not going to stop as success breeds success. There are serious financial and structural obstacles to providing housing most of which can be alleviated by regulatory and financial changes that should lead to the building of single-family residential homes as standalone or semi detached properties. The biggest structural problem is land availability. The “drive till you qualify,” or in this case, till you can find a home you can afford, is not very attractive to active and employed Millennials. They are less likely to compromise convenience for affordability but they want a home that echoes their upbringing. If we are to follow other major Western cities expect aggressive in-fill housing, buying and scrapping larger homes with yards for higher density homes, increased gentrification and densification of depressed urban neighborhoods that in turn creates affordable housing opportunities. For investors all of this change and pressure spells opportunity. If you are looking in Texas markets, especially the DFW area go to www.2020rei.com and www.investablerealty.com who can help you find and potential fund your investment needs.

by Tim Herriage Tim Herriage No Comments

Are you a Warlord or a Landlord?

warlord“Warlord” is an attitude some landlords have to adopt to manage a problem rental property. “Going warlord” to manage your rental indicates one or all three undesirable elements to owning a rental property have occurred. It follows the same predictable path as an un-airworthy airplane in the hands of a careless pilot. When one thing goes wrong, the likelihood of a second problem compounds into a cascade effect of subsequent problems and an emergency. It is never one thing that turns a landlord into a warlord, but the best strategy is not to be faced with this.
Realistic analyses matter to avoid this. Begin by buying right, then managing right and renting right. This is “easy said, hard done” but not hard to predict if you start off on the wrong foot. Remember good management can seldom make a bad investment work, but a following the steps to a sound investment and good management will keep you from going from landlord to warlord.
BUY RIGHT
The road to “warlording” begins by buying a rental based on optimism rather than reality. Beware optimistic numbers from a vendor about the returns on an inexpensive property predicting few vacancies and reliable rent payments.
Spreadsheet justification for buying inexpensive properties often show income and yields that look good on paper but inevitably correlate to higher risk. These properties are almost never cheap as they bring high vacancies that were not reflected in optimistic sales pitches. Beware voodoo math and spreadsheet lies.
“SPREADSHEET THEORY MEET PEOPLE REALITY!”  
Vacancies and less rent than planned is the first issue of a “triple whammy” accompanying these properties. Second, they do not appreciate like middle or luxury markets as there are few sales to real investors and homeowners. Because there are few market comparables, these properties cannot be accurately valued at retail sale prices. If sold, a property like this is normally sold at wholesale to another investor looking for an even deeper discount. Beware bogus market valuations or “market comps” created by a turnkey vendor who buys and sells properties in the market so as to manufacturer apparent activity and comp values. The third whammy is because there are few people that will buy this property you will be stuck with an underperforming property for an extended period of time. We have not discussed the higher wear and tear or maintenance requirement that normally accompanies ownership of older and less expensive homes in these stressed neighborhoods.
URBAN PIONEERING EXCEPTION
Because of a lack of affordable housing and there is a chance of potential gentrification for some run down urban areas, but don’t be first. Young and optimistic homebuyers are willing to be urban pioneers but this only works after . These urban pioneers are prepared to buy, renovate and deal with the downside as a market is recovered. If you have an under-performing rental, pray for this to happen in your neighborhood.
If a professional real estate agent or turnkey company has “tipped you” into a crummy neighborhood and rental, there may be other issues at play. There is a recurring theme in rental real estate and that is cheap houses are seldom inexpensive, and especially so if you are NOT a full time investment business.
MANAGE RIGHT
If you look at your investment property or properties as a business, is landlording your highest and best use? Is your property (or properties) fully rented? If fully rented is a constant state fulfilling your landlord duties may not be that demanding. Are you happy with the job you do? The workload, responsibility and risk changes however when you have to find, screen, qualify and lease-up to your next tenant. There are even ways to make the management load less onerous.
RENT RIGHT
Whether you lease your property yourself, hire a web based leasing agent or local company providing in-person rental leasing services, understand this aspect of the business has become significantly more complex. Fair Housing rules, activist tenants, compliance testing companies, compliant credit, criminal and Patriot Act screening issues all can apply to your rental. Our argument is that paying a professional property manager to take this responsibility, knowing they carry professional errors and omissions insurance, have a real estate lawyer on call for evictions and other issues, is cheaper than the first than the first check you will cut to a lawyer to answer a complaint request from a city, county, state or Federal agency.
Professional landlords understand when they need to “get out their warlord” when a tenant goes “off the ranch,” and their landlord client should be screened from this.
IT ALL BEGINS WITH THE BUY
There are a number of reasonably priced web-based tools available like Altisource-RentRange, HouseCanary and RentFax that give a landlord rent and risk numbers by collecting market rent data and quantifying the risks that can lead to higher vacancies, less reliable tenants, delinquencies and evictions. Remember published rental averages tend to lean toward the optimistic.
The “almost silver bullet” to avoiding becoming a warlord and not a landlord, is buying right and buying with the help of a licensed professional with “skin in the game” and the desire for you to be successful. They want to ensure they present you rental investments that have a high chance of success so they can sell you more performing properties into the future. This is the model you will find with Investable Realty a member of the 2020 REI Group of Companies.

by Tim Herriage Tim Herriage No Comments

What Is Housing Real Economic Contribution to the U. S. Economy?

