Month: December 2018

U.S. Home Affordability Drops to More Than 10-Year Low in Q4 2018

But Affordability Improves From Previous Quarter in 58 Percent of Local Housing Markets; Wage Growth Outpacing Home Price Growth in 22 Percent of Markets, Including San Diego, Brooklyn, Seattle, San Jose and Manhattan.

IRVINE, Calif. – Dec. 20, 2018 — ATTOM Data Solutions, curator of the nation’s premier property database, today released its Q4 2018 U.S. Home Affordability Report, which shows that the U.S. median home price in the fourth quarter was at the least affordable level since Q3 2008 — a more than 10-year low.

The report calculates an affordability index based on percentage of income needed to buy a median-priced home relative to historic averages, with an index above 100 indicating median home prices are more affordable than the historic average, and an index below 100 indicating median home prices are less affordable than the historic average. (See full methodology below.)

Nationwide, the Q4 2018 home affordability index of 91 was down from an index of 94 in the previous quarter and an index of 106 in Q4 2017 to the lowest level since Q3 2008, when the index was 87.

Among 469 U.S. counties analyzed in the report, 357 (76 percent) posted a Q4 2018 affordability index below 100, meaning homes were less affordable than the long-term affordability averages for the county. That was down from a 10-year high of 78 percent of counties posting an affordability index below 100 in Q3 2018.

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Bridge Lenders Try to Balance Strong Demand with Risk Awareness

Business volume for bridge lenders remains high, but they are feeling more cautious.

Evan Gentry, founder and CEO of Money360, believes 2019 will be the year the California bridge lender hits $1 billion annually in loan volume. Money360, which launched in 2014, has been doubling or tripling in size annually despite the entrance of Wall Street hedge funds into the bridge lending space, Gentry says.

“There’s a lot of opportunity in the market,” he notes. “Transaction volume was strong in ’18; we think it will continue to be strong in 2019.”

Money360 is one of hundreds of U.S. bridge lenders that still see plenty of runway at this stage of the real estate cycle, despite growing competition that has fostered a new level of aggressiveness, including higher leverage, lower pricing, no appraisal loans, innovative loan structures and originators willing to lend on non-cash-flowing assets.

This year “was one of our best years, even though it was very competitive,” says Marissa Wilbur, origination associate with Archway Fund, a Los Angeles-based bridge lender that doesn’t require appraisals and allows higher leverage than some of its competitors. “By the end of June, we had hit our (year-end) target goal.”

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Building Your Real Estate Team

Real estate investing is a multifaceted skill, and it’s important to understand that you can’t do it all on your own. Building a team is a crucial step in any real estate investor’s journey. Not only does it humble you to the fact that you still need to rely on others even though you work for yourself, but it gives you access to a panel of experts that can help with your transaction. A prudent real estate investor will have the following people on his or her team: a real estate agent, a mortgage broker, an inspector, a general contractor, a title company, a lawyer, and a tax accountant.

Unless you decide to pursue your real estate license for the purpose of making your real estate investments, you’ll need to partner up with a licensed real estate agent that you enjoy working with on a daily basis. Real estate investors have different risk appetites, needs, and desires than a normal buyer or seller, so it helps if your real estate agent has worked with investors in the past. If you plan on purchasing multiple investment properties at one time or several properties each year, discuss this with your agent in advance. They will need to provide constant input and potential property suggestions to keep up with your unique demand. They can also help weed out properties that don’t fit your investment criteria. Real estate agents are often experts in their local markets, so your agent may be able to help you hone in on a specific area that has good investment potential. They facilitate the entire transaction process and make your life easier. Here’s another bonus – an agent’s commission is always paid by the seller. Don’t let the fear of paying commission keep you from working with a great real estate agent. You can focus on the investment and let them do their job. You’ll be better off for it.

Unless you’re buying a property with cash, you’ll need a mortgage. And unless you live in an ideal world, mortgage interest rates change every single day. Any real estate investor should have two or three mortgage brokers with whom he or she can compare interest rates and discuss mortgage programs. Mortgage brokers are invaluable resources to help understand your transaction costs. Mortgage interest rates have a tremendous impact on the profitability of your property because they greatly affect your monthly mortgage payment. If you use an FHA mortgage, you’ll be paying private mortgage insurance. Your mortgage broker can help you figure out what program to use and whether it’s worth it to pay for points to lower the interest rate, and they can help you plan for closing. They are invaluable when it comes to understanding the financial side of things, and they can even offer lender credits that may help to cut costs. You’ll work with your mortgage broker throughout the entire closing process, so it’s important to work with someone you trust and can build a longer-term relationship with.

