While the reverse mortgage industry has seen strong business numbers for most of the past year with endorsements largely staying above 4,000 loans a month, the amount of Home Equity Conversion Mortgage (HECM)-to-HECM refinance transactions being done alongside other market factors frankly outside of the reverse mortgage industry’s control are doing very little to commensurately expand the penetration rate of the HECM category into the broader mortgage business.

This is according to John Lunde, president of Reverse Market Insight (RMI) during a presentation at the National Reverse Mortgage Lenders Association (NRMLA) Virtual Summer Meeting this month. Other factors working against the industry include the amount of loans being assigned to the Federal Housing Administration (FHA), even as the number of age-eligible borrowers continues to increase in an oft-mentioned demographic shift.

Reverse mortgage penetration remains stubbornly low

Two key figures contribute to the trend of reverse mortgage product penetration decreasing over time even though the reverse mortgage business is in a generally productive place in terms of raw numbers, Lunde explains.

“Nobody wants to see their market share go down,” Lunde says. “But, when we really start to drill into it a little bit, we’re seeing both of the numbers involved here move against us. The number of HECMs in servicing portfolios has been trending downward, basically, ever since the 2017 principal limit factor (PLF) changes. At the same time, we do still continue to see the number of age-eligible homeowner households go up. So, for both of those reasons, we’re actually seeing penetration go down.”

In terms of why this is taking place, assignment of HECMs — where the lender may assign the HECM to the U.S. Department of Housing and Urban Development (HUD) when the loan balance reaches 98% of the maximum claim amount (MCA) — has increased, which doesn’t actually remove such loans from the broader penetration equation, he says.

“In general, one of the things that’s been happening a lot lately and over the past several years is loans getting assigned to FHA,” Lunde says. “That actually doesn’t remove them from the penetration equation. If we think about loans exiting the servicing portfolio, yes, they’re coming out of a lender’s servicing portfolio, but they’re actually just transferring over to FHA’s servicing portfolio. One of those big numbers there isn’t really reducing penetration, but at the same time, we think about ‘how are the other, different factors happening?’ We’re seeing very low interest rates right now, and sharply appreciating home prices.”

These two things will help serve any reverse mortgage, but it does particular service for lenders who are looking to bolster their refinance volume, Lunde says.

“That really supercharges and creates a refinance boom not dissimilar to the way the forward mortgage world works there,” he says.

What a refinance boom does to penetration

One of the key issues with a reliance on refinance volume is just that the reverse mortgage industry’s base of borrowers does not grow even if business itself increases in terms of the raw numbers, Lunde says.

“When we do refinances as an industry, we might shift loans from one servicer’s portfolio to another but we’re not adding new customers as an industry,” he says. “We’re not growing our market share at all [by doing that]. We may be better serving our existing borrowers, but again, we’re not helping to create that more mainstream product awareness, and an installed base that really gets us further in terms of becoming a mainstream financial product.”

Becoming a more mainstream financial solution for appropriate clients is, of course, a major interest of the reverse mortgage industry as it continues to seek out fruitful new educational partnerships to communicate how the product has evolved since the 2007-2008 financial crisis. There are demonstrable signs of progress being made on this front in terms of the evolving reverse mortgage discourse outside of industry circles, but penetration remains low.

“We’re in the low 2% penetration range,” Lunde says. “And again, that’s down a little bit from a couple years’ past. I don’t think anybody would argue that that’s the right place for us to be [in terms of our ability to] really get widespread understanding and appreciation of the power of the product in really serving […] a client niche and a use case that really does exist out there, especially as folks are living longer. Most of their wealth is generally tied up in their home equity.”

The average maximum claim amount (MCA) for all HECMs has sharply increased over the past couple of years according to RMI data, but what has also increased is the full share of reverse mortgage endorsements made up of HECM-to-HECM refinances, Lunde explains.

“We can see that has sharply increased, [there’s a] general upward trend throughout the whole graph, but a sharp increase over 2020,” he says. “And in the beginning of 2021, that has also coincided with a pretty sharp increase in the percentage of endorsements that are HECM-to-HECM refis. So we can see that part of what’s behind this is really [those] fundamental forces that are out of our industry’s control. We’re just, in many ways, reacting to that. And that is those sharply increasing home prices, coupled with those low interest rates really help supercharge this effect.”

Senior participation in forward, and the finite resource of refinance borrowers

Keeping the low penetration of reverse mortgages in mind, it’s also worth noting that many who would otherwise qualify for a HECM are still engaged with the traditional mortgage business, Lunde explains.

“In terms of the age-eligible homeowner households that might be eligible for HECM, somewhere in the neighborhood of two-thirds of them [have no] mortgage,” Lunde says. “So if we were talking about refinancing forward mortgages and not worried about some of the qualification requirements for monthly payment and income, there’d be a huge installed base for that to be refinanced. But, given that we’re at that 2% rate, it’s simply a different story. And so, one of the things to keep an eye on and think about here is the fact that we simply don’t have that many loans out there available to refinance.”

