Month: October 2019

25 Dynamic American Cities

Weighing nearly 20 metrics a division of Yardi Systems Inc. generated a list of the most dynamic American cities.

Weighing factors including population growth, median age, higher education degrees, job growth and more than a dozen other factors, website Point2Homes.com generated a list of the most dynamic American cities.

According to the site, which is a division of Yardi Systems Inc. that covers real estate market trends and new and develops original studies on many real estate topics, the methodology involved evaluating more than 150 metro areas and looking at 18 different factors for generating the list.

They company looked at:

  • Human Capital: increases in population and immigration levels (influx of foreigners as well as U.S. citizens from other parts of the country), positive changes in a city’s median age;
  • Education and Culture: increases in the number of residents holding higher-education degrees, rises in school enrollment levels and internet subscriptions, and growth in the number of people employed in Arts and Entertainment;
  • Economic Activity: the evolution of a city’s GDP, boosts in incomes and job opportunities, growth in the number of registered patents and companies that are active on the market, as well as declines in unemployment and poverty rates;
  • Housing: home price appreciation, increases in building permits, and decreases in the number of vacant homes.

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Top 10 Major Metros with Highest Home Seller Gains

The ATTOM Data Solutions’ recently released Q3 2019 Home Sales Report cited that U.S. median home prices have reached a new high. According to the report, single-family homes and condos sold for a median price of $270,000 in Q3 2019, up 2.9 percent from Q2 2019 and up 8.3 percent from Q3 2018.

The report also noted that homeowners who sold in Q3 2019 earned a median profit that ticked up to a post-recession high of 34.5 percent, up from 34.4 percent last quarter and 34.3 percent from a year ago.

Homeowners who sold in Q3 2019 realized an average home price gain since purchase of $68,686, up from an average gain of $66,995 from last quarter and up from an average gain of $63,750 a year ago. The average home seller gain of $68,686 in the third quarter represented an average 34.5 percent return as a percentage of original purchase price.

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Eller Capital CEO Shares Value-Add Strategies for Older Properties

Daniel Eller’s “blast from the past” strategy centers on 20th century buildings in high-demand locations.

For its value-add multifamily strategy, Chapel Hill, N.C.-based Eller Capital has chosen to focus on purchasing, renovating, and repositioning multifamily properties originally built in the 1970s or 1980s. Its standard blueprint incorporates extensive renovations to the exteriors and residential units, as well as new, state-of-the art amenities.

Multifamily Executive asked CEO Daniel Eller about the details of his strategy, the returns he has seen, and how he expects the value-add segment to remain and evolve in the foreseeable future.

MFE: How have value-add and repositioning trends evolved over the past few years? What makes Eller Capital’s approach new, different, and profitable?

Eller: There is no asset class that is currently in as much demand as value-add multifamily. Over the last several years, a tremendous amount of capital has been invested in the space, and a significant amount of capital remains allocated to value-add opportunities. Over the course of the current cycle, property values have continued to increase to the point that the cost basis for some value-add multifamily assets may approach or exceed replacement cost. We have also seen a lot of value-add deals that were acquired by a buyer who never actually executed on a value-add strategy, relying solely on cap rate compression to deliver investment returns. There is a big difference between buying a “value-add deal” and actually executing a “value-add project.”

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The Market Is Still Not Seeing Enough Affordable and Workforce Housing

While developers are on track to deliver 100,000 new or renovated affordable units this year, the supply will fall far short of demand.

Developers are likely to finish work on more than 100,000 new or renovated apartments affordable to low-income families in 2019. It will not be enough to satisfy existing market demand.

According to Michael Gaber, president of the Affordable Housing Tax Credit Coalition (AHTCC), based in Washington, D.C., more than 10 million households nationwide pay more than half of their income on rent. That leaves too little money for other expenses, including health care, transportation and nutritious food, he says.

To create more affordable housing, lawmakers in Congress propose to expand the federal low-income housing tax credit (LIHTC), the leading program to finance affordable housing. Local officials in municipalities throughout U.S. have also relied on program like inclusionary zoning, which asks apartment developers in certain locations to include affordable units in their projects in exchange for the right to build.

