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A BUSINESS P U B L I C AT I O N F O R R E A L E S TAT E INVESTORS OCTOBER 2020

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NG F U N DI EGIES S T R AT

28 R EGIO NA L S P OTL IGH T: PI TTS BU RGH , P E NNSYLVA N I A 44 MORTGAGE FOR BE A R A N C E â€” A S IGN O F

R ADI AN

BUI LDI NG A LEGACY SU PP ORTING THE A M E RICA N DRE A M OF HOM EOWNE RS H IP

TH E TI ME S ?

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WHAT'S INSIDE PERSPECTIVE

AC Q U I S I T I O N S

THE GRE AT

TAPPING INTO

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MIGR ATION

TRILLIONS

OF INCLUDING HOA s IN YOUR DUE DILIGENCE

PROFILE

22 R ADI A N

REGIONAL SPOTLIGHT

28 PIT TSBURGH , PA

S I N G L E - FA M I LY

LENDING

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TRENDS IN

MORTGAGE

RE AL ESTATE

INVEST IN

INTERIOR PA INT

FORBE AR A NCE:

INVESTING

SINGLE- FA MILY

A SIGN OF

OUTLOOK

RE NTAL S

THE TIMES?

IN 2020?

LENDING

L E GA L

FROM THERE TO HERE

I N D U S T RY DATA

VALUATION

ENOTES â€”

COMMIT TED TO

ZOMBIE

OP TIONS FOR

COMING TO A

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FORECLOSURES

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NE AR YOU

UPSW ING

REI INK 1

REI INK

PUBLISHER’S LETTER

Well, unfortunately, there’s

pay the piper. I am not

and the real estate indus-

try’s social and economic

pretend to be one, but I do

and predictions on where

no real change in the counconditions since our last

know government. When

issue. The unemployment

rate is dropping slightly but subject to analytical inter-

pretation based on politics and biases. The national

approximately $26.7 trillion or $214,844 per taxpayer.

Publisher & CEO

money appropriately?

I would love to see Dave with some of these gov-

ernment economic advis-

deficit is north of $3 trillion,

And the next question is:

deficit is north of $4 trillion.

companies and private

while the “actual” budget And, again, everyone has

ROBERT RAKOWSKI Publisher & CEO

SUZANNE ANDRESEN Chief Revenue Officer

EDITORIAL BOARD Kelly Brooks | Property Masters Bill Deegan | Heartland Income Properties Robert Greenberg | DLP Real Estate Capital Erica LaCentra | RCN Capital

Finally, you are going

to love the November

issue. We will have some tremendous profiles on military veterans who

have become leaders in

the real estate industry.

evictions? Stay tuned!

of virtual venue webinars,

vice president of asset man-

able and one day we will

2020 and forge into 2021.

Please visit our website for

term growth and prosperity the debt is not sustain-

we approach the end of

lenders deal with the exten-

A big thank you to Radian

of a country. Others say

the industry is headed as

As always, continue to be

appropriately, it can be

used to foster the long-

try. He offers keen insights

How will banks, lending

sion of the moratorium on

their own opinion. Some say when debt is used

2 OC TOBER 2020

the government spend our

ers and politicians!

And, the “official” budget

RA KOWS KI

was the last time you saw

Ramsey go one-on-one

debt, as of Sept. 16, is at

RO BE RT

an economist and do not

and Tim Reilly, executive

agement operations, for a great cover story. Tim has

a long history with Radian

WRITERS

Jane Bond, Josh Craig, Carole VanSickle Ellis, Ryan Hennessy, Heather Hoyt, Erica LaCentra, Giovanni Lago, Amie McCarthy, Marcos Posada, Rick Sharga, Sarah Shellam, Brandon Winters Copyright ©2020 by Choice Publishing LLC, ISSN 2641-9602. All rights reserved. No part of this magazine may be reproduced in any form or by any electronic or mechanical means without permission

Jennifer Stoops | Park Avenue Properties

in writing from the publisher.

Mike Tedesco | Appraisal Nation

Publishing LLC. To subscribe or to order

REI INK is a monthly publication of Choice

safe—and Happy Investing!

all our great stories, a library and our soon-to-be-featured podcast series. Our first

interview with Bryan Ellis

on raising capital generated some wonderful reviews. Thanks to all!

single copies, please call (816) 623-0762, visit REI-INK.com/subscribe or email

robert@rei-ink.com. Annual subscriptions

are $59.95; single-issue copies are $6.95. The views and opinions expressed

in this magazine are not necessarily

those of Choice Publishing LLC or the publisher. The articles are intended

for general information only and are not intended to provide specific

recommendations or advice. Be sure

to consult your attorney, accountant

and other relevant business professionals when considering a new strategy or

idea. We are not responsible for the

content of any paid advertising.

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REI INK 3

VISIT RCNCAPITAL.COM

EMAIL INFO@RCNCAPITAL.COM

CALL 860.432.5858

REI INK

ANNOUNCEMENTS

WASTE METERING DEBUTS IN MULTIFAMILY HOUSING MARKET

ealPage has partnered with Compology to develop

building is producing and then match collection

the RealPage Waste Management Solution, which

frequency to their actual needs, mitigate overage and

includes rugged dumpster cameras and artificial intelli-

contamination fines and reduce annual collection costs

gence. It is a first for the multifamily real estate market.

to improve the net operating income and overall value

“Compology’s integration offering enables industry

of the property.

leaders, like RealPage, to flexibly and seamlessly

Remote dumpster visibility also helps identify and

integrate automated waste metering into their existing

reduce contamination in waste and recycling streams,

platforms,” said Ben Chehebar, chief product officer

improve diversion rates from landfills and satisfy resi-

of Compology. “We’re excited for the positive results

dent demand for transparency and sustainability, which

RealPage will deliver to the multifamily market, and

lead to higher rents and better resident retention.

we look forward to expanding waste metering’s impact in the commercial space too.”

The RealPage and Compology collaboration helps buildings meet the requirements of GRESB reporting

Waste metering can help property owners or managers

and government mandates while importing new waste

monitor and analyze exactly how much waste each

metrics into EnergyStar’s Portfolio Manager.

SESA PROPERTIES PLEDGES TO DONATE MEALS FOR HOUSES SOLD Sesa Properties LLP, a Brunswick, Ohio-based real estate investment company that buys houses for cash in Greater Cleveland has pledged to donate 200 meals to the Greater Cleveland Food Bank for every property they sell. “One of the major goals of Sesa Properties from the start has been to improve the communities of Greater Cleveland,” said Daniel Sarao, co-owner and managing partner. “Individuals in the local community are struggling and need some help.” “We would love to see other local Cleveland businesses join in. Even if it’s a small contribution. Anything will help,” said Vince Senauskas, co-owner of Sesa Properties, who is a Brunswick native and graduate of Cleveland State University.

4 OC TOBER 2020

TERRAKAN DEBUTS REAL ESTATE PORTAL

Terrakan has launched

an all-inclusive portal that

brings real estate together in one place.

Homeowners using the portal can speak with

professionals, ask for advice, PL ANET HOME LENDING PARTNERS WITH THE FARMLINK PROJECT

ational mortgage lender and servicer Planet Home Lending, LLC, has partnered with The

Farmlink Project, a nonprofit grassroots movement rescuing millions of pounds of fresh produce that would otherwise go to waste. The Farmlink Project was started in mid-April by college students and recent graduates who saw a need to connect farmers with surplus crops to food banks in need. Since its start, The Farmlink Project has delivered meals to more than 10 million people. Planet Home Lending’s $15,000 contribution will fund The Farmlink Response Team: Impact Tour, a five-week, cross-country journey to identify U.S. communities most in need, deliver food, tell stories that inspire donations and raise awareness of this critical problem. The Farmlink Response Team will stop in more than a dozen cities, delivering another 1.2 million pounds of food to more than 1 million U.S families. During the Impact Tour, the Farmlink Project will film a six-episode documentary series highlighting everyday community heroes fighting food insecurity, and the episodes will be available via its social media accounts.

take advantage of concierge services, read detailed property development research, post listings,

conduct group projects and access educational tools and resources. Terrakan also offers

information-gathering,

elementary analysis and

forums that help property owners connect and

understand the industry. Homeowners can input

specific data about singlefamily listings and gain access to a variety of

databases and quickly

generate personalized feasibility reports.

REI INK 5

ANNOUNCEMENTS

REI INK

LUXURY SINGLE-FAMILY COMMUNITY PL ANNED NEAR DENVER

atermark Residential has acquired 20.25

10-foot ceilings, windows on three sides of the home

acres of land in the Castle Pines suburb of

and privately fenced patios. Community amenities will

Denver for the development of The Summit

include a clubhouse, 24-hour state-of-the-art fitness

Townhomes & Villas. The luxury-leased residential

center, swimming pool with cabanas and entertainment

community will feature one- to four-bedroom attached

areas, pet-friendly bark park and doggie spa, local

single-family homes and townhomes. The development

walking paths and

is expected to be completed by December 2022.

access to an on-site

The development, located along Lagae Road south

management team.

of Castle Pines Parkway, will consist of 214 homes

Watermark Residential

averaging 1,410 square feet. All units will feature premium

is a wholly owned

interior finishes, including gourmet bar-kitchens with

affiliate of Thompson

quartz countertops, stainless steel appliances, walk-in

Thrift and one of the nation’s leading multifamily

closets, garden tubs, full-size washers and dryers and

developers. The Summit is the fourth luxury leased

designer light fixtures. The three- and four-bedroom

project for the company. The company also has projects

townhomes will feature two-car attached garages and

under development in the suburbs of Denver, Phoenix

two-level patio decks. The paired villas will feature

and Nashville.

NEXT-GENERATION TECHNOLOGY SOLUTION FOR REAL ESTATE INSPECTIONS

sing a new technology solution from ServiceLink, borrowers can complete home

inspections from the comfort and safety of their homes.

than a minute. Geo-fencing, time-stamping and AI technology ensure data accuracy. A privacy feature identifies and screens out specific visuals, such as people, most family photographs and many

The new mobile app, EXOS Inspect, uses a

religious objects.

patent-pending technology featuring the latest

EXOS Inspect can

artificial intelligence and an intuitive user interface that allows homeowners to complete secure video inspections for critical aspects of the lending and servicing process. The app is designed to guide homeowners through a step-by-step process, using any compatible smartphone or tablet, to complete a video inspection of a room and highlight home improvements in less 6 OC TOBER 2020

be used as a standalone app or incorporated into a lender’s existing digital consumer experience. In addition to releasing EXOS Inspect, ServiceLink recently upgraded the EXOS Close solution, which now supports virtual closing options in all 50 states and the District of Columbia for refinance and home equity loans.

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191111

REI INK

ANNOUNCEMENTS

GROUNDFLOOR MAKES INC.’S TOP 5,000 LIST

tlanta-based wealthtech platform GROUNDFLOOR debuted as #402 on Inc.’s list of 5,000

cle of finance-as-usual, and we’re extremely excited to be recognized as one of the fastest growing private compa-

high-growth companies.

nies in the country.”

GROUNDFLOOR has experienced three-year revenue

GROUNDFLOOR’s 2020 growth has occurred in several

growth in 2020. The company is also listed as the fastest

$33.3 million in Limited Recourse Obligation and GROUND-

among all financial services companies nationwide.

2020 and a 48% increase compared to the same period in

growth of 1,141%, and it continues to see record investor

areas. It hit a quarterly record in the second quarter with

growing financial services company in Georgia and 22nd

FLOOR Notes investments, a 24% increase over first quarter

Brian Dally and Nick Bhargava founded GROUNDFLOOR in 2013. Their vision was to open private capital markets to everyone, with as little as $10 to start. GROUND-

2019. It also set three consecutive monthly records for total investment volume across all note products in May ($11.4 million), June ($12 million) and July ($15.5 million).

FLOOR became the first company qualified by the

The company also saw a repayment of $12.2 million for

real estate debt investments via Regulation A for both

representing a slight increase over first quarter repayment

Securities and Exchange Commission to offer direct

loans on 88 properties in the second quarter of 2020,

non-accredited and accredited investors.

unit and dollar volume, despite the impact of COVID-19.

The company now has more than 80,000 registered

During a six-week period this year, GROUNDFLOOR has

over 1,750 real estate notes. The company has repaid

bringing its public ownership to more than 22% and

investors a 10.6% average annualized return.

The company has also added new functionality to improve

users who have invested more than $270 million into

raised $1.7 million in equity capital through SeedInvest,

more than 1,000 notes for over $140 million, delivering

more than 3,771 individual shareholders.

“When we came up with the idea for GROUNDFLOOR, we

the investor experience, including an Investment Wizard,

creating a new product, in a new category, for a brand-

profile that investors can adjust to better diversify their port-

knew we were not just building a new company, but also new audience,” Dally said. “The momentum of investor

adoption continues to build as we navigate every obsta-

designed to match currently funding loans to a self-selected folios and more easily understand the power of diversifica-

tion in generating more predictable returns on investments.

EASTERN UNION L AUNCHES SMALL LOANS DIVISION

The new national division will focus primarily on multifamily deals valued at less

than $1.5 million, with a minimum loan

SAR

size of $150,000. The division will

also arrange financing for portfolios

EIN

HARD

of single-family rental or smaller multi-

family properties whose combined value

can reach tens of millions of dollars.

8 OC TOBER 2020

Transactions handled under the Small Loans Division will

include office, retail, health care,

hospitality, industrial and self-storage. Heading up the new division is Sarah

Steinhardt, who served as a processor

N S C H WA

and underwriter with Eastern Union since September

2019. Ben Schwartz will serve as lead broker for the new unit.

Eastern Union launched a new Small Loans Division.

DEFAULT SERVICES:

PREPARING

FOR 2O21 In today’s environment, there are many unknowns and a lot of speculation around what 2021 has in store for our industry. NTC is staying one-step ahead and is prepared to assist by continuing to expand and improve our default services. We will be ready for whatever turn the mortgage industry takes. Call us to discuss how we can help you.

- TITLE POLICY CORRECTIVE, RETRIEVAL OR REPLACEMENT - DOCUMENT RETRIEVAL/COUNTY RESEARCH - CURRENT OWNER SEARCH - ASSIGNMENT VERIFICATION REPORT (AVR) - CHAIN OF TITLE BINDER FOR NOTES AND ENDORSEMENTS - ASSIGNMENTS OF MORTGAGES

CALL FOR MORE INFO

800.346.9152 x310 REI INK 9

REI INK

PERSPECTIVE

THE GREAT MIGRATION What does the urban center exodus and work-from-home evolution mean for real estate investors?