The amount of HECMs which can be refinanced will eventually be exhausted, as it is a finite resource of existing reverse mortgage customers who even have the ability to refinance in the first place, he says.

“We can’t see a similar increase in HECM-to-HECM refinances over the next coming years, without a substantially bigger non-refinance origination volume happening, if for no other reason than just simply to support future refinances,” Lunde explains. “It’s simply a word of caution and some numbers to better understand that, frankly, there’s not a strongly sustainable, high-growth number here in terms of a HECM-to-HECM refinance niche.”

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Keller Williams is launching the KW New Homes community and partnering with Legacy International to offer new home sales training to address the increasing opportunity in the market.

Keller Williams (KW), is collaborating exclusively with Legacy International, an international sales and marketing company, to offer new home sales training and access to the KW New Homes community.

Sales of newly built, single-family homes fell 6.6% in June to a 676,000 seasonally adjusted annual rate, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The June number follows downward revisions to the May estimate and marks the lowest rate since April 2020. Despite the recent cooling trend, new home sales are up 13.5% on a year-to-date basis.

“Sales continued to trend lower in June as some builders slow sales contracts to manage supply-chains, amidst longer delivery times and higher construction costs,” said NAHB Chairman Chuck Fowke. “While lumber prices have shown some improvement in spot markets, these declines take time to translate into lower construction costs. Moreover, other items like OSB remain elevated.”

“The June data came in lower than expected, and we anticipate an upward revision next month,” said NAHB Chief Economist Robert Dietz. “Nonetheless, sales have trended lower as construction costs have increased and builders have sought to manage material delays and cost challenges in the construction pipeline, in addition to dealing with shortages of lots and labor in many housing markets.”

Counting on these numbers to continue to rise, the KW New Homes community provides agents with ongoing education and resources to expand their portfolio and embrace the growth potential that new homes can represent to their business. 

“We want our agents to be the agents of choice for builders and developers,” said Matt Green, head of agent growth and partner experience, Keller Williams. 

Through the partnership, Keller Williams now offers agents the Builder Developer Realtor Education (BDRE) course and the Builder Developer Realtor Certification (BDRC).

The BDRE and BDRC tracks leverage deep insights from home builders and developers to showcase methods to enhance the customer experience and optimize their business operations to address the market niche. 

“I’m proud to bring Legacy International’s knowledge and experience to the world’s most successful real estate firm and its entrepreneur and accomplished leader Gary Keller,” said Philip Jalufka, founder and CEO, Legacy International. 

The BDRC training is slated to launch in Q4 ’21.

The post Keller Williams launches KW New Homes Community appeared first on HousingWire.



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Mortgage applications increased 5.7% for the week ending July 23, mostly on the back of fast-falling mortgage rates.

The 10-year Treasury yield went into free fall last week, as investors grew concerned about the rise in COVID-19 variant cases and the potential economic fallout, according to Joel Kan, MBA’s associate vice president of economic and industry forecasting.

That led to the 30-year fixed mortgage rate declining to its lowest level since February of this year, according to the latest report from the Mortgage Bankers Association. And the 15-year rate fell to a record low last seen in 1990. Those ultra-low rates naturally resulted in a sharp uptick in refinancing activity.

“With over 95% of refinance applications for fixed rate mortgages, borrowers are looking to secure a lower rate for the life of their loan,” Kan said Wednesday.

Kan noted that the low rates didn’t spur the purchase market, which hasn’t been able to overcome record home prices. The purchase index decreased for the second week in a row to its lowest level since May 2020. It’s now fallen on an annual basis for the past three months.

Kan noted that the Federal Housing Finance Agency reported that May home prices were 18% higher than a year ago.

“That continues a seven-month trend of unprecedented home-price growth,” he said. “Potential buyers continue to be put off by extremely high home prices and increased competition.”

The refinance share of activity of total mortgage applications increased to 67.2% from 64.9% the previous week. On an unadjusted basis, the market composite index increased 6% compared with the previous week. The seasonally adjusted purchase index decreased as well, down 2% from the previous week.

The FHA share of total mortgage applications decreased to 9.1% from 9.6% the week prior, and the VA share of total mortgage applications decreased to 9.8% from 10.5%.

Here is a more detailed breakdown of this week’s mortgage applications data:

  • The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) decreased to 3.01% from 3.11%
  • The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $548,250) decreased to 3.11% from 3.13%
  • The average contract interest rate for 30-year fixed-rate mortgages decreased to 3.03% from 3.08%
  • The average contract interest rate for 15-year fixed-rate mortgages decreased to 2.36%, the lowest level in the history of the survey, from 2.46%
  • The average contract interest rate for 5/1 ARMs increased to 2.81% from 2.74%, with points unchanged at 0.30 (including the origination fee) for 80% LTV loans

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Foreign buyers purchased $54.4 billion worth of U.S. existing homes from April 2020 through March 2021, a 27% decrease from the previous 12-month period, according to a new report from the National Association of Realtors.