When you analyze the market for potential investment properties, your focus as a real estate investor is on the numbers. You will calculate your profitability, your return on investment, and other metrics to help you understand how successful the purchase may be. Once you narrow down your potential properties to the one that you’ll make an offer on, things get a bit more serious. Finding a profitable property is hard enough but be sure to always have property inspections done to confirm that the property is of sound quality. Having an inspector on hand that you can trust and rely upon to be available quickly is crucial. After your first few purchases, you’ll likely build a relationship with one inspection company that you will continue to use for all future purchases. A prudent real estate investor will work out a deal with the inspection company to get a loyalty discount, since you’ll likely be using their services multiple times per year. Once you build a relationship with an inspector, you can better rely on them for honest advice and feedback on the property. You’ll know what to expect even before you get the inspection report which saves you time and the headache of waiting for results.

As mentioned above, the state of the property you’re purchasing is just as important as its profitability. If you run into any major issues during the property inspection process, it would be helpful to have a general contractor that you can trust to help walk you through the issues and create a game plan. A general contractor is well-versed on major and minor issues related to construction, HVAC systems, electrical systems, plumbing, and others. They can give you an estimate on how much it would cost to repair certain issues you may come across with any given property. This would help you determine whether it makes financial sense to continue with repairs or abandon the investment property altogether. Save yourself the guesswork and invest in your relationship with your general contractor. They can give a more accurate estimate than a quick Google search would, and you’d be able to trust them to follow through on the work for which they’ve been contracted.

Another party that will be present throughout the closing process and which is absolutely crucial to the closing of the deal is the title company. It helps to build a relationship with a title company because they facilitate the entire transaction process from offer to closing. Many title companies are willing to offer a reduced service fee for repeat business, but more meaningful than this is the trust you’ll build with the team that delivers you the property deed. Title services are an important part of the purchase process because they determine whether the previous owner is truly delivering a free and clear title. This is the only way to ensure that the property you’re buying will be yours and yours alone. As an investor, this is a non-negotiable part of buying a property.

The benefits to having a lawyer experienced in real estate law on your team should be obvious. A practitioner in real estate law can help answer any legal questions you may come across during your real estate investment ventures, and there will be many. They can also help walk you through difficult conversations or situations with the other parties that are often involved in any given transaction. In the worst-case scenario, they can represent you in the event that you become involved in an illegal or unethical situation. While most real estate agents have access to a legal hotline through their local or national Realtor association, it’s best for you to have a lawyer on your side that you can trust and that you can reach out to without any hesitation or delay. As a real estate investor, you may run into circumstances that are legally questionable, and a sensible real estate investor would ensure that all of his or her boxes are checked and that nothing is being done that shouldn’t be.

Finally, as a real estate investor, your tax accountant will likely become your best friend. The tax system is baffling enough as it is – you’ll want someone you can trust to walk you through the annual tax return process and to give you general advice on how to conduct yourself in business and in finances throughout the normal course of business. There are a wide array of credits and tax deductions available to real estate investors, including mortgage interest deductions, benefits for having a home office, and mileage deductions for traveling to and from properties. Your tax accountant can help reduce your tax burden and maximize the benefits you receive from the business you’re already conducting. Instead of spending hundreds of hours learning the tax code and manually itemizing your tax return, work with a tax professional that you trust and can envision working with long into the future. As your real estate investing business grows more complex, your tax accountant can help you structure your business to be the most beneficial to you. Most importantly, they will help ensure your compliance with the tax laws and prevent you from getting into trouble with the tax authorities.

By now it should be clear that real estate investment is not a one-man (or one-woman) job. It involves a multitude of experts in order to get to the finish line. Having a team that you trust and that you enjoy working with can make all the difference. As a novice real estate investor, don’t feel overwhelmed that you have to do all of this yourself. You have plenty of people around you that are experts in what they do, so that you can be an expert in what you want to do. Building a team takes time, but it is a natural progression as you continue to do business with the same people. If one member of your team isn’t giving you what you need, don’t hesitate to move on to someone else. Real estate investment is a tough business as it is, and your team is meant to make your job easier, not more difficult.