BY J O S H C R A IG

he COVID-19 pan-

A Zillow survey from a few

demic has disrupted

home sales have shown

months earlier indicated

us what a true V-shaped

many things about our

that renters started con-

lives, and these changes

sidering moves based on

run much deeper than

the work-from-home free-

wearing masks and

dom from commutes as

social distancing.

well as requirements of a

In the housing market,

designated room to serve

the pandemic has renewed a trend away from densely populated

have certainly expanded through the third quarter

we are still in the thralls of a pandemic, housing is one of the brightest segments of the economy, with incredibly low interest rates and buyer preferences demanding far more single-family

urban centers and toward

of 2020.

more spacious dwellings

When you add the fuel of

rently on market.

in the suburbs. This trend

working from home to kids

is so significant that it is

doing virtual learning, it’s

As we’ve seen many times

driving headlines in the

no wonder that The New

industry and beyond.

York Times is touting an

Zillow released research in

unprecedented “surge

August showing that rent prices are increasing in suburban areas while stagnating in urban centers. Researchers hypothesized

10 O C T O B E R 2 0 2 0

as an office. Those trends

recovery looks like. While

that is unlike any in recent memory” out of New York City and into the suburbs. But this isn’t just a New York trend—it’s happening

properties than are cur-

before, just because the rules of the game change, it doesn’t mean real estate investors stop playing. They adapt to the new game and compete. Here’s what we’re seeing right now with single-family rentals, new

that “suburban rentals may

in big cities nationwide.

now be more appealing

Despite double-digit

for renters who no longer

unemployment rates, the

need to commute or are

stock market has fully

temporarily unable to

rebounded and continues

enjoy some of the ameni-

to flirt with all-time highs.

Inventory for single-family

ties of urban living.”

Both existing and new

homes was tight before

construction and fix-andflip properties. S I N G L E - FA M I LY R E N TA L S

the pandemic, and the

be interested in selling

application screenings to

help revitalize distressed

increase in demand

their homes. Investors

ensure tenants’ ability to

from those fleeing to the

must not only be creative

make monthly rent.

properties and turn

suburbs—combined with

to expand their targets

record-low interest rates

but also consider rehab-

for homebuyers—means

to-rent properties or even

that demand far outstrips

build-to-rent projects

supply. According to the

instead of simply buying

National Association of

existing housing stock.

Realtors in August, housing inventory in the top 50 U.S. metros declined 38% year over year. This means investors will need to be more creative than ever in finding good investment properties.

The good news for SFR investors is that if they can acquire a good property, the trend toward the suburbs and rental homes means that rent rates should remain solid for a long time. Despite

Investors are pros at

eviction moratoriums

using creative marketing

being extended in many

strategies to uncover

markets, investors are still

potential buying oppor-

buying properties where

tunities before they reach

available. This is an area

the MLS. Currently, we’re

to watch though. As these

hearing of investors going

eviction moratoriums

back to grassroots door-

expire and unemployment

to-door canvassing to network and learn who might

Investors need to move quickly when they find the right property to add to their portfolios, which means knowing they

them into sought-after homes for sale or rent. Investors who find these properties and rehab them appropriately for the area will see after-repair

have the cash or avail-

values in a tight market

able debt exposure to

remain strong.

make a deal as soon as they’re confident the numbers pencil out. Ask your lender if they have a pre-approval program or line of credit you can get qualified for to ensure you have ready access to capital when needed.

Investors who focus on fix-and-flip rehabs must understand trends that are driving buyer demand. As mentioned earlier, parents who are working from home or have kids learning virtually have a renewed interest in larger

F I X-A N D - F L I P PROPERTIES

homes that include a ded-

The tight housing mar-

room for homeschooling.

ket means that the need

These features can dif-

for affordable housing

ferentiate one investor’s

remains high, it’s import-

is stronger than ever.

house over another and

ant to conduct thorough

Fix-and-flip projects can

offer increased margin

icated home office and

R E I I N K 11

REI INK

PERSPECTIVE

opportunity on larger

A September report from

134% year over year, add-

Inventory is extremely

projects. Whether these

CoreLogic shows, how-

ing an additional $14,000

tight, and the competition

are separate dedicated

ever, a significant spike

to the cost of a new house

for good investment prop-

spaces, finished attics

in delinquent mortgages.

or basements, or added

on average.

So, depending on the

ADUs and she-sheds,

duration of the pandemic

such rooms will drive up

and prolonged unemploy-

construction budgets.

ment for many millions,

Still, they should provide a

it’s certainly possible that

return on investment that

distressed sale increases

is worth the initial outlay.

could follow.

The fix-and-flip and fix-to-

N E W C O N S T R U C T IO N

rent investment strategy boomed out of the 2008 financial crisis. Many veteran investors are poised to capitalize if a similar surge of foreclosures happens in the coming months. This means many investors who believe the end of mortgage deferments and prolonged unemployment could open buying opportunities in the months ahead are keeping powder dry to be ready. But with home prices continuing to climb, demand at all-time highs,

In a normal year, fall typically means a slowing trend of new home starts and sales, but 2020 bucks the normal trend. According to the National Association of Realtors, “the strong summer sales are an indication that the pandemic merely delayed rather than

Although prices continue to climb, they are not enough to offset demand and the surge of families moving to the suburbs and rural communities. New home starts in July were at their highest level since February and are showing no signs of falling off. Many of our builder clients experienced 2-3 months of not being able to get on job sites or get permits or inspections. They are playing catch up as well as

indications that contract

We’re still in the midst of

immediate future, particularly in the suburbs.”

they find a property. Investors who are agile in their approach, quick in their response and aware of the ever-evolving market trends are poised to be the most successful in this market. Whatever your preferred type of investment property, you can put these keys to work as you develop a successful approach to residential real estate investing.

the most unusual times and there’s great uncertainty about what lies ahead. But investors who

and under 4% of mort-

Land, labor and lumber

gaged properties with

prices continue to soar

negative equity, the pros-

and are certainly adding

properties that meet the

pects of a buying oppor-

to the cost of a newly built

new demands of renters

tunity like we saw for

house. According to a

and buyers find the prop-

investors in 2008 seems

recent Forbes article, the

erties are being rented or

unlikely at the moment.

price of lumber is up

purchased at record pace.

12 OC TOBER 2020

able to move quickly when

rent market conditions.

market. … There are no activity will wane in the

pete, investors must be

trying to capitalize on cur-

M A I N TA I N F L E X I B I L I T Y, M OV E Q U IC K LY

obliterated the spring

erties is fierce. To com-

can find, rehab or build

Josh Craig is the

chief revenue Officer at Lima One Capital.

For more information, visit limaone.com.

Achieve Strategic Goals and Realize Greater Efficiencies Lenders, owners, and investment groups trust ServiceLink’s Nationwide Single Family Rental Services: • Centralized Title and Close Services • Property Inspections • Auction Services • Valuations

Ready to meet and exceed your investment objectives? Contact ServiceLink today to learn more about our services. svclnk.com/investors | SFRTeam@svclnk.com

REI INK 13

REI INK

AC Q U I S I T I O N S

TAPPING INTO TRILLIONS Using self-directed IRAs for private funding BY S A R A H S H E L L A M

hether you are a

private financing, many

money available for use in

first-time home-

investors prefer self-

IRAs, it’s nearly impossible

buyer, an experienced

directed IRAs (SDIRAs) to

not to be curious about

fix-and-flipper or an

fund their deals time and

how to use those funds for

expert in rentals, there is

time again.

private funding.

always a need for funds.

Did you know you can

For lenders and borrowers

easily create your own

alike, private loans with

private financing source

SDIRAs have provided

when you establish a

opportunities for success-

Investors will always need money for deals, and sometimes traditional bank loans aren’t available

relationship with a private money lender that utilizes an SDIRA? The potential to have the funding within

MANY INVESTORS

days is just one of the

PREFER SELF-DIRECTED

afforded by the money-

IRAS (SDIRAS) TO

many exciting possibilities borrowing aspect of self-directed IRAs. Best

ful deals and have given investors options outside traditional bank loans. So, whether you’re looking to borrow private funds or loan out your own, here is everything you need to consider.

FUND THEIR DEALS

of all, SDIRA loaning

TIME AND TIME AGAIN.

and the borrower to

WHY USE A S E L F - DI R E C T E D I R A F O R P R I VAT E F U N DI N G ?

decide on the terms of the

As mentioned, some-

allows the SDIRA lender

investment together. According to a recent

from a bank or hard

study from Investment

money lender just doesn’t

Company Institute, $28

work for unique funding

trillion are in retirement

situations. Especially in

assets. Of that, $9.2 trillion

a market like real estate,

Although there are plenty

was reported to be in IRAs

in which investors seek

of options available for

alone. With that much

creative strategies, having

to everyone. Or others just prefer the flexibility of setting their own terms on a deal.

14 OC TOBER 2020

times a traditional loan

a private financing option

collateral and frequency

Another advantage is

is almost necessary.

can be made together,

being able to pool IRAs

between the lender and

and individuals together

the borrower.

for a loan if one party

their retirement funds on

Flexibility is a huge ben-

does not have sufficient

their terms, as decided

efit when using private

and agreed upon with the

funding from an SDIRA.

borrower. These agree-

The time frame to have a

ments are usually more

private loan funded is one

customizable than reg-

of the many advantages

ulated bank loans, and

that draws investors to this

typically the interest rate

outlet of private financing.

works out in favor of both

Whereas applying for a

parties, making it a great

traditional loan can be

investment for a lender

a lengthy process, get-

sibly higher returns than

and their SDIRA. Decisions

ting funds from an SDIRA

traditional investments

about everything from

lender can take less than

when loaning with their

the principal amount,

a week, depending on the

SDIRAs. Due to the sim-

interest rate, time period,

IRA custodian.

plicity and ease of private

With a self-directed IRA, investors can loan out

funds to meet the loan amount. The flexibility of a private agreement makes it possible for two or more IRAs or people to come together to supply the total amount to loan out. A benefit for lenders is they get a tax benefit and pos-

R E I I N K 15

REI INK

AC Q U I S I T I O N S

loans, they have become

time the investment may

custodian. Once the

entity, which makes the

one of the most common

last and, in the event the

lender and borrower have

SDIRA the lender, not the

SDIRA investments. This

money is not paid back,

agreed upon the terms of

account holder. All the

means private funding is

whether the investment

the investments, invest-

income goes back into the

not projected to ever be

is something the lender

ment documents such as

SDIRA.

in short supply.

would want to own.

the promissory note are

C O N S I D E R AT IO N S W H E N P R I VAT E L E N DI N G A N D B O R R OW I N G W I T H S E L F - DI R E C T E D I R A S

Just as banks have a certain set of criteria when vetting someone for a loan, private lenders typically will as well, although the requirements are usually different and fewer. Factors a private lender may consider are the borrower’s credit scores, the investment loan to value ratios, the amount of

These are just a few considerations a lender

drafted and submitted to the IRA custodian.

Borrowing from a bank can be time-consuming and stressful, but private

may have. As a borrower,

Custodians will differ on

lending doesn’t have to

it is wise to have a suc-

their steps to fund the

be. Private loans with an

cess book (if applicable)

loan, but generally once

SDIRA are great invest-

and be able to properly

the investment docu-

ments proven to benefit

present your investment.

ments are reviewed and

all parties, from those

Usually there is a higher

signed, the custodian

seeking private funds for

approval rate for borrow-

will issue the funds to the

their deals to the SDIRA

ers seeking a private loan

borrower from the IRA.

lenders themselves. If you

versus a traditional loan.

The borrower will then

have questions about how

make payments, accord-

SDIRAs can be a source of

ing to the frequency and

private financing, be sure

amounts agreed upon

to give an IRA specialist a

in the loan, back to the

call at an SDIRA custodian

IRA. It is important to

you trust.

H OW T O G E T P R I VAT E F U N DI N G F R O M A S E L F - DI R E C T E D I R A

The first step is to find a lender that has an SDIRA established or is willing to go through the steps

remember that an SDIRA is its own legal financial

to establish a retirement account with an SDIRA

Sarah Shellam, CISP, is a certified IRA specialist at Quest Trust Company and has been with the

company for almost four years. She recently took on the position of marketing content writer, where she researches and writes various educational self-directed IRA articles.

Shellam attended the University of North Texas and received her bachelor’s degree in journalism. In her spare time, Shellam likes to hike and travel in her tiny house that she actually built herself.

16 O C T O B E R 2 0 2 0

R E I I N K 17

REI INK

AC Q U I S I T I O N S

THE IMPORTANCE OF INCLUDING HOAs IN YOUR DUE DILIGENCE Your real estate due diligence checklist isn’t complete if it doesn’t include homeowners’ associations. BY G IOVA N N I L AG O

he need for due diligence in real estate

transactions should go without saying, but many buyers fast-track through some important areas of the process. Whether you’re a first-time homebuyer or an investment institution, ensuring your due diligence stage is thorough and complete is nonnegotiable. Most, if not all, real estate transactions have similar pathways to closing day. General due diligence items include inspections, appraisals, insurance verification and title searches. These items are essential to making appropriate

18 OC TOBER 2020

days from acceptance of

of your investment, includ-

the offer.

ing your resale value,

H O M E OW N E R A S S O C I AT IO N D U E DI L I G E N C E

For most transactions, the process can seem

rental cash flow and overall marketability. So, what must you do during the due diligence stage to make a sound

straightforward, but for

investment?

the more than 53% of

Homeowner associations

properties belonging to a homeowner association, the task list can grow long quickly. According to HOA USA, there are more than 351,000 homeowner associations governing homes across America. Buyers purchasing in a condominium, cooperative or planned community must look at several aspects of

are governing bodies, controlled by a homeownerelected board of directors, to carry out the daily business of the community. Whether for a townhome, condominium or singlefamily home, homeowner associations are in place to create a standard, maintain communities and enforce rules. Directors can use

that association before

homebuying decisions,

their governing documents

signing on the dotted line.

to carry out those functions

and they often must be

Homeowner associations

and establish the standard

carried out within 10-17

can affect several aspects

each new member must

abide by. These documents

E xterior storage

such, they have financial

both operating expenses

are referred to as CC&Rs—

N oise-level

components that need to

and long-term repairs.

be reviewed to ensure

Insufficient assessment

financial stability. Assess-

dues collection and lean

covenants, conditions and restrictions. C OV E N A N T S , C O N DI T IO N S A N D R E S T R IC T IO N S

Requesting the governing documents and reviewing them is vital in the due diligence efforts, particularly for investors evaluating a property’s ROI. The CC&Rs will dictate whether a property has: 1) Rental restrictions 2) Pet restrictions 3) Resident Behavior standards

compliance H oliday decoration A rchitectural modification requirements

While most of the information needed will be in the governing documents, it is not the only set of documents that should be evaluated. Other documents that can provide a better sense of how the association is run, what repairs or projects are upcoming and an overall sense of the community are the board meeting minutes and com-

ment of the association’s financial statements and budgets can provide better insight as to how effective the association is running the community and the impact it could have on the property’s value. Items represented as bad debts and misallocation of capital expenses should be of utmost interest. These are indications of the association’s financial distress or mismanagement.

budgets can often lead to HOA-imposed special assessments, leaving owners to cover a portion of large repairs. According to an article in Investopedia, “a good standing association will have 25% gross income in reserves for emergencies and repairs.” INSURANCE M A S T E R P O L ICY

It is important that the association’s master policy

munity newsletter.