Though it’s undoubtedly COVID-related, the drop represents the fourth consecutive annual decline in foreign investment in U.S. residential real estate. Out-of-country buyers purchased only 107,000 properties in that 12-month span — down 31% from the prior period.

The dollar and sales volumes were the lowest since 2011, a year in which foreigners accounted for just $66.4 billion in sales volume across 210,800 properties, said NAR Chief Economist Lawrence Yun.

“The big decline in foreign purchases of homes in the U.S. in the past year is no surprise, given the pandemic-induced lockdowns and international travel restrictions,” he said.

Total U.S. existing-home sales plunged to a seasonally adjusted annual rate of 4.01 million in May 2020. Sales fully recovered by July, eventually reaching a peak of 6.73 million in October.

U.S. home purchases made by foreign buyers began falling steadily in 2018, when Chinese purchases plummeted 56% in the 12 months from March 2018 to March 2019, while British home purchases tumbled 48%, according to the NAR. By mid-2019, the total dollar volume of foreign home purchases had dropped 36% to $77.9 billion.

Foreign buyers who resided in the U.S. in 2021 as recent immigrants or who were holding visas that allowed them to live in the U.S. purchased $32.4 billion worth of U.S. existing homes, a 21% decrease from the prior year and representing 60% of the dollar volume of purchases. Foreign buyers who lived abroad purchased $22 billion worth of existing homes, down 33% from the 12 months prior and accounting for 40% of the dollar volume. International buyers accounted for 2.8% of the $5.8 trillion in existing-home sales during that time period.

The median existing-home sales price among international buyers was $351,800, 15% more than the $305,500 median price for all existing homes sold in the U.S.

Domestic new-home sales continued to slip in June, falling 6.6% from May to a pace of only 676,000, according to a recent study from the U.S. Census. However, existing home sales increased in June, jumping 1.4% from May — to a seasonally adjusted annual rate of 5.86 million — and at a median sale price of $363,300, up 23.4% from June 2020 ($294,400).

Forty-three percent of foreign buyers purchased their property in 2020 for primary residence use, and 65% purchased detached single-family homes and townhouses. Nearly half of international buyers (49%)purchased a home in the suburbs and 28% bought a home in an urban area. Only 7% of foreign buyers bought property in a resort area.

For the 13th straight year, Florida remained the top destination for foreign buyers, accounting for 21% of all international purchases. California ranked second (16%), followed by Texas (9%) and Arizona (5%), with New Jersey and New York tied at 4%.

China and Canada remained first and second in U.S. residential sales dollar volume at $4.5 billion and $4.2 billion. India ($3.1 billion), Mexico ($2.9 billion), and the United Kingdom ($2.7 billion) rounded out the top five, but the United Kingdom was the only country among the top five to see an increase in dollar volume from the previous year ($1.4 billion to $2.7 billion).

The annual dollar volume dropped by at least 50% for foreign buyers from China ($4.5 billion from $11.5 billion), Canada ($4.2 billion from $9.5 billion) and Mexico ($2.9 billion from $5.8 billion).

At $476,500, Chinese buyers had the highest median purchase price, and represented 34% of the property purchased in California.

Foreign home purchase figures may stay low if the number of COVID-19 cases stay elevated in the U.S., officials said.

The post Foreign buyers are avoiding American homes: NAR appeared first on HousingWire.



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Home prices increased across the board in May, leaping 16.6% in the latest S&P CoreLogic Case-Shiller National Home Price Index report.

It’s the 12th consecutive month of accelerating prices, and May’s increase set a new record — following the prior month’s record-breaking increase of 14.8%.

“A month ago, I described April’s performance as ‘truly extraordinary,’ and this month I find myself running out of superlatives,” said Craig Lazzara, managing director and global head of index investment strategy at S&P DJI. “We have previously suggested that the strength in the U.S. housing market is being driven in part by reaction to the COVID pandemic, as potential buyers move from urban apartments to suburban homes. May’s data continue to be consistent with this hypothesis.”

Lazzara said home prices in May stood at all-time highs in 18 of the 20 S&P cities surveyed, and five cities – Charlotte, Cleveland, Dallas, Denver, and Seattle – recorded their all-time highest 12-month gains. 

“This demand surge may simply represent an acceleration of purchases that would have occurred anyway over the next several years, but there may have been a secular change in locational preferences, leading to a permanent shift in the demand curve for housing,” Lazzara said. “More time and data will be required to analyze this question.”