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Beginning Your Real Estate Investing Career With House Hacking

For many people the idea of getting into “real estate” can be both exciting and overwhelming. Aside from the steep learning curve and the time investment it takes to feel comfortable making the leap into investing.  The idea of coming up with the capital required to purchase a property can seem unrealistic, especially for younger investors. For the aspiring real estate moguls among you, “house hacking” may be your first step on this journey. House hacking is the process of purchasing any multifamily property with the idea of living in one of the units while renting out the rest. It’s referred to as “hacking” for one simple reason. It’s a real-life hack! Think about it, everyone has to live somewhere. Take the thing that is an expense for everyone else and turn it into a revenue stream while making your rent cost zero!

Said another way, when done properly, house hacking allows you to have your tenants purchase a building for you, that you can live in for free, and they might even pay you to do it. All that you have to do is be able to finance the property. For this reason, this strategy is one of the best ways to get into real estate investing as it provides an opportunity to feel out real estate with hands on experience. Living in your investment property gives you more control over tenants and the property itself and will serve as an excellent crash course in real estate.

As we mentioned above, entering the real estate game can seem like a daunting task. Simplifying your entrance into this lucrative industry will allow you to actually take the all important first step with some confidence. Buying a house is something that most people do at some point in life anyways, why not make your first step an investment experiment? Most people decide to spring for the largest single-family home they can afford the first time around. While the thought of living in a multifamily can be un-attractive to some, a large single home can become a giant set of handcuffs for young couples. Being beholden to high monthly payments can prevent you from living life on your terms and could actually slow your road to the first upgrade.

Instead of tying your financial life to your home, create more freedom and independence for yourself while exploring a potential lifelong stream of income. This can be accomplished through hacking your first home. This strategy will not only mean no (or at least very low) monthly payments for the place that you live, it may mean having the place that you live put extra money into your pocket each month. While this is going on, an asset that can be sold again at any time is being purchased in your name. This double dip effect that house hacking can have on your net worth cannot be understated. Not only do you not have the drag of rent effecting your budget, you’re now free to re-deploy that money as a savings. With the average American paying around 30% of their annual budget towards housing, that will separate you from the pack in your ability to supercharge your savings.

So, if you’re convinced on the benefits of owner-occupying for your first home, your next question is most likely “how do I get started?”. This is a complicated question and the answer may depend more on preference than any perfected science. Once of the considerations in house hacking that one does not have in other types of real estate investment is the owner’s preferences. Where an investor typically plans to have someone else living at the property, and therefore is designing a space to be desirable to another person, house hackers will be living in and commuting from their property. This means that personal choice will play a much larger role in house hacking than in other types of investing.

Firstly, an investor has to know how much house they can afford. The simplest way to do this is to be pre-qualified by a mortgage underwriter for a certain size of loan. A mortgage originator will look at your current assets, your annual income, your credit, and several other factors to determine the size of loan that you will qualify for. Once you have this piece of information you can begin your search.

Location is critical when it comes to real estate so narrow your search down to an area that you desire to live in. Consider things like proximity to your work, amenities in the local community, and potential for your hobbies to be available to you in an area. While selecting a property, keep in mind that you won’t be the only person living there, and the success of your hacking strategy will depend on your ability to get your second (or third or fourth) units rented out. Balance your priorities with the types of tenants you would like to attract.

Once you have determined the dollar figure of the home you’d like to buy, and have the location selected you have to determine how you will be financing the property. While you may have done some research on this step while investigating your potential loan eligibility. Now will be the time when you make concrete decisions about how much money you’ll be putting down, how long your note will be, and the details of interest payments.

FHA loans are loans offered by the Federal Housing Administration, and offer certain benefits for first time home-buyers. These loans allow homebuyers to purchase property with very low-down payments. This is an appealing offer as younger buyers typically have little cash on hand.

For house hackers with connections to more seasoned investors, “hard money” is another route that you can go to secure funding. Hard money lenders are lenders who have plenty of money to put up, but usually are not looking to do much work for their part. Hard money lenders want young hungry investors to approach them with potential deals. Hard money lenders put up capital, and their partners do all the work to make the deal a success. For putting up this capital, the lender will usually expect a cut of the business on the back end.

For house hackers without connections to hard money lenders, more traditional lending options are also available. Standard mortgages are always an option, and there may even be special programs available to investors depending on their specific situation and the state that they live in. Without diving too deeply into how a traditional mortgage functions, understanding the basic features is important. A mortgage requires a buyer to put a down payment on a property, and also agree to make a series of future payments that go partly to chipping away at the original purchase price of the house, and partly to paying interest to whatever lender has put up the money to allow the sale to occur.