Ensure the association

FINANCI AL STATEMENTS AND BUDGETS

A reserve study provides

unit or home. Review the

area manners

insight into the asso-

policy carefully, noting

Homeowner associations

ciation’s ability to use

what is or is not covered

V ehicle registration

run like businesses. As

assessment funds for

and whether additional

V isitor hours C ommunity access C ommon

has sufficient reserves.

has coverage that can extend to the individual

R E I I N K 19

REI INK

AC Q U I S I T I O N S

insurance for the property is required. It is important to understand what insurance coverage is available and provided through

B OA R D L I T IGAT I O N H I S T O RY

Homeowner associations can find themselves in various litigation matters.

PURCHASING PROPERT Y WITHIN A N H OA

property you may purchase is located or how

both the seller and the

the property is governed

S TAT E M E N T O F AC C O U N T

buyer. While disclosure

(homeowner association

Known throughout the

requesting information

U.S. as a demand letter, paid assessment letter, resale document, etc., the statement of account gives you the breakdown of all the association’s fees and charges to the homeowner. Additionally, it will provide you with an overview of where the account currently stands and an opportunity to review any violations that should be corrected before closing. This includes potential fees for nonpayment and violations.

laws exist for each state, regarding any litigation issues is important when determining if a property is a good investment. Some common litigation issues for associations can be tax issues, contractor liens and owner unpaid dues. An article on Investopedia states that “some condo and homeowner associations have been forced into bankruptcy for unpaid HOA dues.” This can have implications on the property’s earning potential, resale value and rental property return.

consequences of

any violations of the

Regardless of where the

These matters can affect

your assessment dues.

5) What are the

or not), due diligence is a key component in real estate transactions. When purchasing a property, it is important to ask yourself questions that will shape your decision. For investors, it is important to ask: 1) How can the HOA’s

rules be modified or amended?

2) How is the HOA board elected (or removed)?

3) What ownership does the HOA board hold?

4) How are HOA meetings called?

HOA’s rules?

6) What is the renter’s application and

approval process? Buying a home is a major decision, and due diligence should always be part of the equation. For those purchasing to live in a property, you want to know your property is free of any major issues or damages and that there will not be any surprises. If you are purchasing as an investment, ensuring it will make money even before buying it is crucial. And, while due diligence may look different for individual homebuyers and investors, ensuring proper time and effort is allocated remains the same.

Giovanni Lago is the director of operations at Precedent Management in Doral, Florida. Precedent

Management represents mortgage lenders and servicers, SFR investors and title companies in asset management in multiple areas (homeowner association, taxes, utilities and code compliance).

Lago has a decade of real estate experience in transactional, property management and servicing. He holds an MBA from Florida International University, specializing in real estate finance. Lago can be reached at (786) 636-8614 or GLago@precedentmgmt.com.

20 OC TOBER 2020

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BRIDGE

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© 2020 Civic Financial Services All Rights Reserved. This is not a commitment to lend. Restrictions may apply. LTV limit is based on current, accurate appraised value. Civic Financial Services, LLC reserves the right to amend rates and guidelines. All loans are made in compliance with Federal, State, and Local laws. Civic Financial Services, LLC is a California Finance Lender under NMLS 1099109 and the California Department of Business R Oversight #603L321, E I I NLicense K 21 AZ Mortgage Broker License #092863, FL Mortgage Lender Servicer License #MLD1536, ID Mortgage Broker/Lender License #MBL-9610, NV Mortgage License MB4419, NV Broker License #4443, NV NMLS ID #1410002, OR Mortgage Lending License #ML-5282, UT DRE Mortgage Entity License #10570639. Civic Financial Services, LLC is an equal opportunity lender.

REI INK

PROFILE

A HISTORY OF COMMITMENT TO GROWTH IN REAL ESTATE Radian combines strategy, innovation to support the American Dream. BY CA R O L E VA N S IC K L E E L L I S

22 OC TOBER 2020

ingle-family rental

expertise. On average,

the single-family space,”

real estate is an

our management team

Reilly said. “We try to stay

institution that arguably

has more than 25 years’

dates to feudal times, and

experience each in real

ahead of where the indus-

the single-family rental

estate, and we are the

has existed in various

longest-standing REO

forms in the U.S. since the

asset management pro-

founding of Jamestown.

vider with a launch date

Radian may not date to

of 2003,” Reilly said.

colonial days, but the

This long tenure in the

company does boast more than four decades in the mortgage insurance and SFR services space.

industry and with the company means that Radian brings serious horsepower to the table.

The roots of Radian run

And it shows when it

deep, and they’ve grown

comes to both working

even deeper due to the

with investors and evolving

efforts of corporate

as the industry changes.

leaders dedicated to

For example, the com-

reimagining real estate whenever necessary. “We looked very different back in 1977, when we first established ourselves in the mortgage industry as Commonwealth Mortgage Assurance Company (CMAC),” said Tim Reilly, executive vice president of asset management operations. Reilly, like most Radian employees, has a long history with the company and

pany was the first to be involved with valuation of single-family rental securitizations in 2013 when the asset class debuted, and it has been involved with every subsequent issuance in that sector as well. Radian also provided due diligence and valuation guidance

try is going, so we can anticipate what our clients may need.” B U I L DI N G U P WA R D A N D O U T WA R D FOR DECADES

Radian’s roots are in the mortgage industry. Its predecessor company, CMAC, was founded in 1977. After CMAC went public in 1992, the company spent another seven years focused on growth before merging with three Amerin companies to form Radian. “We have always been focused on the power offered by data-informed technology,” Reilly said. “Our business revolves around delivering new and better ways for our clients to conduct real estate transactions and

when government-

manage risk.”

sponsored enterprises

To that end, the company

launched a pilot program for financing SFR securiti-

debuted the first-ever mortgage insurance

in the real estate industry.

zations (see timeline).

“At Radian, we have tre-

“We have a broad reach

Rates, in 2012 and

mendous experience and

across capital markets in

acquired established

rate-quote app, Radian

REI INK 23

REI INK

PROFILE

REO asset management

“One thing we have learned

investors sometimes may

provider Green River

over this journey of build-

fear getting lost in the

Capital in 2014. The

ing up Radian as a business

shuffle—even really big

evolution continued with

serving real estate inves-

clients managing massive

the 2015 acquisitions of

tors and the real estate

SFR portfolios. Radian

Red Bell Real Estate LLC

industry is the importance

and ValuAmerica, both

of listening carefully to

of which contributed to

investors and the industry,” Reilly said. “We are always watching and listening to determine what will best

OUR PEOPLE ARE OUR DIFFERENCE. WE RELY ON THAT DIFFERENCE TO ENABLE US TO SUCCESSFULLY CREATE SHAREHOLDER VALUE, PARTNER TO WIN AND ALWAYS DO WHAT’S RIGHT. THAT IS ALL PART OF ENSURING THE AMERICAN DREAM, WHICH WE HAVE BEEN DOING SINCE 1977.

serve our clients next and what will better serve them at this moment.” Radian’s most recent acquisition of Five Bridges Advisors LLC, which was recently rebranded as Radian Technology Services, is one such for-

powerful tools to our

intelligence, machine

and closing services. The

tional econometric tech-

and new machine-learning and artificial intelligence

24 OC TOBER 2020

data analytics, artificial learning and more tradi-

management technology”

core values and Code of Conduct and Ethics, usually referred to as “The Code” in company vernacular, spans all aspects of the Radian family and keeps the focus on “acting with integrity…and making good decisions.” It keeps focus squarely on clients across the board. and breathe these core

load via centralized title

“cutting-edge vendor

Reilly explained, Radian’s

“Five Bridges brought

to reduce risk using

company also obtained

under its umbrella. But,

“Our employees espouse

strengthening our ability

streamlining client work-

dozen unique companies

ward-thinking move.

arsenal, including

T I M R E I L LY

encompasses more than a

values every day because they define who we are as an enterprise,” Reilly said. “Our people are our difference. We rely on that difference to enable us to successfully create shareholder value, partner to

niques,” Reilly said.

win and always do what’s

KEEPING CORE VA L U E S C L O S E T O THE HEART AND N E A R T H E S U R FAC E

ensuring the American

right. That is all part of Dream, which we have been doing since 1977.”

resources via acquisitions

With a company as big

Those values, in conjunc-

in 2018 and 2019.

and varied as Radian,

tion with the company’s

extended track record

market with a new institu-

Because Radian SFR clients

evaluation strategies to all

in the industry, played a

tional sponsor,” Reilly said.

may own upward of 85,000

our clients, be they huge

significant role in Radian’s

Radian was involved in the

properties, the company

institutions or regional

has been able to leverage

players with fewer than

its relationships and expe-

10,000 properties in their

rience serving clients at all

portfolios,” Reilly said.

evaluation of a brand-new, industry-altering product in 2013.

due diligence on that very first SFR securitization and has been involved with

“It was a brand-new [for

every single subsequent

portfolio volumes.

the time] type of securi-

single-borrower issuance

“We use that experience

ents are borrowers, aggre-

tization that a large bank

since—about 52 deals

to apply the appropriate

gators and sponsors in the

was forming to take to the

over the last seven years.

levels of technology and

SFR space, the company

Because many Radian cli-

SFR’S “BEST DAYS” ARE STILL AHEAD

s of the end of August 2020, Radian executive vice president of asset management operations

to Freddie Mac’s 2019 housing survey, about 2 in 5 renters said they would “likely never” own a home (up

Tim Reilly estimated there were roughly 17 million

from fewer than 1 in 5 in 2017) and 4 in 5 renters said

SFR properties in the country. On top of that generous

renting was a “better fit for their current lifestyle.” The

estimate, Reilly predicted the space would see even

COVID-19 pandemic is likely to magnify those numbers

more growth in the coming year.

as more households find it preferable to be able to

“The SFR is the darling of real estate asset classes right

move relatively quickly and home prices in most areas

now, and that is in the middle of coming through and

of the country continue to rise.

out of a pandemic,” Reilly said. “This is due in large

Reilly cited SFR owners’ ability to implement technolog-

part to the way that institutional and midsize players

ical updates and changes quickly on a national level as

in the industry have been building over the years by

crucial to the success or failure of companies in the space.

deploying sophisticated, customer-centric operations

“Those who had the right vendor partners and the

and technology in their business plans.”

right networks in place were able to create positive

Reilly predicted that 2020 and 2021 will see a

outcomes for residents and investors. Capital market

resurgence and growth in the population of lifestyle-

investors have already taken notice and like what they

based renting households, those that are not renting

see,” Reilly said. “That’s during a pandemic! That tells

out of necessity but rather by preference. According

me the industry’s best days are still ahead of it.” REI INK 25

REI INK

PROFILE

THE R ADIAN TIMELINE: 1977-PRESE NT

feels it serves an essential role in the juxtaposition of lending and borrowing in

1977: Established in the mortgage insurance industry as Commonwealth Mortgage Assurance Company (CMAC) 1992: CMAC goes public 1999: CMAC merges with Amerin companies to create Radian

and its mortgage insurance subsidiary, NYSE:RDN

2003: Green River Capital (parent company, Radian) launches

REO asset management services, making the company the longeststanding REO asset management provider in the industry

2012: Radian debuts the first-ever mortgage-insurance rate quote

app, Radian Rates

2013: Green River Capital approached to do due diligence

and valuation of a new SFR securitization, leading to Radian’s involvement in every subsequent borrower issuance of that nature from that time forward

2014: Radian officially acquires Green River Capital, an established REO asset management provider 2015: Radian adds title and closing services to its offerings,

the industry. A P OW E R F U L T E A M PUTTING CLIENT SUCCESS FIRST

While humility is not mentioned specifically in The Code, Reilly said it is one of the things he is proudest of about his own asset management services team. “Many of my team members are recognized as subject-matter experts in the industry. They have industry accolades dating back to 2014 when the SFR space really took shape,

partners with the Asian Real Estate Association of America, the National Association of Hispanic Real Estate Professionals, and the National Association of Real Estate Brokers to “help lenders better serve homebuyers”

and they still are laser-

2017: Radian provides due diligence and valuation services for

Reilly said. “It might

government-sponsored enterprises SFR-financing pilot program

2018: Radian Title Insurance brings title and settlement services

directly to homebuyers, Radian acquires cutting-edge vendormanagement technology

Radian unveils its One Radian model, blending decades of risk-management expertise with the power of data, technology and analytics.

2019: Radian acquires Five Bridges Advisors LLC to strengthen resources and the ability to reduce risk using data analytics, AI, machine learning and traditional econometric techniques.

26 OC TOBER 2020

focused not on those accolades but on the success of our clients,” sound strange to say, but I’m super proud of the humility that keeps client success as a core value in our organization.” Sometimes, Reilly admitted, that laser focus can lead to learning opportunities when the team gets overzealous about

investors would need

RENTING SINGLE-FAMILY HOMES IS NOT JUST A PASSING FAD.

soon. Although Reilly

T I M R E I L LY

preparation for the future. He recalled a project that called for a certain type of predictive tool he and his team believed SFR

still believes the tool is

his team and elsewhere in the industry, the group was able to leverage the work on that tool toward other predictive and analytic tools that more users wanted at the time. “That’s what happens sometimes when you are attempting to form

are choosing a renting lifestyle, moving from densely populated urban centers to single-family homes. Investors in this their strategy and plan will be in order to serve

kind of fell flat.” to clients and experts on

“More people, not fewer,

space must know what

useful, he admitted, “It Fortunately, by listening

passing fad,” he said.

this population.” have the ability to provide

be particularly evident

the tool and its services

in portfolios where the

should we need to do so.”

owner has established

EXECUTING U P DAT E D, T I M E LY S T R AT E G I E S I N 2 02 0 A N D B E YO N D

thoughtful, timely plan

One thing Radian prides itself on is foresight—leveraged for the good of the client and shareholder, of course. In 2020, that

and implemented a clear, of action for dealing

Radian believes its longestablished relationships with large- and midsizeportfolio owners will serve all clients in 2020

with the year’s variety of

and forward.

unexpected and unprece-

“They all have forged

dented events. Radian’s data, metrics,

business plans in this space already,” Reilly

valuative technology and

explained. “They have

decadeslong experience

the right technology, the

in the SFR space will be

right partners and the

products for an industry

predictive, analytic ability

that barely exists yet!”

is coming to bear in a

Reilly said. “Fortunately,

new way that will benefit

the experience led us to

both property owner and

hone our listening skills

residential renter. The

“Renting single-family

the industry’s best days

even further, and we still

benefits, Reilly says, will

homes is not just a

are still ahead.”

there for reference and guidance every step of the way, Reilly said.

right networks to deal with the fallout in times of crisis. Smart money says

Carole VanSickle Ellis is the chief operations officer for the Self Directed Investor Society. She is the featured writer for REI INK and

also provides written content for other select publications, including Huffington Post and Motley Fool’s Millionacres. Ellis is the former editor of UGA Research magazine, a sought-after keynote speaker and host of the popular 9-minute real estate podcast, REI.Today. You can reach her at Carole@rei-ink.com.