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Competition for home buyers is tougher than ever right now, as tightened housing stock supply continues to plague the housing market. Here are three ways one lender is working with borrowers in different circumstances, creating opportunities to open up inventory.

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Phoenix’s 25.9% increase led all cities for the 24th consecutive month in accelerating home prices, with San Diego (+24.7%) and Seattle (+23.4%) close behind. Prices were strongest in the West (+19.9%) and Southwest (+19.8%), but every region logged double-digit gains from April to May.

All 20 cities reported higher price increases in the year ending May 2021 versus the year ending April 2021.

The Federal Housing Finance Agency also released its U.S. House Price Index, noting that prices rose 1.7% nationwide in May. Home prices rose 18% from May 2020 to May 2021.

For the nine census divisions, seasonally adjusted monthly home price changes from April 2021 to May 2021 ranged from up 1% in the Mid Atlantic division to up 2.4% in the Pacific division. The 12-month changes ranged from 15.4% in the West-South-Central division to 23.2% in the Mountain division.

“House prices continued their record-setting growth into May,” said Lynn Fisher, FHFA deputy director of research and statistics. “This trend will likely continue around the country as busy summer homebuying months maintain the pressure being felt in already tight housing markets.”

George Ratiu, Realtor.com senior economist, said the combination of historically-low mortgage rates, business re-openings and the lifting of pandemic restrictions continue to fuel the current “buying frenzy.”

“On one hand, mortgage rates have been dropping for a month, moving toward the lows we saw in January and February of this year,” Ratiu said. “On the other hand, more homeowners are entering the market, with the number of freshly-listed homes for sale advancing in 14 of the last 17 weeks. This dynamic confluence of housing developments is helping keep price growth in check as we approach August.”

Added Matthew Speakman, Zillow economist: “Increased inventory levels should eventually help tame the record-high pace of price appreciation, but it’s going to take a while.”

The post Home prices explode on the West Coast appeared first on HousingWire.



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Although interest rates remain near historic lows, it’s important not to lose sight of how these low interest rates impact housing prices—especially as inflation threatens sooner-than-expected rate hikes.

For the last several months, the Consumer Price Index (CPI), one of the main measurements of interest, has been above the Fed’s target rate of 2% year-over-year inflation (most recently around 5%). While some signs indicate this inflation is temporary, it’s something to monitor. Rising inflation has broad implications for both property prices and real estate investors.

When inflation rises, the government usually wants to stop it. The government’s primary tool to battle inflation is raised interest rates, which works by reducing the supply of money in the economy. And while this tactic tends to work at managing inflation, rising interest rates can slow or perhaps even reserve gains in property prices.

How interest rates impact affordability

First and foremost, interest rates impact the affordability of mortgages.

When interest rates are low, it is less expensive for people to borrow money. Interest rates are essentially a measurement of how much a borrower pays a lender to borrow money. The lower the interest rate, the less the borrower pays the lender over the course of the loan. This is generally good! No one wants to pay a lender or bank a cent more than they must (sorry, lenders).

But the savings borrowers enjoy due to low interest rates can also drive up property values because low interest rates increase housing affordability. When borrowers pay the bank less, they can afford more expensive homes.

Let’s look at an example.

Julia has a budget of $120,000 for a down payment and wants to keep the payments for principal and interest (P&I) on her mortgage around $1,900 per month.

A few years ago, when interest rates averaged around 5%, Julia would have maxed out at a property that cost around $425,000. For that price, Julia would put down $85,000 (assuming a 20% down payment), and the P&I on her $340,000 mortgage ($425,000 – $85,000) would come out to $1,825.

But now, mortgages are hovering around 3%, which means Julia can afford a $550,000 house. A down payment would cost her $110,000, and even though her loan would now be for $440,000 ($550,000 – $110,000) her payments would be $1,855.

Payment on $440,000 loan at 3% = $1,855

Payment on $340,000 loan at 5% = $1,825

Just because interest rates dropped from 5% to 3%, Julia can now afford a property that is $125,000 more expensive than the property she could afford a few years ago! That’s a huge difference in price range.


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Does affordability affect the housing market?

Rising affordability doesn’t necessarily drive housing all by itself. Still, when you combine increased affordability with the historically low housing inventory we’re currently seeing, it’s a perfect scenario for prices to climb.

People want houses, and there aren’t a lot to buy. Rather than pocketing the savings from low interest rates, many borrowers who intend to buy choose to use the money they’re saving on interest to bid up the price of the house. Hence all the bidding wars.

Returning to our earlier example, if Julia were looking at a home that cost $450,000, we know from our calculations above that she can afford a house up to $550,000—so she can drive the cost of that house all the way up from $450,000 to $550,000 and still stay within her budget.

Think about that for a second. Interest rates dropping from 5% to 3% means a single person can drive up the price of a house by $100,000 (22%!) without changing her budget.