Funding and financing these projects is one of the more research-intensive aspects of house hacking because people looking to use this strategy are usually on a tight budget. Individual situations will vary greatly, but as a rule of thumb you should expect to pay around five to eight percent of a properties total value at the time of closing. FHA mortgages will allow you to put down as little as three percent, and expect to pay an additional two to five percent on additional closing costs and fees.

So, let’s assume that you’ve found a property that suits your needs and has additional space for tenants, and you have worked with a mortgage professional to determine how much house as well as how much cash you’ll need to get the project started. Now comes the fun part, the actual house hack! After these pieces have been put in place, all that’s left to do is to spruce up the property however you see fit, according to your budget. Additional money that you put into the property will go a long way to increasing the monthly rent that you’ll be able to charge your future tenants. That’s a good thing because the goal of a house hack is to ideally have someone else buy an asset for you while they pay your rent.

Additions that typically lead to direct increases in rental value are appliances, bathroom furnishings, hardwood flooring and conveniences like AC or in apartment laundry already hooked up. Just think about the things that you would pay more to have in an apartment and attempt to add as many of those features as you can. This will help you justify your rent when the time comes.

That leads us to one of the most difficult aspects of house hacking and that’s your tenants. Once you have your property purchased and set up, you can begin moving into one unit, but in order to make this hack go smoothly you’ll need to quickly fill the other unit(s) with good tenants who pay rent on time and respect the property as their own. This can be a challenge for many house hackers as this will likely be the first time that their learning how to work with tenants.

One of the most important pieces of the tenant search is setting your rental price. Before you purchased the property, you should have done some math to determine how much the mortgage, or whichever other financing method you chose, will cost each month. Ideally, for a successful house hack you would like to be taking in more rental income than you’re having to pay out. If you can even create an additional one or two hundred dollars of “cash flow” per month you’ll be taking advantage of house hacking. Imagine, every month, getting paid to live somewhere, WHILE someone purchases that place your living for you!! That’s the beauty of a house hack.

So, when it comes to setting rent, most of your work should be done on the front end. How much do similar apartments rent for in your area? Who is your ideal tenant and how much can they afford to pay? If you are evaluating a potential property and see that purchasing the home will cost much more each month than you’ll be able to charge in rent, it may not be a great investment opportunity. Try to identify potential properties in the area where your mortgage will be less expensive than the cost of purchasing a property, this will lead to the most successful hacking scenarios.

After setting your rents you’ll need to find a tenant, this can be done in a multitude of ways and the more different methods you use in attracting tenants the better. Cast a wide net and post your property on real estate sites, blogs, even working with realtors can be a good idea. The more potential tenant’s you have to choose from, the better the odds that you’ll find someone who is not only able to pay every month, on time, but will also be respectful to your space.

Hastily rushing the first person who shows interest in your unit could be a one-way ticket to finding thousands of dollars in damage for you to take care of when that person moves out. Ideally, hackers would like to find long term tenants to avoid vacancies while you look for new tenants. Footing the bill only a few months can erase any money that you’ve earned throughout the year on your property.

Aside from concerns about nasty tenants and standard hazards of owning a property that you may have to pay to fix, house hacking is one of the least risky methods of entering into real estate investing. Even for those with no interest in growing a business, free rent and ownership of a property with minimal cash outlay on your part should be attractive to everyone. Most Americans spend around thirty percent of their budgets on rent alone, saving yourself an entire third of your budget will allow you to save more, take more vacations, and will open up a world of possibilities not available to traditional buyers and renters

When done correctly, house hacking should be seen as a way to take something that you have to have anyways, and turn it into a profit center for yourself. When checks come in your mailbox each month, and when those checks cover your rent and then some, you truly are freed up to supercharge the rest of your financial life, not to mention the profit that one can make on the back end when they sell a property that was purchased with someone else’s rent check. If your interested in learning more about this, and other topics in real estate investing, make sure to subscribe to our mailing list!

Buildium Survey Shows Strongest Trends in Property Management

Tech adoption, customer service, and renters looking for the comforts of home are all on the rise.

Buildium and the National Association of Rental Property Managers have released their fifth annual State of the Property Management Industry Report, which draws from a survey of 3,676 renters, owners, property managers, and community association members to track the current state and strongest trends in the property management industry.