R E I I N K 27

REI INK

REGIONAL SPOTLIGHT

28 OC TOBER 2020

PITTSBURGH, PENNSYLVANIA The Steel Cityâ€™s innovative spirit

keeps the market hot under duress.

BY CA R O L E VA N S IC K L E E L L I S

ittsburgh, Pennsylvania, has not historically been a city of extremes. During the housing boom, the

subsequent housing crash and the Great Recession of the early 2000s, property values remained largely flat relative to the dramatic swings in the rest of the country. During the last 30 years, unemployment rates have never ventured into double-digit territory. Instead, they have remained firmly between 4% and 7%, with the notable exception being 8.3% in March 2010. When it comes to population, the city has little to offer in the way of fireworks either. In fact, Pittsburghâ€™s population has been in a long, slow decline since the 1980s when the steel mills closed en masse. However, even that usually troubling metric has not created a terrible furor in the local economy. Pittsburgh has boasted substantially higher per-capita incomes than national averages since 2010, thanks to

REI INK 29

REI INK

REGIONAL SPOTLIGHT

Then, when the housing market crashed, the nearly flat growth created enormous opportunity for developers who purchased entire portfolios of homes in the Steel City, renovated them and sold them over the next decade as the local housing market heated up. “That is where I started,” said local developer Al DePasquale, who purchased an 18-property single-family portfolio in 2007 for $360,000. Today, those properties sell for about $475,000. Many economists and analysts believe that Pittsburgh’s slow population decline is being offset by the growth potential created by STEM jobs through local univera thriving STEM (science,

ing experience if they take

the years. For example,

technology, engineering,

the time to understand the

in early 2007, Pittsburgh

math) economy and a

unique dynamics of the

supportive environment

metro area’s economy.

home values seemed to

for oil and gas and natural gas businesses.

Pittsburgh’s relatively steady metrics, both pos-

lag far behind the rest of the country; nearly a third of the city’s homes were

For real estate investors,

itive and negative, have

decreasing in value while

investing in Pittsburgh can

created enormous oppor-

the rest of the country’s

be an extremely reward-

tunity in the market over

real estate values soared.

30 OC TOBER 2020

sities such as Carnegie Mellon and the University of Pittsburgh. Both schools sponsor tech incubators dedicated to keeping graduates in the local area by helping them start companies in Pittsburgh rather than moving to Silicon Valley or San Francisco.

According to Pew

PITTSBURGH BY T H E NU MBE RS

Charitable Trusts data, about 7% of all jobs in Pittsburgh are STEM jobs. Along with business, management, and arts and media jobs, those

12.5%

UNEMPLOYMENT RATE IN THE PITTSBURGH METRO REGION (compared to 13% for Pennsylvania and 11% nationally)

NUMBER OF METRO MARKETS THAT REGAINED A HIGHER PERCENTAGE OF JOBS THAN PITTSBURGH DURING THE FIRST HALF OF 2020

PERCENT THAT SINGLE-FAMILY RESIDENTIAL CONSTRUCTION STARTS COULD BE UP BY THE END OF 2020 IN PITTSBURGH

25%

RANK, BY SIZE, OF PITTSBURGH INLAND PORT, WHICH IS THE SECOND LARGEST IN THE NATION

PITTSBURGH REGION’S RANK IN THE U. S. FOR IT DEGREES (in large part due to the presence of Carnegie Mellon University, home to the country’s top graduate program in computer science)

AMOUNT MEDIAN LISTING PRICES ROSE IN PITTSBURGH YEAR-OVER-YEAR IN JULY 2020

302k

13%

POPULATION OF PITTSBURGH AS OF AUGUST 2020 (vs. 333,000 in 2010)

THE AMOUNT THE COST OF LIVING IN PITTSBURGH IS BELOW THE NATIONAL AVERAGE

NUMBER OF COMMERCIAL RAILROAD SYSTEMS IN PITTSBURGH

STEM positions have contributed to productivity and income growth in the city even as the population continues to decline. Thanks to the presence of fracking company Marcellus Shale, which made Pennsylvania a top producer of natural gas in the U. S. after moving operations near Pittsburgh in the mid-2000s, the Pittsburgh economy may still be considered healthy even in light of its population decline. “CHILLING” U N C E R TA I N T Y

One possible cloud (or silver lining of opportunity) for Pittsburgh investors is declining new construction. Despite 2020’s rising home values and skyrocketing listing prices, the Pittsburgh market is facing a potentially troubling 2021 if

R E I I N K 31

REI INK

REGIONAL SPOTLIGHT

BREAKING DOWN THE PITTSBURGH EMPLOYMENT REBOUND

ittsburgh trends do not tend to be V-shaped, so

the metro area’s recovery of more than half of all

jobs lost in spring 2020 has been a surprising bright

point for the city. By the end of July 2020, the market

had regained 53.1% of the 202,300 jobs lost between February and April due to COVID-19’s stay-at-home

mandates and distancing orders. The metrics behind which positions have returned and which ones may

be gone forever could play a huge role in the future strength of the Pittsburgh housing market.

Of the jobs lost this spring, about two-thirds (67%)

were in the fields of leisure and hospitality, construction, retail, and health care and social assistance sectors. However, about 9 in 10 jobs added back between May and the end of July were in these sectors.

volatility. However, it is noteworthy that the area’s

unemployment numbers remain slightly higher than the rest of the country. This may be due in part to Amazon’s recent decision to cut ties with several Pittsburgh-area and Philadelphia delivery services. The move resulted in the loss of more than 600 jobs in one fell swoop.

Although Amazon recently made a public statement

about the decision and insisted, “Amazon is working closely with all impacted drivers to ensure they find opportunities to deliver Amazon packages…with

little to no disruption in pay,” the local companies

have filed notices indicating they will lay off hundreds of employees as a result of “a major client abruptly

ending our contract, causing this unforeseen business

circumstance,” in the words of one filing. The situation

Pittsburgh’s economic core is further bolstered by

is not unique to the Pittsburgh area; Amazon has been

lose their jobs but converted to remote-work settings,

company is currently seeking to fill nearly 1,500 jobs in

or in person to the area’s multiple educational

The Steel City is often held up as a positive example of

financial services employees, most of whom did not

canceling contracts across the country. However, the

and educators, who are likely to return either online

new fulfillment and distribution centers in Pittsburgh.

institutions this fall.

the kind of economic transformation that is possible

The strong presence of health care and healthcare-

when a city focuses on recruiting the right types of

presence of a resilient, recession-resistant population

base for residents. However, Pittsburgh also is uniquely

manufacturing sector for high-tech medical devices

need of transformation thanks to the presence of elite

continues to grow, contributing to accelerated job

paying essential, but relatively unskilled positions in the

more jobs in lower wage brackets in a ripple effect.

The city’s steady growth trajectory in all areas outside

related services in the returning jobs data indicates the

companies to provide solid jobs and a sound economic

of residents in the area. Furthermore, the city’s thriving

advantaged among midsized and 18-hour cities in

has become more prominent in the last decade and

academic institutions, a significant subset of well-

growth in high-earner positions that tend to create

fracking and oil-and-gas industries, and STEM sectors.

Overall, the population returning to work in Pittsburgh is

one likely to retain employment in the event of a “second wave” of coronavirus infection or other economic 32 OC TOBER 2020

of population expansion create a heated but largely solid market in which investors can place capital, expand portfolios and grow.

construction starts do not

interview published in

catch up to projections.

mid-August. Although

Local developer Jeff Burd,

Biden has said he does

owner of the Tall Timber Group and a local publisher focusing on development and construction, initially estimated project starts in the area would reach $4.8 billion this year.

not want to ban fracking outright, his current cli-

SURVIVED AND EVEN

new oil and gas permits

THRIVED IN SITUATIONS

in certain scenarios, and many believe his adminis-

THAT MIGHT HAVE SENT

tration would seek to go

OTHER CITIES INTO A

farther once in office.

only about a third of the

O’Brien cited concerns

“It’s the economic uncertainty that is chilling construction,” Burd observed. Another potential fly in the ointment for the Pittsburgh economy could be the presidential elec-

INHERENT RESILIENCE OF

in the fall and a “wait-and-

ITS DIVERSE JOBS MARKET.

see” attitude about the presidential election for much of the construction slowdown in the area. “I think little by little, it [construction] is picking up more and more,” he said.

tial nominee Joe Biden

Burd noted single-family

official campaign stop following his acceptance of his party’s nomination in August, but not everyone was happy to see him. Biden is well known as an

LONG DECLINE IS THE

over COVID-19 resurgence

tion. Democrat presidenmade the city his first

PITTSBURGH HAS

mate proposal would ban

However, the tally was way there as of June 2020.

ONE OF THE REASONS

construction is up in the area by about 5% for the year so far, although that is about 2.9% lower than this time in 2019. Pittsburgh has a shortage of available lots for

R E S I S TA N T I N D U S T RY S E C T O R S

One of the reasons Pittsburgh has survived and even thrived in situations that might have sent other cities into a long decline is the inherent resilience of its diverse jobs market. Although the metro area lost more than 202,000 jobs in February, March

“anti-fracking, anti-oil and

single-family housing,

-gas” candidate, explained

however, so residents may

Jon O’Brien, executive

have to turn to multifamily

director of the General

options. Either way, there

Contractors Association

is still pent-up demand in

the end of August.

of Pennsylvania in a

the region simply because

“What helps us is our

Pittsburgh Post-Gazette

inventory is so limited.

concentration in profes-

and April 2020, the city had made up more than half of those positions by

REI INK 33

REI INK

REGIONAL SPOTLIGHT

sional services, financial

and BNY Mellon, main-

ing areas, but the ongoing

“[Education] accounts

services, education and

tained almost all their

loss of state and municipal

for higher employment

health care … industries

employment base by

revenues “will likely offset

here than the country as

that are rebounding

converting to a remote-

some of the [economic]

a whole,” Futrell said. “As

quicker and will help

working environment.

gains” in the area.

school resumes, that, too,

However, like most other

The education sector

will rebound.”

trends in Pittsburgh, it is

represents another bright

With its history of over-

unlikely the recovery or

spot in the economy, since

coming obstacles in

economic turnaround will

most local experts expect

surprising ways,

be particularly striking or

that school reopenings,

Pittsburgh seems well-

expedient. According to a

virtual or otherwise, will

positioned to enter 2021

He noted that many large

report the ACCD released

directly result in another

steady and strong.

financial employers in the

in August, unemploy-

employment spike.

area, such as PNC Bank

ment is dropping fast in

stabilize the economy,” said Jim Futrell, vice president of market research for the Allegheny Conference on Community Development (ACCD).

Pittsburgh and surround-

Carole VanSickle Ellis is the chief operations officer for the Self Directed Investor Society. She is the featured writer for REI INK and

34 OC TOBER 2020

PITTSBURGH AT A GL ANCE

STATI STICS, A NA LYS IS & GR A PHICS COU RTESY OF R E NTR A NGE

Current 3bd SFR Rent

5yr 3bd SFR Rent Change

3Bd Avg Rent $1,000

Rent vs Income

5yr Rent Price Increase $1,400

10.0%

Gross Rental Yields by Zipcode

Rent vs Income 28.0%

18.00%

40.00%

Avg Gross Rental Yield 7.0%

14.0%

3-BEDROOM S I N G L E - FA M I LY R E N TA L P R IC E S

5 -Y E A R R E N TA L P R IC E A P P R E C I AT IO N

R E N T-T O -I N C O M E

YIELDS

As of the 2018 census,

3-bedroom SFR average

Pittsburgh’s median

Median SFR home prices

The Pittsburgh,

In the last five years,

household income of

$200,000, gaining a

Pennsylvania, MSA is

the 22nd largest metro area in the U.S. with a population of nearly

2.35 million residents. Current 3-bedroom

SFR rental prices aver-

age $1,210 for the MSA,

making it one of the more

affordable rental markets, ranking at only 77th.

rental prices over the Pittsburgh MSA have

increased a moderate

17%, ranking the metro

in 75th place for five-year rental price appreciation. Rental price increases

have increased in Uptown Pittsburgh at 35% (dark green). Greensburg,

Mckeesport, Carnegie, Morgan and Munhall

areas have increased

25%. The sage green areas have increased 15% to 18%. The rest

have only a mild appreciation of under 12%.

nearly $60,000 ranked it 63rd amongst the

largest 100 metro MSAs. Three-bedroom SFR

rent-to-income ratio in the MSA is one of the

lowest in the country.

It averages only 24.3%, which is well below the

national average of 32%. Working class families

near central Pittsburgh have low household incomes between

$30,000 to $45,000,

which equates to some of the highest metro

rent-to-income ratios of 40% and up.

are only approaching moderate 24% in the last five years.

Gross Rental Yields (GRY), excluding expenses,

across the top 100 U.S. markets average 8.5%. The weighted average GRY in the Pittsburgh

MSA is one of the highest in the country at 10.5%.

Yields are relatively high

with nearly all areas above 6%. Some of the highest yield areas above 14%

are scattered around the central Pittsburgh area and towns to the north and south.

REI INK 35

REI INK

S I N G L E - FA M I LY

SHOULD YOU INVEST IN SINGLE-FAMILY RENTALS IN 2020? As Americans consider the need for more space,

demand for single-family rentals will likely remain strong. BY A M I E M C CA R T H Y

eal estate investing

PAT I E N C E

essential to ensure posi-

requires capital,

Patience is a must when

tive cash flow.

patience and discipline. It is a sound way to build wealth, but it is not for the faint of heart.

C A P I TA L

rentals. Selecting a property, vetting it, screening tenants and engaging the vendors needed to manage the

DI S C I P L I N E

Discipline is necessary in all investing, but it is paramount when you invest in real estate. With the

Capital is needed both to

property requires time

current strong and appre-

make the initial investment

and careful analysis.

ciating real estate market,

in a single-family property

Will you be the landlord,

and to maintain it. Are you planning to purchase a property outright or to finance it? Will you pay the taxes and insurance on your own, or will it be included in your monthly mortgage payment?

36 OC TOBER 2020

investing in single-family

or will you engage a property manager to collect rents, field inquiries and so on? Who will maintain the property? Even if you are â€œhandy,â€? you will need licensed contractors (e.g.,

will you be tempted to sell if your property appreciates significantly in a short period? Be clear about your investment timeline. Buy and hold in order to realize gains over a period of time. Despite what you hear, real estate is generally not a volatile market.