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Mall Landlords Embrace Once-Spurned Popups to Revive Dead Zones

Macerich Co. is offering 180-day leases to sign pop-up tenants.

(Bloomberg)—It wasn’t that long ago that retailers looking for space at shopping centers would get paperwork only for a multiyear lease.

These days mall landlord Macerich Co. is offering 180 days.

Last month, Macerich launched BrandBox, a leasing program that allows online sellers to dip their toes into the bricks-and-mortar universe with a temporary pop-up store. The first one, featuring six retailers, is up and running at northern Virginia’s Tysons Corner Center, with plans to expand to at least five more states. The leases are six to 12 months, and the store walls are flexible, meaning Macerich can switch up the layout to accommodate different numbers of shops.

“Instead of selling real estate, we’re selling a solution,” said Kevin McKenzie, Macerich’s chief digital officer. “That’s an entirely new process, culturally, for our company.”

Macerich, which owns more than 50 shopping centers, is trying to reclaim some of the industry’s mojo. Big-box stores such as Sears and Toys “R” Us, once anchors that drew crowds ready to spend, have filed for bankruptcy. Malls, over the years, have struggled to attract foot traffic. Signing retailers to long leases and hoping none of them takes a trip to bankruptcy court is starting to look like an outdated formula. Kids these days, at least the ones with the money to shop, aren’t into brand loyalty. They’re into Instagram.

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Value-Add Properties Still Have Plenty of Upside to Offer Multifamily Investors

It’s still possible to get strong yields by investing in and repositioning class-B apartment buildings.

Investors are still eager to buy apartment properties where they can raise the rents and achieve strong yields.

“There is a vast amount of capital in the multifamily space targeting value-add apartment properties,” says Rick Hurd, chief investment officer for Waterton, a real estate investment and property management firm.

Rents are growing slowly for apartment buildings overall, and that has led to a slowdown in property price growth. But investors can still find value-add opportunities where a few thousand dollars in renovations can justify higher rents.

“Value-added is still a viable investment strategy at this point in the cycle—and will continue to be for short term at least,” says Andrew Rybczynski, a consultant at research firm CoStar Portfolio Strategy.

The properties are out there

Demand remains high for older, less expensive apartment building in many parts of the country. “There is massive demand for well-located, decent apartment complexes with almost no new supply,” says Hurd.

At many of these properties, if the rents go up, they will still be far below the cost of living in a brand-new building. “You can still buy value-add apartments at attractive pricing, invest additional capital to upgrade them and still be significantly below replacement costs,” says Waterton.

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The Biggest Trends in Luxury Amenities

From valet trash service to heated swimming pools, Class A communities are stepping up their game in an increasingly competitive market.

Today’s multifamily industry is competitive. Across the board, apartment owners have stepped up their game to attract residents by offering them the best value for their money. This includes everything from swimming pools and fitness centers to renovated kitchens and bathrooms, and even dog parks.

Regardless of their age or budget, renters today place high value on speed, convenience, and a sense of community, and will pay more to have it all. Below are just a few amenities Class A apartment owners should consider providing to residents if they want to stand out:

Added convenience

One of the top amenities luxury apartments are offering to make renters’ lives easier is resident lockers for packages, food, and dry cleaning services. Package lockers are secure and eliminate the need to use leasing staff to retrieve packages, as residents are able to key in a code (sent via text) and claim their items 24/7. Refrigerated lockers essentially work the same way, except they store food items. These come in handy for food and grocery deliveries, allowing residents to pick up their meal at any time. Lockers for dry cleaning are also gaining in popularity. With this service, residents are able to drop off and pick up their dry cleaning without the hassle.

When it comes to managing trash, Class A apartments should provide valet trash service, which simply requires residents to place their trash outside of their door for removal. Apartment staff will make daily visits to empty cans, eliminating the burden for residents and giving landlords peace of mind, as valet trash is more controlled.

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Marketing $$ for Multifamily Properties. Have you considered this?

Have you considered that to technology providers, your property residents represent a valuable business resource? Within the walls of your properties live an audience of potential phone, TV, Internet and wireless subscribers. Your base of residents is an asset in more ways than you may have thought.