Out of the 1,738 property managers who responded to Buildium’s survey, one in two have worked in property management for over a decade. Approximately 80% say they are bringing in more revenue now than they were two years ago, and 87.5% expect their revenue to continue to increase over the next two years.

Technology adoption has risen among property managers in recent years, up 4% in the past year alone. Nearly 90% incorporate technology into some facet of their job. The most common applications are accounting (90.2%), electronic payments (81%), communications (79.4%), and property management software (78.5%). A majority also use online listings, document sharing, and resident and client portals. (Only 7.7% have incorporated smart home tech in units.)
However, Sebree notes that every time the country has an economic downturn, it doesn’t always affect every industry.

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Australian Pension Fund Eyes U.S. Offices, Apartments

QSuper, the second-largest pension fund in Australia, wants to invest in U.S. office and apartment buildings.

(Bloomberg)—Australia’s second-largest pension fund is betting on U.S. real estate while avoiding overpriced infrastructure assets as it chases returns in the face of a fragile global economy.

QSuper wants to buy more office buildings and apartment developments in the U.S. after purchasing Chase Tower in Texas in August, Chief Investment Officer Charles Woodhouse said in an interview. The A$110 billion ($76 billion) fund a large chunk of its assets in cash, giving it more firepower than many other funds to write big checks when it sees opportunities, he said.

“We’ve got several other transactions in the U.S. that we’re looking at very closely right now,” Woodhouse said, without elaborating. “The more of these opportunities that we can find in the unlisted asset classes that generate these high single-digit, low double-digit returns, the better.”

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Top 10 U.S. Housing Markets with Highest Foreclosure Rates in Q3 2019

According to ATTOM Data Solutions’ recently released Q3 2019 U.S. Foreclosure Report, there were 143,105 U.S. properties with foreclosure filings in the third quarter. That number is down 6 percent from Q2 2019 and down 19 percent from Q3 2018, to the lowest level since Q2 2005 — a more than 13-year low.

The report noted that U.S. foreclosure activity in the third quarter was 49 percent below the pre-recession average of 278,912 properties with foreclosure filings per quarter between Q1 2006 and Q3 2007 — the 12th consecutive quarter where U.S. foreclosure activity has registered below the pre-recession average.

The report also featured Q3 2019 foreclosure rate data. Nationwide one in every 946 properties had a foreclosure filing in the third quarter. States with the highest foreclosure rates in Q3 2019 were Delaware (one in every 415 housing units with a foreclosure filing); New Jersey (one in every 436); Maryland (one in every 500); Illinois (one in every 517); and Florida (one in every 577).

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Facebook Commits $1 Billion to Ease Bay Area Housing Crisis

The social media company plans to build as many as 20,000 affordable housing units over the next decade.

(Bloomberg)—Facebook Inc. is following other tech titans like Microsoft Corp. and Google, pledging to use its deep pockets to ease the affordable housing shortage in West Coast cities.

The social media giant said Tuesday that it would commit $1 billion over the next decade to address the crisis in the San Francisco Bay Area, building as many as 20,000 new homes that are accessible to teachers, nurses, first responders and other essential workers. A quarter of the funds are earmarked for a partnership with California to construct housing on state-owned land in areas where there aren’t enough residences.

“State government cannot solve housing affordability alone, we need others to join Facebook in stepping up,” California Governor Gavin Newsom said in the statement. “Progress requires partnership with the private sector and philanthropy to change the status quo and address the cost crisis our state is facing.”

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Economic Outlook Remains Healthy for Multifamily Industry

Demand is strong, with increased capital continuing to move into the sector.

While economic growth is starting to slow, fundamentals for the multifamily industry remain strong, according to John Sebree, first vice president and national director at Marcus & Millichap, and Ryan Severino, chief economist at JLL.

The two industry leaders were part of the annual Economic Outlook session at the Multifamily Executive Conference in early October in Las Vegas.

“If you look at what is happening in the economy, you are seeing signs of slowing. We are starting to see job growth back off over time. I think we are downshifting to where we were last year. Next year will be a high chance that growth will be below where we are now,” says Severino. “I don’t know if you can ever guarantee that there is going to be a recession, but the risk is increasing.”

However, Sebree notes that every time the country has an economic downturn, it doesn’t always affect every industry.

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