The upfront investment

plumber, electrician,

required to purchase a

and a handyman) to

single-family home can

address issues that arise

ment when expectations

be significant, despite the

with the home. Having a

are realistic. If you cannot

infomercials and seminars

team of trusted partners

afford to have funds tied

that claim otherwise.

to manage your rental is

up in an illiquid asset for

Housing is a sound invest-

several years, real estate is not for you. Owners of single-family rentals need to be disciplined about maintenance too. The last thing any neighbor wants is to live next to a rental property that is not well-kept. If you purchase a property with a yard and landscaping, pay professionals to maintain it. Do not expect your tenants to do so. Know the age of the plumbing and HVAC

that are needed than

Association of Realtors,

to respond to an emer-

sales of previously owned

gency about a mechanical

homes hit the highest rate

failure. Reinvesting the

since December 2006,

funds you earn in this way requires discipline, but you are ensuring happier tenants and lower rental turnover rates, potential investment write offs for reinvestment and positive cash flow. If you decide to sell before the property is profitable, you will be able to declare reinvestments as a carry-over loss at sale.

surging nearly 25% in July. Nearly 31 million peopleâ€”or 9.8% of the populationâ€”moved in 2019, according to the U.S. Census. In 2020, during the coronavirus pandemic, people have been leaving cities as they question whether it is necessary to reside in expensive

D R I V I N G R E N TA L DEMAND

metro areas such as New

inefficient or mature sys-

Demand for single-family

After being allowed to

tems. Itâ€™s always better to

homes is very strong.

work remotely for the last

be aware of investments

According to the National

several months, many

systems and appliances. Be prepared to replace

York and San Francisco.

R E I I N K 37

REI INK

S I N G L E - FA M I LY

employees are asking

households are becom-

Demand will continue to

for permission to relo-

ing more common, as the

increase as households

cate out of state, seeking

U.S. population ages. As

form, and as those who

more space at a lower

citizens reconsider their

are aging downsize.

cost. Multigenerational

location, most do not initially purchase a home. Instead, they rent so they can acclimate to their new locale. Affordability and supply of single-family homes is a challenge for homebuyers. Many Americans chose to rent simply because homeownership is not within their reach, given current circumstances. With COVID-19â€™s economic impact, potential buyers who suffered unemployment will be on the sidelines for a while. In 2019, more than 45 million people resided

A REAL ESTATE INVESTOR SHOULD CHOOSE A SINGLE-FAMILY RENTAL PROPERTY THAT HAS POSITIVE CASH FLOW AS WELL AS POTENTIAL FOR APPRECIATION.

38 OC TOBER 2020

in rented single-family homes, almost 40% of the population. As of March 2020, 215.23 million single-family units existed, compared to 38.58 million multifamily units, accord-

INVESTING POTENTIAL

Single-family rental properties are attractive for both income and appreciation potential. Individual investors should consider a rental property a longterm investment. Yes, there are fix-and-flippers who purchase and rehab a property, hopefully for a profit, within a short time. Single-family rentals, however, are retained as an asset, and the rents are used to maintain the property and pay the mortgage, if applicable. A real estate investor should choose a singlefamily rental property that has positive cash flow as well as potential for appreciation. Consider the following as well.

ing to Statisica. Single-

Do you want to invest

family housing units have

where you live, or in

steadily increased since

another market? Evaluate

the beginning of the 21st

the current and future

century and likely will

demand for a neighbor-

continue to do so.

hood and its appreciation

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help you establish a career in professional real estate investing. Contact us today.

855-530-9049 homevestorsfranchise.com REI INK 39

Each franchise office is independently owned and operated.

REI INK

S I N G L E - FA M I LY

potential. Suburbs with

Financing for single-

rentals may be consid-

state and local ordinances

well-rated schools, low

family rental is often done

ered a defensive play for

and regulations that may

crime rates, access to

through private lenders.

investors who have a more

impact your investment.

amenities, transporta-

Borrowing can enhance

pessimistic outlook for the

tion and short commute

your return on the rental

stock market.

to commercial areas are

property because you

important to consider.

do not need to invest the

At all times, and especially

ing strategy. Be prepared

during the coronavirus

and patient in selecting

pandemic, SFR investors

the right property, tenants

must be aware of ten-

and partners to manage

ants’ rights. The CARES

your SFR investment.

Once you have determined your location and property type, how do you plan to finance the property? Single-family rental investments allow investors to diversify their portfolios and mitigate

entire purchase price of the property up front. If you can find a property that does not require significant work and can rent it above your mortgage to create positive cash flow, that’s a win-win.

Act addresses evictions for nonpayment of rents on properties that are financed by government-backed mortgages. Under the federal mora-

Real estate investing is a long-term, wealth-build-

You can strengthen your portfolio by acquiring single-family rentals. This asset class has historically been less volatile than

risk, but the upfront cost

Returns on single-family

can be substantial. Rates

rentals are similar to the

are higher for investment

stock market, but with

properties than for a pri-

significantly less volatil-

mary residence, but with

ity. The housing market is

interest rates at historic

generally uncorrelated to

for not paying rent.

lows, it is an opportune

the stock market, meaning

As an investor in a sin-

portfolio consists of a

time to consider adding

they don’t move in con-

gle-family property, you

tangible investment that’s

a rental property to your

cert with each other. For

need to know who owns

largely uncorrelated to the

investment portfolio.

this reason, single-family

your loan and any federal,

equity market.

torium in the CARES Act and many state and local eviction moratoria, it is illegal to evict someone

stocks and bonds and can generate monthly income. With the stock market as volatile as it is, it can be comforting to know a portion of your

Amie McCarthy has more than two decades of experience in mortgage finance, structured

products and banking. She is a vice president with Nationwide Title Clearing, covering capital markets. McCarthy has worked from Wall Street to Washington, DC., for investment banks, a GSE, and a regulator. You can reach her at Amie_McCarthy@nwtc.com.

4 0 OC TOBER 2020

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REI INK 41

REI INK

S I N G L E - FA M I LY

TRENDS IN INTERIOR PAINT Just in time for fall—out with the warm and in with the cool! BY H E AT H E R H OY T

n today’s real estate

homes. They are looking

COOL IS COOL

market, there is a

for something move-in

Cool light colors (greens

trend that many sellers are overlooking. It is one of the most basic and cost-effective ways to increase the values of their homes—interior paint.

42 OC TOBER 2020

ready. End of story. Millennial homebuyers do not have the slightest desire to paint even one room, much less an entire house. Millennials are

and blues) can brighten a space that may have limited natural lighting—or even make a smaller room feel larger. The trend toward cool doesn’t stop at the cool light colors;

What the studies are

continuing to flood the

saying about millennial

market for both rentals

homebuyers as it pertains

and purchases, and they

to preferences in real

are willing to pay a pre-

bolder cool colors too.

estate are true. Millenni-

mium for homes whose

According to HGTV’s

als are not looking to put

previous owners have

Trend Forecast: 2020

sweat equity into their

made wise paint choices.

Colors of the Year, Classic

the experts are projecting a big comeback in

Blue was voted their color of the year. And millennials love all things HGTV. This is what Pantone has to say: “We are living in

Bold, cool colors can be used for an accent wall or trey ceiling to create an accent island for a bold contrast in an otherwise

a time that requires trust

boring kitchen. Or, con-

and faith. It is this kind

sider painting bottom or

of constancy and confi-

upper cabinets a bold or

dence that is expressed by Pantone 19-4052 Classic Blue, a solid and dependable blue hue we can always rely on.” In these historic times, who couldn’t use a color that is reflective and tranquil? N O T J U S T F O R WA L L S

The use of bold or light colors that venture off the “neutral” path of the past 10 years does not just stop at full wall paint either. A good rule of thumb is to choose a color two shades darker than the other walls in the room.

cool color paired with a neutral white or light gray. You can also paint a tired old bathroom vanity and mirrors. Jazz up the exterior of your home by painting your garage doors, front door and shutters—or a combination. In the end, not only does a fresh coat of paint have the potential to make the room look and feel new, it can easily increase your demographic, foot traffic and the price a buyer is willing to pay for your home.

Heather Hoyt is a regional account director at Property Masters, responsible for managing the

account management team that works directly with clients ensuring their expectations and goals for their properties’ renovations are met.

Since its inception in 2004 as an REO contractor, Property Masters has been delivering full-service turnkey and multifaceted renovation and preservation services nationwide.

REI INK 43

REI INK

S I N G L E - FA M I LY

MORTGAGE FORBEARANCE: A SIGN OF THE TIMES? Why the COVID-19 pandemic might not lead to a wave of foreclosures BY R IC K S H A R GA

he U.S. economy

activity reach, or pos-

Like the cause of the

dropped by almost

sibly even surpass, the

recession itself, unem-

32% in the second quarter of 2020, leading 55 million Americans to file for unemployment. Under normal circumstances, the disastrous economic consequences of the COVID-19 pandemic would lead to a massive wave of foreclosures. But if anything is true of 2020,

the Great Recession. But this recession is different from prior recessions, and there’s strong evidence suggesting the resulting level of fore-

unemployment and foreclosures: Job loss results in income loss, which results in mortgage delinquencies, which lead to defaults and, ultimately,

were hit much harder than others (e.g., travel and tourism, hospitality, retail, restaurants and personal are made up of relatively

The COVID-19 recession

correlation between

time, certain industries

quite different as well.

normal circumstances”

an unfailingly strong

different than usual. This

services). These industries

it’s this: The phrase “under

Historically, there’s been

ployment trends are far

closure activity may be

U N E M P L OY M E N T A N D D E FAU LT

simply doesn’t apply.

4 4 OC TOBER 2020

record levels seen during

is unlike almost any other recession in recent history. It stopped a strong economy in its tracks. Unemployment rates went from 50-year lows to record highs virtually overnight, not because of weakness in the economy, but because the

low-earning, hourly wage employees who tend to be renters, not homeowners. Homeownership rates are lower for young adults, adults without a college education and households earning less than the median income—all fairly typical traits of employees within the most affected industries. What this means is that homeowners and the pool

to foreclosures. So, it’s

government essentially

not surprising that many

shut the economy down

people may be expect-

in an effort to limit the

ers are less likely to be

ing to see foreclosure

spread of the coronavirus.

unemployed than renters,

of potential homeown-

unless the recession is longer and more severe than expected. Second, many of the jobless claims made this year were filed as “temporary” job loss. This is a huge distinction compared to

million jobs were lost in the first few months of the pandemic, but over half of those jobs have already been reinstated. Unemployment claims, while still very high, appear to have peaked. Continuing claims

GINNIE

FANNIE/FREDDIE

OTHER (PLS, PORTFOLIO)

TOTAL

12% 9% 6% 3% 0%

have fallen off signifi-

8/ 2 8/ 9 8/ 16 8/ 23 8/ 30 9/6

permanent. More than 20

5/ 3 5/ 10 5/ 17 5/ 24 5/ 31 6/ 7 6/ 17 6/ 21 6/ 28 7/ 5 7/ 1 2 7/ 1 9 7/2 6

virtually every job loss was

% O F SE RVICI NG PORT F OLIO VOLU M E I N F OR BE AR ANC E BY IN VE STO R T Y PE OV E R T I M E ( F U LL SAM PLE )

3 /8 3/ 15 3/ 22 3/ 29 4/ 5 4/ 12 4/ 19 4/ 26

prior recessions, where

cantly, and job growth has been stronger and faster

likely that many workers will be back at work sooner rather than later. M O R T GAG E FORBEAR ANCE: A SIGN OF THE TIMES?

Is mortgage forbearance a sign of a massive future wave of foreclosures? The CARES Act provided a

GINNIE

FANNIE/FREDDIE

OTHER (PLS, PORTFOLIO)

TOTAL

4% 3% 2% 1% 0%

8/ 2 8/ 9 8/ 16 8/ 23 8/ 30 9/6

more typical recession, it’s

5/ 3 5/ 10 5/ 17 5/ 24 5/ 31 6/ 7 6/ 17 6/ 21 6/ 28 7/ 5 7/ 1 2 7/ 1 9 7/2 6

had predicted. Unlike a

WE E K LY B O R ROW E R F OR BE AR ANC E R EQ U E ST S AS % O F SE RV IC I NG VOLU M E ( #)

3 /8 3/ 15 3/ 22 3/ 29 4/ 5 4/ 12 4/ 19 4/ 26

than most economists

Source: MBA’s Weekly Forbearance and Call Volume Survey, as of 9/6/20

safety net for homeowners REI INK 45

REI INK

S I N G L E - FA M I LY

whose income had been

end of each subsequent

government-backed loans,

ATTOM Data reports that

impacted by COVID-10.

month, entrance into the

the deferred payments

over 70% of homeown-

The law called for lend-

program has steadily

are simply tacked on to

ers have more than 20%

ers to provide forbear-

declined every week.

the end of the mortgage.

equity in their homes.

ance—deferral of loan

Still, 3 or 4 million people

payments—for up to 180 days, with an option for another 180, if needed. By mid-June, the percentage of homeowners in forbearance had swelled to 8.55%, or almost 4.3 million borrowers. A look inside the numbers tells a slightly less desperate story, however. First, the number of

asking for forbearance is a large number. Isn’t it reasonable to assume that many, perhaps most, of them will simply default at the end of the forbearance period? Again, the MBA numbers suggest not. As borrowers have exited the forbearance program, fewer than 8% have gone delinquent

borrowers in the program

on their loans. According

peaked at 8.55%. That

to a study conducted by

number has been com-

LendingTree, some 70% of

ing down steadily over

the borrowers in the pro-

the past few months. The

gram didn’t necessarily

Mortgage Bankers Asso-

need to be in forbearance,

ciation (MBA) recently

but had opted in to hedge

reported that the percent-

their bets, just in case

age of borrowers in the

they did fall on hard times

program stood at 7.02%.

economically. And inter-

Second, the number of borrowers entering the program has gone down on a weekly basis since the end of March,

estingly, 24% of borrowers in forbearance have made on-time, monthly mortgage payments while in the program.

They are due when the loan is paid in full, refinanced or the property is sold. Borrowers won’t have to go to extreme measures to “catch up” on payments when they exit the forbearance period. M A R K E T DY N A M IC S FAVO R DI S T R E S S E D SELLERS

First, let’s be clear: there will definitely be an increase in foreclosure activity. To suggest otherwise would be irresponsible and a bit foolish. The question isn’t

options that help them avoid foreclosures. Historically, more distressed properties are resolved through a traditional sale than via foreclosure, and it’s likely this is what will happen again post-COVID-19. Current conditions in the housing market—extremely limited supply of homes for sale combined with strong demand fueled by historically low mortgage rates—definitely favor this sort of disposition strat-

whether default rates will

egy for distressed sellers.

rise, but how much. It

Another factor weigh-

seems unlikely we’ll see as much default activity as we did in 2008, but we’ll absolutely see more delinquencies and foreclosures than what we’ve seen the past few years. Not all homeowners will escape from an economic

just before April mort-

Finally, the nature of the

gage payments came

repayment plans for bor-

due. Instead of seeing a

rowers in the forbearance

similar spike in forbear-

program are designed to

with a record level of

ance applications at the

minimize default. For all

equity—over $6.5 trillion.