Beyond the traditional revenue opportunities in a typical multifamily property are treasures that many owners/operators flatly miss. The fact is that there are ways of increasing a property’s NOI by $2-5/mo per unit without spending a dime. Selling exclusive rights to market services to your residents, can help get you there in a hurry.

Typically, multifamily property residents have the freedom to shop and contract for the TV, Internet and phone services of their choosing. Providers like AT&T, DirecTV, Cox Cable, Comcast and others offer a wide variety of service packages to select from. Sadly, in most cases the residents pay a premium price for said services and the properties gain little to nothing in the process. Let’s look at a different process that could deliver greater value to your residents and an opportunity for increased NOI for your properties.

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Do Developers Ignore Mid-Tier Renters?

Why the potential over-development of luxury rental units adds to the shortage of affordable housing and what can be done about it.

Lately, every city skyline is laden with cranes and every boulevard crowded with billboards advertising new luxury apartments for rent. These complexes have flooded markets across every metropolitan area―large or small―around the country. Renting, it seems, is no longer the cheap alternative to home ownership it once was.

With demand as high as it is, multifamily construction continues to boom and that trend is expected to extend into 2019, when construction of this type will reach its peak.

Developers have been so focused on catering to a wealthy market with high-end finishes and over-the-top amenities that most have continued to overbuild in this category. This will soon lead to a flattening or a market correction. They’ve also ignored the needs of average citizens and contributed to a nationwide shortage of affordable housing that has reached a crisis level.

For the time being, demand for luxury housing remains high. Millennials and baby boomers are among the two fastest-growing groups of renters, and an increasing number of empty nesters, high-net-worth households and double-income-no-kids households are choosing to rent. Both generations are seeking mobility, convenience and community. And since most of these renters are discretionary, meaning that they don’t need to rent for monetary reasons, their tastes skew towards luxury, amenity-rich accommodations. Package storage, pools, high-end fitness centers, room service, concierge services and even full-service pet spas have become the norm rather than the exception.

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Four Tips for HNW Investors Who Want to Buy Multifamily Assets

HNW investors still love the multifamily sector, but some strategies are more risk-proof than others.

Workforce housing promises to be a driving force in 2019 for high-net-worth individuals (HNWI) pursuing investments in the multifamily sector.

In a new report, commercial real estate company CBRE says workforce housing represents “an appealing investment strategy” in 2019 thanks to a favorable supply-and-demand balance. As such, that high demand promises to generate gains in rental rates next year for workforce housing units, CBRE researchers forecast.

The current climate for workforce housing, otherwise known as affordable housing, opens the door for HNWIs who want to pump money into the multifamily sector, but might be unsure about precisely where to put that money.

The multifamily sector continues to pique the interest of HNWIs, with NREI research showing it’s increasingly their go-to property type. In a 2018 NREI survey of HNWIs, 76.27 percent of respondents cited multifamily as their preferred property type, up from 69.13 percent in 2017 and 67.19 percent in 2016.

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Total Return Growth for All Commercial Property Types Will Slow to 5.7 Percent in 2019, PREA Survey Forecasts

PREA’s latest survey forecasts moderating returns on commercial real estate properties.

The results of the latest consensus forecast survey from the Pension Real Estate Association (PREA) show that respondents expect total unlevered return growth on commercial real estate assets traded at the institutional level to moderate in 2019. Respondents expect that total returns on all commercial property types, as represented by the NCREIF Property Index (NPI), will average 5.7 percent next year vs. 7.1 percent in 2018 and will decline to 4.4 percent in 2020.

Return growth will decline the most for industrial properties, with an expected average return of 8.2 percent compared to 12.4 percent this year. By 2020, survey respondents expect returns on industrial acquisitions to slow to 5.7 percent, PREA reports.

Retail properties, on the other hand, will likely experience slightly higher returns in 2019, at 4.3 percent, indicating a 10-basis-point increase from 2018, in survey respondents’ estimate. By 2010, however, respondents forecast returns on retail acquisitions to average 3.8 percent.

The declines will likely come from slowing appreciation in asset values, as returns from income are expected to remain fairly stable from 2018 through 2010, moving by at most 20 basis points for all four core property types covered by the survey. However, survey respondents forecast that both office and retail properties will experience negative return appreciation by 2020—by 0.7 percent and 1.0 percent respectively.

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