Of course, this is just one extreme example. But in aggregate, this increased affordability can—and often does—drive up prices across the entire housing market.

In contrast, if interest rates climb and affordability falls, it has the potential to slow down or even reverse gains in property prices. It doesn’t always happen that way, but mortgage affordability can significantly impact property properties.

How interest rates affect risk assessment

In addition to affordability, there is a more mathematical way that interest rates impact housing prices that is particularly relevant to real estate investors.

Most investors choose to value real estate by the income the property generates, as it enables investors to measure their return on investment. Typically, a metric known as cap rate is used for this exercise.

Cap rate is easy to calculate. You simply divide the net operating income (NOI) of a property by the property’s market value. For example, if you had an NOI of $50,000 and a property worth $1,000,000, the cap rate is 5%.

When you’re trying to figure out the value of a property, you can use the inverse of this formula. Simply divide the NOI by the average cap rate in your area.

As an example, if you toured a property with $30,000 in NOI and the cap rate for similar properties is 7%, you’d likely want to pay around $429,000 ($30,000/.07).

Generally, sellers like a low cap rate and buyers like the opposite—they want to buy at a higher cap rate.

The cap rate in your area is fluid, though. No one sits down and sets what the cap rate will be for multifamily properties in Atlanta. Instead, it is a product of the free market.


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Sometimes a bullish investor may be willing to buy at a relatively low 3-4% cap rate. Other times, investors may demand a 10% cap rate or higher for their investment. It all depends on the risk/reward profile of a particular investment and the macroeconomic climate.

Right now, cap rates tend to be low. With low interest rates, investors have lower expenses because they’re paying less to their lenders. With lower expenses comes lower risk. This (combined with various other economic factors we won’t get into here) can embolden investors to buy at a lower cap rate.

But, when interest rates start to rise, cap rates usually follow. As an investor, when interest rates rise, it means your expenses go up. With rising expenses comes rising risk. And with more risk, investors must demand better prospects of return in the form of higher cap rates.

But here’s the catch: higher cap rates lower property value. This should be evident from the formulas we reviewed above.

Remember that property with $30,000 in NOI we were considering? At a 7% cap rate, the property was estimated to be worth $429,000 ($30,000/.07). But, at an 8% cap rate, that same property is worth about $375,000 ($30,000/.08). When investors demand higher cap rates (often due to rising interest rates), they reduce property values.

This isn’t necessarily good or bad. Owners and sellers could see a decline or even reversal of price appreciation, which is never fun. But on the other hand, many buyers will likely welcome lower property values even if financing is more expensive. Either way, it’s an important dynamic to monitor over the coming months.

While fluctuations in interest rates do have the potential to affect property prices, it’s still unclear what will happen in today’s market.

When rates change gradually, it does not always correspond with a big shift in market dynamics.

fred 3

Interest rates rose from 2016-2019, for example, and property prices rose steadily during that time. So, if interest rates do start to rise, it’s not necessarily going to cause declining prices or any sort of crash.

My best guess is that rates will start to rise in the coming months, but it will happen gradually. This should lead to cooling of the housing market back down to normal growth rates (think 4-8% year-over-year growth instead of 22%), but we won’t see a reversal in property prices, at least in the next year or so.

To me, it would take a rapid rise in interest rates with a corresponding drop in demand or a huge glut of inventory for prices to reverse, and personally, I don’t see that happening soon.



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The housing market is red hot. The Federal Housing Finance Agency house-price index rose 12% last year
due to low inventories and high demand. Redfin, the popular real estate website, reports that nearly
40% of homes in the past month have sold above asking price. And the National Association of Realtors
reported that, for the first time in a generation, housing prices rose in each of the 181 metro areas it
tracks at the end of last year. And yet, the gains from widely rising prices are not shared equally due to housing discrimination.

One analysis of U.S. Census Bureau data extrapolated the breadth of racial disparities in homeownership, finding that nearly 74% of white households own their own homes, compared to only 45% of Black households. Differences in home equity account for a large chunk of the wealth gap, with Black families having only about one-eighth the net wealth of white families.

The roots of racial disparities in housing and mortgage markets run deep. Government-backed New Deal programs of the 1930s openly discriminated against minority borrowers and neighborhoods. Historic
government institutionalized discrimination includes actions like “redlining,” where the Federal Housing Administration would refuse to insure mortgages in and around Black neighborhoods.

Unfortunately, today, some traditional lenders have been penalized for continuing to treat minority
borrowers differently. Since 2010, Bank of America, Wells Fargo, and JPMorgan Chase have all paid
multi-million-dollar settlements in response to U.S. Justice Department charges of fair-lending
violations
.