4 6 OC TOBER 2020

Equity gives borrowers

downturn as severe as this one. But homeowners entered the pandemic

ing against a huge influx of foreclosures is that loan quality today is far superior to loans on the books during the Great Recession. Before the pandemic, both delinquency rates and default rates were running well below their historical averages. ATTOM reported that national foreclosure activity was running at the lowest level in the past 15

F IRST-HA L F U. S. F O REC LO SURE ACTIV ITY BY YE A R January-to-June Foreclosure Activity (Properties with Foreclosure Filings)

That said, it’s almost

Foreclosures are often

certain there will be an

the “hidden gems” in the

increased amount of

296,458

362,275

428,400

165,630

20 20

19 20

ance ultimately become

535,829

597,589

613,874

801,359

1,045,801

1,170,402

the borrowers in forbear-

1,654,634

property sales. If 8% of

1,526,364

08 20

1,332,991

defaults and distressed

Source: Attom Data Solutions

delinquent, for example, that could add between 300,000-400,000 more delinquent homeowners than we might have normally expected in 2021. Investors will need to find those homeowners early in

years at the end of 2019

foreclosures to hit the

and hit an all-time low in

market are probably

July due to the various foreclosure moratoria in

going to be disappointed. They will likely have to

place across the country.

wait until the end of first

I M P L IC AT IO N S FOR INVESTORS

federal and various state

Real estate investors hoping for a flood of

quarter 2021 before the governments allow fore-

the process. Many of them likely will sell their homes to avoid a foreclosure. It’s also likely most of the properties in foreclosure will sell at auctions rather than going back to the lenders, so waiting to pounce on

housing market, offering high returns for fix-andflip, buy-and-hold and wholesale investors. But like precious gemstones, they’re sometimes hard to find and difficult to mine. This cycle won’t be anything like the Great Recession, when there were a record number of foreclosures. To succeed in this limited inventory environment, investors will need to have the resources to find and analyze these properties—ideally in the earliest stages of foreclosure— and the capital to move

closure proceedings to

REO inventory probably

quickly on properties that

begin again in earnest.

isn’t a great strategy.

meet their ROI criteria.

Rick Sharga is the executive vice president of RealtyTrac. He oversees the marketing and public

relations initiatives as well as implements new marketing strategies to increase brand awareness. One of the country’s most frequently-quoted sources on real estate, mortgage and foreclosure

trends, Rick has appeared regularly over the past 15 years on CNBC, the CBS Evening News, NBC Nightly News, CNN, ABC World News, FOX, Bloomberg and NPR. Rick was included in the Inman

News Inman 100, an annual list of the most influential leaders in real estate in both 2013 and 2014. An accomplished executive with over 25 years of experience in consumer and B2B marketing, Rick was formerly an Executive Vice President for Carrington Mortgage Holdings, Chief Marketing

Officer of Ten-X, and SVP with RealtyTrac. Rick is also recipient of the Stevie® Award for National Marketing Executive of the Year.

R E I I N K 47

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LENDING

REAL ESTATE INVESTING OUTLOOK What’s the industry look like for the fourth quarter of 2020 and beyond? BY E R ICA L a C E N T R A

eading into the fourth quarter of 2020 is the

perfect time to evaluate what impact, if any, the pandemic has had on the real estate industry as well as predict what investors should be prepared

IS THE HOUSING M A R K E T R E C OV E R I N G ?

earlier in the year. In fact,

Let’s get right to the

and prices have moved

question that so many in the real estate professionals are wondering about: Has the housing market recovered

for as this tumultuous

from the coronavirus?

year comes to a close.

According to Realtor. com, “the Realtor.com Housing Market Recovery Index reached 103.7

REAL ESTATE ACTIVITY IN THE U.S. HAS INCREASED THROUGHOUT THE SUMMER, WITH BUYERS AND SELLERS HITTING THEIR STRIDE IN JULY AND AUGUST AS THEY BEGAN TO RECOVER FROM ANY DISRUPTIONS THE PANDEMIC CAUSED EARLIER IN THE YEAR .

4 8 OC TOBER 2020

nationwide for the week ending July 25, posting a 2.7 point increase over last week and bringing the index 3.7 points above the pre-COVID baseline.” So, in short, yes. Real estate activity in the U.S.

growth in sales, demand well above 2019 levels. Buyers are now ready to take advantage of historically low mortgage rates, which in turn has given sellers confidence to list again, usually at record prices, due to the lack of supply that existed long before the pandemic. According to an Auction. com analysis of weekly MLS data conducted in early August, “home prices have increased an average of 3% compared to a year ago in the nine weeks since the

has increased throughout

pandemic and national

the summer, with buyers

emergency declara-

and sellers hitting their

tions.” Although home

stride in July and August

prices may have dipped

as they began to recover

in late April, they quickly

from any disruptions

rebounded, with no

the pandemic caused

long-lasting harm done.

Across the board, key

and their comeback has

market challenges, with

there will be a significant

housing indicators are

not created a significant

some buying up more

increase in foreclosures

showing that the market

increase in housing sup-

properties than ever

once these moratoria

has recovered and will

ply. A Realtor.com national

before, many are waiting.

have expired, although

continue on a positive

housing report from July

The biggest question mark

it’s unlikely that we’ll

trend. However, real

showed that “national

right now is whether an

see default rates reach

estate professionals

inventory declined by

abundance of distressed

the levels we saw during

should keep a close eye

32.6% year-over-year, and

inventory will flood the

the Great Recession.”

on the market heading

inventory in large markets

into the fall as a looming

decreased by 34.8%.”

second wave of COVID19 could easily affect this rebound. This remains the biggest concern when predicting what the end of 2020 and first quarter 2021 will look like. W I L L S U P P LY REBOUND?

Although sellers are reen-

As there was already a shortage pre-COVID, it is not surprising that supply has not rebounded; however, this continued lack of housing only exacerbates investor concerns over overinflated housing prices and lack of affordability in the market.

tering the market, they

Although some investors

are doing so cautiously,

have forged ahead despite

market once federal forbearance programs and foreclosure moratoriums end and give investors a larger buying opportunity.

Sharga attributes this to the fact that current and projected market factors, including record levels of homeowner equity and

Many experts believe

high demand, will make it

this will absolutely

easier for distressed own-

be the case.

ers to sell their property

In a U.S. Foreclosure

as opposed to losing it in

Market Report that ATTOM Data Solutions released in July, Rick Sharga, ATTOM’s exec-

foreclosure. So, while it may not be a question of if an increase in inventory will happen, investors are

utive vice president,

still left wondering exactly

said, “It’s inevitable that

when it will happen. REI INK 49

REI INK

LENDING

H OW W I L L COMMERCIAL REAL E S TAT E FA R E ?

One area of the market hit particularly hard by the pandemic is commercial real estate. Investors retreated from this space around mid-March and have yet to return. According to data from CoStar Group, a commercial real estate analytics group, “transaction volumes for commercial property remain severely depressed and changes in pricing are moving slower than expected” with a predicted 65% to 70% decline year-over-year. The biggest obstacle that seems to be standing in the way of a commercial

and sellers. Commercial

coronavirus pandemic

“6.6% year-over-year home

real estate price growth,

and how it will continue

particularly in retail and

price decline through

to affect the U.S. hous-

May 2021.” Just a month

ing market. But that has

later, Corelogic revised its

not stopped experts

forecast, predicting only a

multifamily, was already showing signs of deceleration before the pandemic. With the coronavirus hitting retail extremely hard, it remains the most susceptible to further declines in prices. Multifamily is also at risk due to uncertainty as to how it will fare once government assistance for renters runs out. At this point, investors continue to take a wait-and-see approach, causing the general outlook for commercial real estate to remain much less optimistic than other parts of the market.

from weighing in on what 2021 will look like. Many economists believe

1% year-over-year decline in home prices through June 2021, with 33 states

2021 will be the year we

showing decreases.

finally see a drop in home

Many economists remain

prices, mainly because the federal government lacks a long-term plan to extend many of the policies that were implemented in 2020 to keep the housing market afloat. However, these predictions continue to trend in a more positive direction as we get further into 2020. The initial doom-and-gloom that was forecast continues to lift.

optimistic, predicting that if the market experiences overall declines in housing prices at the beginning of 2021, by the end of next year, it will rebound and experience strong yearover-year growth. At this point, only time will tell. But one thing is certain: The U.S. housing market is resilient and should continue to hold strong

P R E DIC T IO N S F O R 2 02 1

For example, Corelogic’s

despite the challenges

differing opinions on

Much uncertainty

Home Price insights Fore-

and remaining impacts of

prices between buyers

still exists about the

cast from May predicted a

the national pandemic.

real estate rebound is

Erica LaCentra is the director of marketing at RCN Capital. She is responsible for planning, developing and implementing RCN’s marketing plan as well as overseeing the company’s

marketing department. Joining RCN Capital in 2013, Erica’s ongoing efforts have rapidly

expanded RCN’s customer base and elevated the company to a national brand.

50 OC TOBER 2020

E E R F TIL

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suppor ting the evolving nature of Real Estate Investing Collaborate with industr y colleagues, while building a national Real Estate Investor Referral Net work

R E I I N K 51

REI INK

LENDING

VALUATION OPTIONS FOR LENDING As an alternative to traditional appraisals, faster and cheaper valuation

options are available to keep your pipeline flowing and your confidence high. BY B R A N D O N W I N T E R S

n this day in age,

request the kind of infor-

their comparable analy-

where time is of the

mation most important to

sis and the inspection.

essence and deals can be

you when assessing risk.

completed in a matter of days rather than weeks,

E VA L UAT IO N S

there is still one part of

Evaluations are the

the process that can hit

fastest and cheapest

a snag rather frequently:

option in many cases.

Full appraisals can take

These can be completed

time and are expensive.

by in-office experts in

However, there are ways

various companies or

to obtain an accurate

local market experts such

valuation in a timely

as real estate agents.

manner, without hav-

They are typically sup-

ing to break the bank.

52 OC TOBER 2020

ported by robust data

The advantage of an evaluation is that you do not have to sacrifice valuation accuracy for the time and cost savings. Companies today are using many tools that empower valuations experts to perform consistently accurate valuations. If you have any apprehension about using evaluations, test these products against your appraisals

Hybrid appraisals and

sets and put through

evaluations open an

rigorous quality control

opportunity to give your

practices. The process can

business an edge. They

be bifurcated, leveraging

enable you to obtain a

a third-party inspection

valuation quickly to assess

from an inspector, real

risk and to proceed with-

estate agent or tenant/

out having to wait a week

borrower. The valuations

$400,000. There is no

or more. In addition, many

specialist will perform the

transaction limit for any

companies allow custom

valuation component and

portfolio lending or

options that allow you to

provide a value based on

nonlending transactions.

and see if you are getting similar or better results. Dodd-Frank recognizes evaluations as a credible valuation source for transactions below

HYBRID APPR AISALS

If your investor requires

information about the

Hybrid appraisals are

an appraisal, this may be a

asset, such as obtaining

good step in the direction

a full sketch. However, if

of using alternative prod-

the property is in a data-

ucts in many situations.

rich market and you have

WHEN TO USE A LT E R N AT I V E S

of knowledge about the

another way to reduce cost and timelines and obtain an accurate valuation. This product still leverages the expertise of an appraiser, while obtaining the inspection from another partyâ€”either a local inspector, real estate agent or borrower/tenant. The appraiser reviews the inspection and performs

Leveraging alternative products is not always the way to go. For complex properties, it makes sense to order an appraisal and have an appraiser perform the inspection.

the comparative analy-

Alternative products

sis to provide a value.

should be used in data

Timelines on hybrid appraisals typically are much shorter than tradi-

rich areas where risk is lower than it would be in a more complex scenario.

an acceptable amount asset, then an alternative product could be much more reasonable. Understanding the applicable uses for each product will help determine what should be used and when. In addition to using an alternative valuation as the primary product for the transaction, it is also becoming more popular to introduce differ-

tional appraisals. They

Appraisals may be nec-

ent types of alternative

typically cost less as well.

essary if you need more

products throughout the

REI INK 53

REI INK

LENDING

process for due diligence

check allows your pipe-

involved, that can expe-

confidence. These kinds

or initial risk analysis. You

line to flow more quickly

dite the inspection pro-

of developments have

may need to learn more

and prevents wasted time

cess exponentially. Then,

been game-changers in

before deciding to lend

and effort on deals you

leveraging that inspec-

the age of COVID-19, not

on a particular property.

may not want to pursue.

tion, you can combine

only by reducing timelines

Leveraging an alternative

When it comes to invest-

it with several valuation

but also by increasing

valuation at the beginning

ing, risk is everything.

products that are appro-

safety for occupants.

of your process may be a

That is why choosing the

low-cost way to eliminate

right product that ade-

you are dealing with.

deals that exceed your

quately assesses the risk is

These tenant-performed

creativity is necessary for

risk tolerance. Alterna-

paramount. That doesnâ€™t

inspections typically

differentiation, compet-

tive valuations are used

mean an appraisal is

leverage a web-based

itive advantage and cus-

commonly as the first

always necessaryâ€”or even

application or an app

tomer service. There are

sniff test on many trans-

the best product to use.

that can be downloaded

many creative products in

In addition, COVID-19

that will walk the tenant/

the marketplace. Consider

borrower through a basic

testing them out and see-

inspection process. Many

ing how they can benefit

apps will capture the

you, your processes and

location of where the

your customers. Your com-

photos were taken for

petition will wonder how

confirmation. Knowing

you got across the finish

when and where the pho-

line so much faster.

actions, especially in the fix-and-flip space. Getting an initial review of the package from a valuation standpoint can help determine whether a deal is worth pursuing, given the kind of lending you want to perform. Allowing for that kind of early quality

has created the need for changes throughout the valuation process. Those changes have created opportunities as well as challenges. Many providers now allow the option of having a borrower/tenant perform

priate for the type of asset

When it comes to lending in the current landscape,

tos were taken provides yet another degree of

the inspection. When cooperative parties are

Brandon Winters is the co-founder and CEO of eMerge Property Solutions, a nationwide solutions provider in the valuation space.

A 15-year veteran in the valuations industry with a focus on the BPO, evaluation and alternative valuation space, Winters spent 12 years at eMortgage Logic helping lead innovation and operational excellence.

Winters has been featured in industry publications and has provided industry-wide training for real estate valuation professionals, establishing himself as an expert in valuations.