Simple answer is that it currently stands at 18% of the annual GDP but it changes based on favorable conditions that creates demand.  The opposite is also true.
housing-contribution-to-2016-gnpThis contribution can be expected to grow provided more new home stock can be built, credit is available for these new home purchases, and assuming higher wages grow in number and amount to make buying a home affordable for homebuyers.
THE DATA
This data from Deutsche Bank and available on Daily Shot tracks the annualized contribution the housing-related share makes to the annual national gross domestic product. It is a reliable and acknowledged economic fact that is clearly illustrated in this diagram, that housing (typically new home construction) makes a major contribution to the economy, particularly following a recession. (Recessions are shown by the vertical grey shaded stripes.) Read into this what you wish in terms of the slowest recovery from an economic recession America has experienced in the last fifty-five years. This slow recovery correlate with the slowest recovery of the housing market and its contribution to the larger economy.  
WHAT DOES THIS MEAN TO INVESTORS?
Expect this fact to change but not have that dramatic an impact on housing other than creating jobs, higher incomes and more demand.  America is so far behind meeting housing demand that three things have happened, especially when we talk of new housing: as of September 2016 new households formed is running at 1.28 million a year, homeownership has dropped to 62.9% while U. S. Census Bureau data set the 2016 new homes built rate at 1,055,000.  Add the fact that single family renters and homeowners are typically not candidates for apartment living.   
Overall newly built homes fall short of meeting current demand, assuming everyone of the newly formed households bought homes, and this ignores existing pent up demand and the fact that about 300,000 homes a year are taken out of service. This million plus new homes are not delivered in balance with the demand, based on geography, economy or price points.
The lead times from identifying demand, raising financing, buying land, completing entitlement, building the homes with available crafts and labor, all adds time to the delivery cycle. Supply is never quite where it is needed. This disorderly behavior opens up opportunities for the curious and inquisitive investor.
This is where alliance with aggressive real estate acquisition companies and real estate sales teams can help a wise investor find and leverage this opportunity whether you are an individual or institutional investor. 2020 REI Companies and Investable Realty can be of assistance in leading markets.  Contact Eric Luneborg – eric@investablerealty.com – 214-335-1889
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by Tim Herriage Tim Herriage No Comments

BREAKING NEWS – There is an “I” in Team

This “I” applies to a team of agents that works “Investment” real estate for clients, the team and those in the team that are investing for their own account. The “I” is in the value of collectively serving individuals and investors.
TEAM ASSOCIATION
work smarter reminder on a green sticky note against burlap canvas
Buyers, sellers, professional real estate agents and investors should care about the team trend in real estate services. The benefits of many specialists versus sole agents are many and effect buyers, sellers, agents and investors positively. Then compound based on many heads being better than one to address your specific needs and complex steps encountered in a house sale or purchase. Investment real estate team makes more sense with the complexity of an investment transaction.
THE TEAM
When you speak in terms of “a team,” the notion of a sports team comes to mind. Just as there are various roles and positions being played as needed based on the state of play, offense or defense, special teams for special circumstances, the real estate investment team is similar, with one major difference of serving the client and their multiple goals versus simply winning.
REAL ESTATE AGENT – YOUR MOM’S PART TIME JOB NO MORE!
The real estate sales role has changed dramatically brought about by new regulations, new technology and processes. The solution is associating with others that have knowledge, skills and experience that allow individuals to leverage each member for the whole and the client.
Experienced real estate leaders have answered by assembling teams of experts and assistants to streamline the process. These leaders orchestrate the generation of leads (homes sellers, buyers or investors,) marketing, qualification and engagement of these clients, finding, funding and negotiating a sale and successful close requires experienced hands-on management. This applies equally to a home sale to homeowner or SFR investor so as to generate the best outcome for seller, buyer and all team members. Today a solo agent managing a home purchase or sales campaign against a team approach is at a serious disadvantage, given the options and required disciplines solved by a team of experts, increased transaction volumes and economies of scale.
FOR AGENTS
Quoting industry statistics, Eric Luneborg, team leader at Investable Realty says, “Eighty percent of new agents without specific support leave the business within three years. Of the remaining agents that stick around, 20% of these have changed brokerage allegiance within these same three years. This is because brokerages provide little training or mentoring hoping for the new agent to be that “one-in-a-million” who finds their way to being a real estate sales star.
“This is not particularly healthy,” says Luneborg, “but it is completely understandable.   Agent training is more about avoiding trouble than building a real estate business, assuming an agent will be attracted to a big brand. Look beyond the brand to teams,” says Luneborg. “If a newly minted agent is attracted to investors and selling rental properties, going to a retail brokerage that is primarily focused on selling to retail homeowners, there will inevitably be frustration with a brand or manager who is not focused at investments. This stunts real lead generation, advice or practical support serving the investors. If you want to serve investors, go where investors are served best.”
Luneborg operates a team inside Investable Realty, a real estate brokerage that specializes in assisting investors find, buy or sell single properties or portfolios of rentals. Luneborg leads a team of individuals that offer expertise in most facets of the investment transaction. Investable Realty is seeking agents to serve investors.
FOR INVESTORS
Is the investor a seller or a buyer? What is the goal of the immediate transaction(s?)? What client or property analysis skills are needed and what advice should follow? Once qualified as a buyer (or property as a sales opportunity,) what sort of finance advice may be needed, the search, the qualification of opportunities, the offer, negotiation, any financing help and close? Each step is a serious discipline requiring knowledge, skill and experience to serve a serious investor. With a leader coaching the team through the engagement, advising on the appropriate resources to achieve the best outcome for all involved is win for the client and the agent. With some exceptional circumstances, the individual agent is at a serious disadvantage, and most likely so is the client.
FOR THE AGENT WANTING TO BE AN INVESTOR
For an agent being successful serving investors, the logical extension is to become an investor also. A investment team leader can help an agent serve clients as well as use their professional skills to go beyond just earning an income to investing some of this in a real estate ownership business for the longer term. A team leader in a front line investment sales team is more often than not an investor too, that takes great pride in building a successful team that serve investment customers, but also fulfills team member income and wealth generation goals.
If you are interested in being part of such a team contact Eric Luneborg – eric@investablerealty.com – 214-335-1889

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