However, prospects to close the gap and progress against housing discrimination exist, as the formerly staid mortgage market is undergoing an under-recognized revolution. As with many industries, the mortgage-lending market has increasingly moved online. As part of this trend, the share of loans being made by so-called “fintech” — lenders that make home loans almost exclusively online — has grown
enormously. Many borrowers cite the convenience and speed for making the switch to FinTech lenders
from in-person mortgage borrowing.

But there’s much more than mere convenience at play here: Minority homebuyers are benefiting from
the rise of this new type of borrowing and the increased competition they bring.

In new research, I study this question using new data on borrowers, along with public data published by
the FHFA and the Consumer Financial Protection Bureau. Like many researchers before, I conclude that
Black and Hispanic borrowers receive less-attractive rates from traditional, face-to-face lenders than
those received by white borrowers. These differences are statistically and economically significant, potentially adding up to hundreds of millions of dollars per year in interest payments.

These differences disappear, however, when examining borrowers from FinTech lenders. Matched
analysis of similar Black, Hispanic and white borrowers at these lenders show that they receive virtually
identical terms. Black and Hispanic FinTech customers secure similar annual percentage rates (APRs) when buying a new home and in refinancing.

In fact, there is suggestive evidence that increased exposure to fintech competition may lessen housing discrimination among traditional lenders as well. Importantly, fintech lending now comprises a large share of mortgages in some rural places where minority borrowers may previously have had few options.

These findings are supported by other scholars, comparing racial discrepancies for traditional versus
fintech lenders. While researchers have expressed concern about the ability of technology to entrench
disparities, it is encouraging to see innovation diminishing this critical problem. Indeed, the researchers
at Zillow found that home values have grown quicker for Black households since 2014, coincident with
the rising fintech market share. Similarly, homeownership rates have grown faster over this period for
Black and Hispanic households.

An encouraging trend should not be mistaken for a solution. Despite some progress in narrowing the
digital divide, many would-be borrowers remain uneasy with the prospect of shopping for loans online.
Moreover, powerful research has shown that lenders often do not spend enough time comparing
lenders and often leave money on the table.

There is much that policymakers, lenders, and real estate agents can do to help ensure that borrowers
receive the best possible deal and terms, regardless of race. Online lenders, too, must play a critical role
in efforts toward the goal of far-reaching and tangible results in challenging our existing housing
inequalities.

Daniel Shoag is an associate professor of economics at the Weatherhead School of Management at Case Western Reserve University. He can be reached via email at dxs788@case.edu.

The post Could online mortgage lenders reduce discrimination against Black homebuyers? appeared first on HousingWire.



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Amanda is making a teacher’s salary and spending her weekends working a part-time job at a grocery store. She contributes to her retirement accounts, but she could be sitting on a passive income gold mine that she doesn’t realize.

Attached to Amanda’s home are a casita and a mother-in-law suite. The casita is rented out to long-term tenants and the mother-in-law suite has been used as a short-term rental for some time. But what if instead of keeping her casita as a long-term rental, she converted it into an Airbnb? Well, Amanda could potentially see a rent increase of almost 3x what she currently is renting at!

With this house hacking model that Amanda is using, she’s able to get owner-occupied financing with lower interest rates and better terms. So what if she could start doing this with other houses and slowly grow a short-term rental empire? As Scott and Mindy discuss, it’s possible!

Mindy:
Welcome to the BiggerPockets Money Podcast, show number 216, Finance Friday edition, where we interview Amanda and talk about expanding her short-term rental empire.

Amanda:
Having more passive jobs or work and not necessarily working seven days a week for the rest of my life. I enjoy everything I do, but sometimes it’s too much. I’m working many hours.

Mindy:
Hello. Hello. Hello. My name is Mindy Jensen. And with me as always is my better than a triple scoop ice cream cone co-host, Scott Trench.

Scott:
All right. Never a vanilla intro with you, Mindy.

Mindy:
Scott and I are here to make financial independence less scary. Let’s just for somebody else. To introduce you to every money story, because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting.

Scott:
That’s right. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, start your own business, or just get a little more freedom back into your day-to-day life, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards your dreams.

Mindy:
Scott, I am so excited to talk to Amanda today because she has a world of possibilities opening up to her in her quest for financial freedom.

Scott:
Yeah, I think today might’ve really helped Amanda with a lot of things, because I think she really came in with a certain set of expectations about where she was and what her opportunities were. And I think they were much more limited in her mind than Mindy, you or I perceived them to be as we get to talking with her. I think she’s actually got a tremendous amount of opportunity and a lot of power to make some big changes over the next couple of years. And I’m interested to see what she does.

Mindy:
I am too. I think that she is the perfect example of why this particular show exists. She was inside the bubble of, this is what I have, and this is what I can do. And once we started talking to her, she was able to pop that bubble and look around and say, “Oh, there are other options. There are options for making more money.”
And when you’re in that space, when you’re inside, it can be really difficult to think of other options. And I’m just as guilty of this as everybody else. But this is the perfect reason, the perfect example of why this show is here to help you. And you know what, Scott? We should… sorry, I was going to interrupt you. Go ahead.