54 OC TOBER 2020

REI INK 55

REI INK

L E GA L

ENOTESâ€”COMING TO A PORTFOLIO NEAR YOU The new normal has brought an increase in the use of eNotes. BY M A R C O S P O S A DA A N D JA N E E . B O N D

ntil recently, the use

Systems, Inc., the number

District of Columbia. The

of eNotes has been a

of eNotes registered within

state Uniform Electronic

relatively rare occurrence

their eRegistry in 2020

in the financial indus-

has climbed to more than

try. As the country has adapted to a socially distant new normal, however, loans have increasingly closed using eNotes. According to Mortgage Electronic Registration

170,000 loans. By comparison, in 2018, approximately 375 loans were registered on the eRegistry. B A S IC S O F E N O T E S

An eNote is an electronic equivalent to a paper promissory note. ENotes carry their own set of terminology and understanding that is crucial as the

has been passed in 48 states, Washington D.C. and the U.S. Virgin Islands (New York and Illinois have non-conforming electronic transaction laws). These two laws adopt a legal principle that electronic signatures and records should be accorded the same legal status as ink signatures and paper records.

industry moves forward

M E R S E R E G I S T RY

with more originations.

The historical information

Under Article 3 of the Uniform Commercial Code, eNotes are negotiable and are used by both Fannie Mae and Freddie Mac. The federal Electronic Signatures in Global and National Commerce Act

56 OC TOBER 2020

Transaction Act (UETA),

and transfers of eNotes are recorded via an electronic system known as the MERS eRegistry System. The eRegistry system does not store the actual eNote, but it does keep a record of the identifying infor-

(Esign Act) provides that

mation surrounding the

e-Notes are legally enforce-

eNote, which includes the

able in all 50 states and the

eNoteâ€™s digital fingerprint,

current controller and

uncertainty about who is

the plaintiff in the foreclo-

(bank or servicer) did not

location of the eNote.

entitled to enforce and

sure case with the right to

prove they had the right to

The actual authoritative

when that right originated

copy of the eNote is held by the controller or its authorized custodian in an electronic vault. As notes transfer, the controller of the note changes. From a legal standpoint, this is an important area in evidencing who owns the debt in court actions. ENotes are not endorsed; rather the transfer of control is reflected in the MERS eRegistry, and the controller is the entity that has the same rights as a holder of a written promissory note. The benefit of the note creation and transfer being done electronically, as it pertains to the financial services industry, is that it is generally less expensive to create, store and transfer eNotes in comparison to the traditional written promissory note. Written promissory notes may be misplaced over time, which requires a lost note affidavit to

is greatly, if not com-

enforce the eNote. In many states an affidavit may be

pletely, eliminated.

needed to show the proper

ENFORCEMENT OF AN ENOTE

rounding an eNote.

The legal enforcement of an eNote has been in place since 2000, with the enactment of the ESIGN Act and UETA; however, it took many years before the first eNote was signed. It wasn’t until 2014 that the first appellate case was decided based on the default of an eNote. Upon a default of an eNote, a foreclosure action may be needed. In a nonjudicial state, the process is the same; in a judicial state, the pleadings will change. What will be needed? In an original Note state, a paper authoritative copy of the eNote will be needed along with the original mortgage. The MERS eTransfer history and/or the eNote Information screen from the MERs eRegistry

process and security surTo enforce an eNote, UETA requires the bank/servicer to prove the document would be a promissory note if it was in writing, the borrower expressly agrees it is a transferrable record and the holder/controller provides reasonable proof it is in control of the authoritative copy.

bring the case against the borrower. In legalese, the plaintiff did not have standing to sue the borrower. Another defense raised in Florida was the authenticity of the borrower’s signature, with the borrower contending the eSignature wasn’t theirs. In the Indiana case, the borrower contended the bank was not the ”holder” of the eNote. In the new terminology the Bank was not the “controller” of the

CONTESTED ISSUES S U R R O U N DI N G E N O T E S

eNote and did not have

There are few appellate

In reading these cases, it

cases due to the historically low volume of eNotes. As the origination of eNotes increases, there will be more appellate cases across the country. There are only three appellate cases of record. One is from Indiana (2014), one from New York (2016) and one from Florida (2016). There are

the right to bring the case. becomes clear the new language surrounding eNotes and the MERS eRegistry played a large part in the issues raised and the results. The appellate court found in favor of the bank/servicer in the Florida and New York cases. In the Indiana case, the MERS eRegistry records were not placed

will also be needed to show

no cases since 2016.

entitled to enforce the

the current controller of the

The defenses raised in

note. With an electronic

eNote. The current control-

the New York and Florida

eNote. Without evidence

record, the potential for

ler or their delegate will be

cases include the plaintiff

of who the controller

establish who is currently

in evidence showing the current controller of the

R E I I N K 57

REI INK

L E GA L

is, the appellate court

using the MERS eRegistry.

very new to them. Also,

cellphone or on your com-

remanded the case for

Borrowers’ counsel can

obtaining the proper docu-

puter is a time saver and a

further evidence regarding the holder/controller. More issues will arise in the future due to the tremendous volume of eNotes in 2020. FUTURE DEFENSES

Because eNotes are done electronically, there will be more defenses raised as to the proper process being used at the origination of the loan. Specifically, these include defenses with the eNotarization process along with

be highly creative when litigating with the aim of causing confusion, especially since a new system or process is involved. It will be the same with eNote enforcement. The education of the judges will be a key element in obtaining foreclosure judgments to turn the confusion into understanding. The judges routinely handle foreclosures based on paper notes and wet ink signatures. A foreclo-

the process for the service

sure based on eNotes

transferring of eNotes

and eSignatures will be

mentation to establish the right to enforce an eNote and introducing this into evidence in court will continue to be raised in the future as it has in the past. INVESTOR BENEFITS

As investors it is important to know and understand the process. For an investor buying and selling several properties a year, e-signing the documents makes the process so much simpler. Not having to go to a law office or a title company to

convenience. Just remember to carefully review the documents before signing and have a competent real estate attorney review the documents before signing. Don’t allow the convenience to create carelessness or mistakes. Continue to keep copies of the closing documents for your records. Because they are electronic records, it makes it easy to file into your own electronic

wet sign documents and

records without the need

being able to sign with your

to scan paper documents.

Jane Bond is the managing partner of McCalla Raymer Leibert Pierce LLC’s Litigation Group. Bond has 30 years of litigation experience, with 24 years specifically devoted to business and real

estate litigation involving the mortgage lending and servicing industries. Bond represents clients in appellate proceedings before the Florida District Courts of Appeal and the Florida Supreme Court. The Florida Litigation Group handles both commercial and residential litigation for clients

throughout the state. Bond extends her expertise by teaching at training seminars, conferences and continuing legal education courses on real property law and related topics.

Marcos Posada is the managing partner of litigation at McCalla Raymer Leibert Pierce LLC’s Illinois office.

MRLP is a national law firm focused on representing banking institutions, mortgage servicers,

investors and various clients in legal needs that involve property, contract disputes, mechanic

liens, title issues, code violations, appeals, residential and commercial foreclosures and general litigation matters.

58 OC TOBER 2020

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REI INK

FROM THERE TO HERE

COMMITTED TO THE VISION BY RYA N H E N N E S SY

“Once you’re in, it’s hard to break out.”

life. As the son of a con-

and analytics in high-

tractor and a real estate

school. Given my early ties

“What a long, strange trip it’s been.”

agent who focused on

to the industry, this is also

Those two phrases have

selling properties for

when I learned that Fannie

banks and GSEs, real

Mae—a name I’d heard

estate was a livelihood.

often growing up—is not

stuck with me throughout my career. Granted, one is more of a cliché and the other is a lyric

REAL ESTATE HAS BEEN A THEME THROUGHOUT MY LIFE .

I have early memories of sitting in the car during

After graduating college,

through older vacant

I was at a crossroads

properties. And my chores

of wanting to pursue

and/or punishment for

a business venture or

misdeeds were to file or

continue my education,

scan BPOs, documents

perhaps earning an MBA

and pictures into the

and teaching at the high

office computer or pick

school or college level.

up nails and shingles

While I was exploring

at a construction site. Hindsight being 20/20, me about project and

Dead song “Truckin’.” But they are both relevant as I reflect on my default mortgage and distressed real estate journey, which began when I

task management as well as the personal value of building something tangible, whether a business

graduate programs around the Philadelphia area, a former Keystone Asset Management manager contacted me, seeking assistance in expanding vendor management practices. My

operation or a remodel.

initial response was to

D E C I DI N G T O B I T E

to dive into other areas.

decline because I wanted

My interest in creative

After several back-and-

problem-solving and

forth correspondences, I

Real estate has been a

number patterns led me

agreed to assist in vendor

theme throughout my

to learn about business

management—cementing

was about 7 years old.

60 OC TOBER 2020

ernment conservatorship.

inspections or walking

these activities taught

from the famous Grateful

a person but rather a gov-

the “no looking back” hold

prospective clients and

business and product

seen waves of consolida-

this industry has on you.

business partners. In

lines for new projections

tions and expansions

As I dove into asset

true trial-by-fire fashion,

and contracts, collaborat-

in both mortgage and

management and valuation, we worked to ensure stronger oversight of the third-party industry partners (e.g., real estate brokers and agents) we engaged. The initial “hook” for me was leveraging the analytical side of aggregating performance data, building stronger evaluation reports on industry partners, exploring the logistics of contractual agreements and aiding in creating and holding various trainings. The “reel” that brought

I gained exposure to this part of the industry by participating in industry events and traveling to client and affiliate offices. OPPORTUNIT Y E V E RY W H E R E

I am beyond fortunate to have had this exposure at an early point through an established firm such as Keystone Asset Management. They expected a level of professional maturity from me and I worked hard to meet that expectation. As I worked my way

ing on industry patterns and trends for corporate development and positioning, and identifying and procuring various growth opportunities. Beyond what any class-

real estate. These have ranged from the housing bubble burst, which yielded a drastic regulatory influence on compliance, to investors looking to leverage enhanced

room environment could

technology, resources,

teach, these opportuni-

government first-look

ties provided a wealth of

programs and a combina-

education and a concrete

tion of debt and equity to

foundation to understand

expand their investment

business, entity structures, legalese and the key administrative and leadership requirements needed to maintain a successful foundation, regardless of the ebbs

footprint. We’ve also seen increased influence from large-scale purchases of loan and asset pools engaging special and subservicers to mitigate debt or implement a stra-

me in was engaging and

through the company, I

and flows of the industry.

presenting develop-

gained experience coor-

We are part of a very

tive that maximizes return

ments with current and

dinating and integrating

cyclical industry. We’ve

and/or mitigates loss.

tegic disposition alterna-

R E I I N K 61

REI INK

FROM THERE TO HERE

Navigating these cycles

foundation on these early

I’ve been able to build

me professional growth

as well as facing other

opportunities, they also

have produced some

and advancement, this

challenges and pivotal

provide leverage for

great friendships and

industry has offered per-

growth points require

proactively identifying

growth opportunities.

sonal growth. I entered it

you to constantly evalu-

and seizing additional

Likewise, I’ve been able

at a young age and was

ate where your services

opportunities amid

to build and maintain a

often referred to as “the

fit within the industry.

industry fluctuations.

core team of trusted col-

baby.” I was introduced

leagues and partners that

to the woman who is now

drive our business. I’ve

my wife on a business trip

developed the confidence

tied to this industry. I’ve

to be flexible, even if it

also had the good fortune

requires reinvention, yet

to diversify into related

remain true to the initial

businesses and projects.

Keystone Asset Management was one of the first national firms to support asset management and disposition, as well as valuation alternatives to appraisals. It also has a history of working with toptier banks and regional institutions by helping to conceptualize Fannie Mae’s AMP program.

For example, we have adjusted to the market and migrated into acting more as real estate strategists that determine optimal disposition avenues based on value and key inputs.

purpose of my journey: maintaining focus and ensuring adaptability to

THE BENEFITS OF B E I N G “A L L I N ”

new opportunities. Finally,

The experience I’ve

most is continuously

gained at Keystone has provided professional

what I struggle with the listening to colleagues— there is definitely more

Although Keystone

growth I’ll forever be

to learn than to share.

built its reputation and

grateful for. The networks

In addition to affording

As I continue my journey, I make a point to remember that operating in real estate means that I am working with one of the few tangible investment opportunities that everyone shares a common interest in. And there is opportunity for all of us.

Ryan Hennessy is chief executive officer of Keystone Asset Management. He leverages his diverse

skillset to develop and implement innovative products and services across numerous marketplaces.

Focused on growth and opportunity, Hennessy has an ability to productize and implement solutions designed to yield best-in-class results and to close process gaps.

With expertise in leadership, infrastructure and workflow efficiency, Hennessy’s ability to critically analyze and forecast market conditions has led to the genesis of several industry-leading

approaches to portfolio management as well as to the development of various systematic tools

and reports. In his current role, Hennessy is responsible for positioning Keystone as a technologyforward enterprise, enhancing user experiences and service execution.

Complimenting his duties within Keystone, Ryan founded Apex Management Solutions, a corporation designed to assist investors, managers and nonprofits in identifying growth

opportunities and streamlining managerial procedures within their real estate portfolios.

62 OC TOBER 2020

REI INK 63

REI INK

I N D U S T RY DATA

ZOMBIE FORECLOSURES ON THE UPSWING More U.S. homes fall into vacant zombie foreclosure realm in third quarter of 2020.

TTOM Data Solutions’ third

a temporary prohibition

(258,024). But the percent-

against lenders foreclos-

quarter 2020 Vacant

age of those properties

Property and Zombie

that have been aban-

Foreclosure Report

doned as zombie foreclo-

revealed that 1,570,265

sures is up from 3% in the

residential properties in

second quarter of 2020.

the U.S. are vacant. That’s 1.6% of all homes.

Despite the increase, the 7,961 zombie foreclosure

ing on governmentbacked mortgages. The ban, which is set to expire Aug. 31, 2020 and affects about 70% of U.S. homes, was enacted under the CARES Act Congress passed

The report analyzes

properties continue to

publicly recorded real

represent a small portion

estate data collected by

of the nation’s stock of

ATTOM Data Solutions,

99.4 million residential

including foreclosure

properties—just one of

status, equity and owner-

every 12,500 homes.

“Abandoned homes in

The third quarter 2020

foreclosure remain little

occupancy status, matched against monthly updated vacancy data.

6 4 OC TOBER 2020

second quarter of 2020

data shows a drop in the number of homes at some

The third quarter anal-

point in the foreclosure

ysis shows that about

process, but an increase

216,000 homes are in the

in the level sitting vacant

process of foreclosure,

at a time when the federal

with about 7,960, or 3.7%,

government is trying to

sitting empty as so-called

shield the housing mar-

“zombie foreclosures.”

ket from an economic

The count of properties in

slide stemming from the

the process of foreclosure

coronavirus pandemic.