Scott:
Oh, no, no. Go ahead. I was just going to talk about, we also had a lending question that came up, and so if we have any lenders listening to this show, if you could give us some input on her options from a financing perspective over the next year or two based on we talk about, we’d really appreciate that in the Facebook group.

Mindy:
Yes, that’ll be great. We will post a question in the Facebook group, which can be found at facebook.com/groups/bpmoney. Okay, before we bring in Amanda, let’s talk about the things that my attorney makes me say. The contents of this podcast are informational in nature and are not legal or tax advice and neither Scott nor I, nor BiggerPockets is engaged in the provision of legal tax or any other advice. You should seek your own advice from professional advisors, including lawyers and accountants, regarding the legal, tax, and financial implications of any financial decision you contemplate.
Okay. Let’s bring in Amanda. Amanda is a teacher, so she’s not paid nearly enough. She has a second job on the weekends, as well as picking up side hustles when she can. She’s doing great on the investment front, but is wondering about her housing options and just in general, would like to feel more financially secure. She also like to have more passive side income. Her current ones are pretty hands-on. Amanda, welcome to the BiggerPockets Money Podcast. I can’t wait to dive into your numbers.

Amanda:
Thank you so much. I’m so excited to be here.

Mindy:
So let’s just jump right in because I have a lot of questions based on what you sent me earlier. What is your salary and debts and your expenses and investments?

Amanda:
Okay. So my base salary from my teaching job is about 42,000. And I have some opportunities to raise that by coaching sports and tutoring and things like that. And I have a side job at a grocery store and that can bring in 300, $600 a month. And that’s my salary. I also have a little space in the back of my house that I rent out for 600 a month. And I don’t have any debts other than my mortgage. I have $205,000 left on my mortgage. And my monthly expenses are about 2,200 a month. My mortgage is 1,200 a month right now. And I spend about 500 on groceries and gas and about 500 on the fixed expenses like utilities, computer or internet, phone. And so 2,200.

Scott:
So how much are you typically able to save in a month? I mean, it looks like there’s a steady part of your income and then there’s a variable part of the income. And it looks like what you said, you’d need the variable stuff, the Airbnb and the Trader Joe’s and all that kind of stuff, to cover the expenses. Is that right?

Amanda:
Yeah. So I try to save about $1,000 a month and most of that is coming from my side hustle work. My teaching job brings me in about 2,000 a month base, which covers exactly my expenses. And that’s after a pension and 403(b) are taken out. But still I feel like I need to be doing the other things in order to be able to save money.

Scott:
What part of the country do you live in?

Amanda:
I’m in the Southwest, Arizona.

Scott:
Okay. Southwest. Is that in Arizona?

Amanda:
Yes.

Scott:
It looks to me like you’ve got a pretty tight budget here, but do you feel good about it? Do you feel like there’s room there or do you feel like you’re pretty good at that?

Amanda:
I feel like my budget is pretty tight and I feel like I can reduce it on a monthly basis if needed, but I feel like where it is isn’t pretty good for me right now.

Scott:
Okay, great. So we got $1,000 a month to work with and you can increase that with more from the side hustles, but really not by cutting on the expense side.

Amanda:
Yeah, I would say that’s right.

Scott:
Okay, awesome. And then let’s go through your assets and liabilities here. What kind of investments do you have and what debts do you have if any?

Amanda:
Okay. I have my home and I have… The home equity has gone up a lot. I purchased it two years ago and I think I purchased it for 330 and now it’s probably worth 450. So I have maybe 200, 250 equity in the home now. And I have a car that I own, and I have 65,000 in my Roth IRA. I have a 401(k) through my side job that’s at about 7,000. I have a pension from teaching that’s at about 10,000. And I have a 403(b) from teaching too that’s at about 7,000. And then I have a taxable brokerage at about 10,000. And then I have an emergency fund.

Scott:
How much is your emergency fund?

Amanda:
About 10,000 as well.

Scott:
Okay. So we’ve got about 100 to 125,000 between your emergency reserve and these types of investments, including various degrees of accessibility, mostly the Roth, which is awesome, but a little bit in the pension and a couple of tax deferred accounts. Is that right?

Amanda:
Yes, that is right.

Scott:
Okay. So it looks like around a 375, 400 net worth somewhere in that ballpark.

Amanda:
Yeah. So with a lot of that being home equity.

Scott:
Okay, perfect. And what are your goals?

Amanda:
One of my major goals is general financial stability and the freedom that that brings to maybe take a year off and travel or take a lower paying job. I know I’m a teacher. It’s hard to imagine that. But just freedom to do what I want with my time to know that I’ll be able to retire at some point and have that freedom to take care of a family member if needed and that kind of thing.