(215,886) in third quarter

Among the govern-

2020 is down 16% from the

ment’s key measures is

in March. It was later extended to help borrowers who have lost jobs or other sources of income during the pandemic.

more than a spot on the radar screen in most parts of the United States, posing few, if any, problems from neighborhood to neighborhood. But the latest numbers do throw a small potential red flag into the air, given the increase in the percentage of zombie foreclosures,” said Todd Teta, chief product officer with ATTOM Data Solutions.

H IG H E S T ZO M B I E F O R E C L O S U R E S R AT E S

States where the rates fall

from 4% to 11.2%), Geor-

Owners nationwide have

below the national level

gia (up from 3.9% to 11%),

are mainly in the North-

Kentucky (up from 3.9%

vacated a total of 7,961 residential properties facing possible foreclosure in third quarter 2020. That figure comprises 3.7%, or one in 27, of all properties in the foreclosure process. Those numbers are up from 3%, or one in 34, in second quarter 2020, and 3.2%, or one in 32, in third quarter 2019. States where zombie foreclosure rates exceed the national percentage are clustered in the Midwest and South (Kansas, 15%, or one in seven, properties in the foreclosure process;

east and West. Those

to 10.7%) and Nebraska

states include Utah (1.1%,

(up from 4% to 10.3%).

or one in 87 properties in

“It appears that an

the foreclosure process), Idaho (1.2%, or one in 84), New Jersey (1.6%, or one in 62), Colorado (1.8%, or one in 56) and California (2%, or one in 50). INCREASES IN ALL B U T O N E S TAT E

Zombie-foreclosure rates rose from the second to the third quarter of 2020 in every state except Hawaii. Rates also decreased in the District of Columbia.

increased number of vacant foreclosure properties may be an unintended consequence of the foreclosure moratoria put in place by federal, state and local governments,” said Rick Sharga, executive vice president at RealtyTrac. “Vacant properties can contribute to neighborhood blight and become safety hazards, especially during a pandemic. So, the sooner these abandoned properties can be pro-

NORTHEAST AND M I DW E S T L E A D

New York continues to have the highest actual number of zombie properties (2,136), followed by Florida (1,028), Illinois (971), Ohio (887) and New Jersey (356). California leads in the West, with 265. Oklahoma leads the South, with 133. H I G H E S T R AT I O S

Despite increases in the rates of zombie foreclosures in third quarter 2020, those properties represent just one in every 12,486 residential properties of all kinds in the U.S., including those not facing

cessed and sold to home-

possible bank takeover.

buyers or investors, the

States with the highest

better it will be for commu-

properties in the foreclo-

ratios are concentrated in

nities and neighborhoods

the Northeast and Mid-

sure process), Missouri (up

across the country.”

west, including New York

Missouri,11.2%, or one in

States with the largest

nine; Georgia, 11%, or one

increases included Kansas

in nine; Kentucky, 10.7%,

(up from 7.4% to 15% of all

or one in nine; and Tennessee, 10.3%, or one in 10).

REI INK 65

REI INK

I N D U S T RY DATA

(one in 1,934 properties),

Illinois (16.4% of prop-

with at least 500 prop-

44105, all in Cleveland,

Illinois (one in 4,077), Ohio

erties in the foreclo-

erties in foreclosure

Ohio; 61604 in Peoria,

(one in 4,328), Florida

sure process); Wichita,

include Cuyahoga

Illinois; and 13601 in

(one in 6,747) and New

Kansas (15.3%); Kansas

Watertown, New York.

Jersey (one in 7,476).

City, Missouri (13.4%);

County (Cleveland), Ohio (14.1%); Broome

T he highest levels of

States with the lowest ratios include Idaho (one in 188,805 properties),

Omaha, Nebraska (12.7%); and Cleveland, Ohio (12.6%).

Utah (one in 98,766),

A mong major metro

Arkansas (one in 78,267),

areas with at least

Texas (one in 70,746) and

500,000 residential

Virginia (one in 69,686).

properties, the lowest

H IG H - L E V E L F I N DI N G S

revealed the following:

Francisco, California

itan areas with at least 100,000 residential properties in third quar-

(0.7%); Philadelphia, Pennsylvania (1.6%); Los Angeles, California (1.7%) and Charlotte,

Ohio (6.5%), Rhode

Pinellas County (Clear-

Island (6.3%) and

water), Florida (8.5%)

Mississippi (6.1%).

and Summit County A mong ZIP codes with

closure properties); San

(8.5%), Kansas (6.8%),

acuse), New York (10%);

rates are in Austin,

ter data, the report

homes are in Indiana

Onondaga County (Syr-

(Akron), Ohio(7.8%).

Texas (no zombie fore-

vacant investor-owned

New York (10.9%);

zombie foreclosure

Based on third quar-

A mong 158 metropol-

County (Binghamton),

T he highest overall vacancy rates for all residential proper-

at least 100 properties

ties remain in Kansas

in foreclosure, those

(2.7%), Mississippi

where the zombie fore-

(2.7%), Oklahoma

closure rate exceeds 5%

(2.7%), Tennessee (2.6%)

remain concentrated

and Indiana (2.5%).

in New York, Florida,

The lowest are in New

Ohio and Illinois. Those

Hampshire (0.4%), Del-

ZIP codes with the top

aware (0.4%), Vermont

ter 2020, the highest

North Carolina (1.8%).

zombie-foreclosure

T he top zombie-foreclo-

percentages include

(0.5%), Idaho (0.6%)

rates include Peoria,

sure rates in counties

44108, 44112 and

and Colorado (0.8%).

TOP 10 U.S. Z I P CODES WITH HIGHEST ZOM BIE F OR EC LOSURE RAT ES IN Q 3 20 20

200

50%

160

40%

120

30%

20%

10%

66 OC TOBER 2020

Source: Attom Data Solutions

1 ow 4 7 0 n, 1 NY st me Ja

Do 60 lt o 4 1 n, 9 IL

sv 1 2 0 ille 78 ,N Y er ov Gl

el a 4 41 nd 2 0 ,O H ev Cl

el a 4 41 nd 2 8 ,O H ev Cl

r to 1 3 6 wn 01 ,N Y te Wa

Pe 616 or ia, 04 IL

el a 4 41 nd 0 8 ,O H ev Cl

el a 4 4 nd 1 1 2 ,O H ev

â€œZombie Foreclosure Rates (% Pre-FC Vacant)

Pre-FC Vacant Properties (Zombies)

el a 4 41 nd 0 8 ,O H

0 Total Pre-FC Properties

www.keystonebest.com 890 Forty Foot Road, Suite 110 Lansdale, PA 19446 Ryan Hennessy | Chief Executive Officer C: 215.206.9545 | D: 267.308.9256 rhennessy@keystonebest.com

Innovative Solutions, Optimized Execution

Why Keystone

Multi-Channel Workflows

We partner with our clients to enhance the management and execution of real estate needs, delivering superior services that optimize performance and drive results. Our tenure as real estate experts is the keystone of our innovative, leadership, & results-driven culture that allows us to harness our advantages to create tangible results.

Ability to develop customized operating procedures that drive execution without attachment to linear models

Situation Flexibility

Ability to adapt to diverse and evolving market conditions while maintaining best-in-class performance

Compliance / Infrastructure

Ability to deliver efficient solutions based on execution while maintaining real estate and industry compliance

Asset Management

Valuation

Technology

Portfolio-centric approach that generates paralleled REO execution, leveraging scalability, strategy analytics & workflow flexibility

Diverse suite of reports designed to capture true market value based on a stronger analysis of asset & surrounding market conditions

Superior technological architecture with dynamic dashboard interfacing to create unique & efficient user experiences

A History of Innovation Keystone is a certified Womenâ€™s Business Enterprise, small business, and SSAE compliant firm. With our 23+ years of operation and over $130 billion in real estate valued and managed, we are able to continuously address industry R E I I N K 67 shortfalls by aligning proactive identification with innovative resolution.

R IN E ID U S T RY P RSOPPOETRLTI G YH MTA N AG E M E N T ISN KN S O R E D C O N T E N T PO

The Exemplary Investors S COT T S T U B E R A N D T Y R O N E V E L A S Q U E Z A R E T U R N I N G A R O U N D DAY TO N , O H I O , N E I G H B O R H O O D S O N E H O U S E AT A T I M E .

For most residential real estate investors, the name of the game is equity. What many discover along the way is that turning one property often dominoes into turning around an entire neighborhood. Take investors Scott Stuber and Tyrone Velasquez: They bought their first bank-owned property, flipped it for a surprising profit and then went on to revolutionize the Dayton, Ohio, community.

O N E G O O D T U R N D E S E RV E S A N OT H E R In 2013, Scott and Tyrone were looking

Four years ago they bought another

information, which would normally take

to buy near Tyrone’s parents’ home in

property in Estes Park, Colorado, near

us days to dig up, allowed us to do our

Gainesville, Florida. After being disillu-

where they now live. They renovated

due diligence in less than an hour.”

sioned with their lender, they decided to

the property themselves, flipped it, sold

take matters into their own hands and use the money from one of their 401Ks to buy a property at auction. Tyrone said: “We rehabbed the property ourselves. We didn’t intend to sell it

their business and used the profit to start their real estate portfolio in Dayton, Ohio, near Scott’s hometown. Scott said: “We stumbled onto Auction.com and were surprised to see so many foreclosure and bank-owned properties that

Initially Tyrone was a little hesitant about investing in Ohio. But after researching the area they found that Dayton was once a bustling auto industry town. However, during the 2008 recession, Dayton took a downward turn that resulted in a lot of foreclosed homes that negatively impact-

initially, but because of the huge value

were available in the Dayton area. Most

it had gained in the years’ time when we

property pages had preliminary title

were working on it, we sold it for a nice

reports, inspection reports and compara-

They found that the Cincinnati-Dayton

profit and got hooked.”

ble financial data. Having access to this

area is now growing. There is a U.S. Air

68 OC TOBER 2020

edthe neighborhood.

Force base, and a lot of large companies are starting to move in. Upon arriving in Dayton, Tyrone said he fell in love with the beautiful rivers throughout the city and the gorgeous skyline. Like many who know a great opportunity when they see one on Auction.com, they wasted no time. Tyrone told us, “Registering for the online auction was easy to do, and the bidding format was simple. We bought two properties in two days, and a third less than two weeks later—all on the same block.” They have since purchased six properties from Auction.com, 13 properties overall.

THE DOMINO EFFECT Scott and Tyrone have turned their

spreads. Just like hatred spreads, so

in value? Is this property ideal for a

investment properties into affordable

does goodness.”

rental or a flip? If a rental, can we be

rental homes for Dayton locals. Their passion and dedication to their work has provided the neighborhood with stabilization by reducing the blight in the Dayton community. “There were seven or eight houses

In many ways, Scott and Tyrone have

cash positive in three years’ time?”

been catalysts for change in Dayton.

On average, they spend $10,000-

Their success has brought in other

$12,000 on their purchase and about

inspired investors.

the same amount in renovations, which

“The market has become a bit

they primarily do themselves.

competitive. We’re not finding the

“We always put in a new kitchen and

same low prices anymore, but because

bathrooms,” Tyrone said.

the market is increasing, the prices

They hire contractors, such as electri-

are still great,” Tyrone said.

cians, for jobs outside of their expertise.

When looking for new opportunities

Tyrone continued, “We try to stay

ties, we noticed that the street started

to invest in, Scott and Tyrone start

within a sweet spot so that we can keep

becoming more beautiful because

by searching for properties on

the rents for the Dayton community at

everybody else started fixing up their

Auction.com. They then leverage online

a reasonable, rentable price, and not

houses too. Some of the neighbors, who

reports and local market data, such as

just come in and raise the rent really

are now our friends, would stop by and

rent prices in the area, to narrow their

high when we’ve made the renovations

say, ‘Wow this is great, can you tell me

search before scoping out the neighbor-

to the houses.”

who’s working on putting the fence

hoods. Tyrone told us they ask them-

Depending on the location, they try to

in?’ Next thing you know, they went

selves, “Does this house have good

keep rent rates for 2- to 3-bedroom single-

and updated their fence too. So, it all

bones? Is this neighborhood increasing

family homes below $800 a month.

that were boarded up on the same street where we purchased several properties to rehab, one of which we ended up keeping for ourselves,” Scott said. Once we started fixing up our proper-

REI INK 69

I N D U S T RY S P O T L I G H T SPONSORED CONTENT

T H E T H R I L L O F B U Y I N G AT AU C T I O N Their primary residence is in Colorado, so

the seller’s reserve price is part of the

because they can’t go into the house

they typically buy their properties online

fun. Once you feel the reserve is met, go

to see it, but we find that to be a great

because it is more convenient. Tyrone’s

gun-ho! When we buy through Auction.

mystery and a great opportunity and a

greatest thrill is buying at auction.

com, we always get a call immediately

great surprise because you don’t know

When the stakes are high, so is Tyrone’s

after placing the winning bid, which we

what you’re getting.”

excitement level. Thankfully, he has his

love. There’s nothing like getting on

Scott added: “Before we go in, we

husband Scott nearby to reel him in.

the phone with a real person to restore

already know we’re going to rehab the

Tyrone shared some advice for investors

your confidence after making such a big

kitchen and bathrooms. However, prop-

that are just starting out, “We watched

purchase online.”

erties that we have purchased through

an auction first to see what we were

Scott and Tyrone love mysteries.

Auction.com are typically in better con-

getting into. We find that not knowing

Tyrone said: “A lot of people shy away

dition, which makes our lives easier.”

T H E E X E M P L A RY I N V E S TO R S

Auction.com Kelley Burns Director, Buyer Success

Scott and Tyrone are humble real estate

the work yourself? You cannot spend

investors. While Scott tends to their real

all your profit on contractors. You will

estate business, Tyrone keeps an 8-to-5

want to build relationships with reliable

job. They rehab properties for steady,

contractors. Expect everything to cost

long-term rental income—most of which

more than you thought it would. Expect

goes into investing in more properties

permit and inspection obstacles and

to rehab and their retirement fund.

delays, so be flexible. If you do not live

Tyrone advises buyers who are just

close by, you will need boots on the

starting out to “have a goal in mind. Will

ground, so hire a property manager.

turning properties be your career or a

When repairs are needed, we try to have

second income to help save for retire-

technicians out within 24 hours. Most

ment? Have your financing in order.”

importantly, build relationships with your tenants. This will make working

4975 Preston Park Blvd., Suite 470 Plano, TX 75093

Scott added: “Ask yourself how much

(469) 440-7368

bing? Put a plan in place. Plan to start

Scott and Tyrone are living the Ameri-

probidder@auction.com

small. Start with one property to see

can dream. With vision and hard work,

www.auction.com

what it is all about. Be realistic about

they transformed an entire community.

your capabilities. Can you do some of

If they can do it, you can too.

70 OC TOBER 2020

time do you have to invest in rehab-

with them easier.”

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72 OC TOBER 2020

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74 O C T O B E R INSTITUTIONS 2020 | INVESTORS | SERVICERS | PROPERTY MANAGERS FINANCIAL