Scott:
Okay, awesome. So it’s just a basic movement in the general direction of building a strong and liquid a position as you can over the next couple of years with passive income in some cases, those kinds of things to give you more options. Is that right?

Amanda:
Yes, definitely. Yes, absolutely. And also, I think just maybe not having more passive jobs or work and not necessarily working seven days a week for the rest of my life. I enjoy everything I do, but sometimes it’s too much. I’m working many hours.

Scott:
I don’t know how to phrase this more eloquently, but how badly do you want it? Are you willing to work two jobs indefinitely to get there for the next several years? Or do you want to have a pretty sustainable path? Or what’s the level… You’re working two jobs right now and that kind of stuff, are you willing to keep that up for a number of years to accelerate it, or would you rather do something more sustainable or approachable or whatever?

Amanda:
I mean, I am willing to work two jobs and I’ve been doing that for a while, so that’s the norm for me, but I would like to also explore other options. And I’m also willing to be creative.

Scott:
Well, great. Well, it sounds like we have a lot of options on the table. And then lastly your teaching job, that’s definitely going to be part of the equation or are you even rethinking that as a career?

Amanda:
I’m not necessarily rethinking teaching as a career. I really find it fulfilling. However, I am definitely open to other careers that would allow me to do the same type of work with students and in a different capacity.

Scott:
Okay. Got it. Mindy, do you have any other questions for background before we get into thinking through some things?

Mindy:
No, but I want to talk about the casita and the Airbnb and the general struggles with income or work-life balance that I think a lot of people who are in this same position find themselves because it would be super easy, if you didn’t know about financial independence, to just work the one job and live paycheck to paycheck and not really think about your retirement, “Oh, I’ve got my pension.” Frankly, your pension of $12,000 is not going to get you very far when you are retired. So let’s look at ways to bring in some income but also free up some of your time as well.

Amanda:
Yeah. The home that I have, it’s a three bedroom, two bath, and one of the bedrooms is in the back of the house. It has its own private entrance and its own private bathroom, so it’s like a mother-in-law suite. And then in addition, there’s a little casita attached to the garage. It’s 400 square feet with a full kitchen and full bathroom. So I live in a college town, so I’m able to rent that out to students for about 600 a month. And I’ve been doing the casita as a long-term rental since I bought the house, so for about two years. And that has been really nice. It hasn’t brought in as much income as the Airbnb has, but it has been more passive. And I have great tenants.
The Airbnb is something I just started doing. I did it occasionally over the years and a few months ago I made the space a dedicated Airbnb space in the mother-in-law suite. And well, in May, it brought in $900 and it’s much smaller than the casita. So that’s funny. But it involves a lot more work, it involves a lot more planning and communication. I have to turn it around every few days. And I did hire someone from my neighborhood to occasionally help me with the cleaning and that has helped as well. So when I was in school and had a busy day, I could hire someone to help with the cleaning. And otherwise I do most of the cleaning myself. I like it, but I’m considering other options like travel nurses or longer-term tenants for a few months at a time during the school year, so that I don’t have to turn over the Airbnb every few days.

Scott:
What’s the difference in rent between what you think you could get from another option, like a long-term rental and the Airbnb in the course of a month?

Amanda:
So actually the casita if I rented it out now, I could probably rent it out for about 850 a month. But I’ve had the same tenants for two years and they’re moving in six months, so I haven’t changed the rent.

Scott:
But you get more from the casita as an Airbnb than you would from the second bedroom as well, right?

Amanda:
Yes. Oh yes, that’s true. So I would probably get maybe 1,500 a month from the casita if I did that on Airbnb. If I rented it out as a long-term rental, maybe at three months at a time, I could probably get 1,200 for it. And then as a long-term rental, maybe 850.

Scott:
How much do you make an hour at the Trader Joe’s job?

Amanda:
Well, I currently make 15.50. I got my pay reduced like $4 because we were getting paid for COVID a little extra, so it was 19 and now it’s 15.50.

Scott:
Okay. Well, the reason I asked that is because that’s a good framework to think about when you’re thinking about the Airbnb and the work related and the trade-offs in terms of the passive versus active investing on long-term rental Airbnb, traveling nurse, or shorter three month stints or those types of things, because if the Airbnb is a few hours a week, and it’s really annoying, if you think about that in the context of, well, I’m making $800 a month, am I working more the same or fewer hours than I am at the full-time job? You might be making a huge dollar per hour income even though it feels really annoying in some cases.
So what’s your instinct tell you there? Are you making more per hour doing the Airbnb than you are at the other jobs? And does that change the math for you in terms of thinking about allocating more time to that versus the second job?

Amanda:
Yeah. Actually, I think you’re right. I think that my per hour wage is much higher for the Airbnb. And I think that the only reason it’s annoying, I guess, at times is just because I’m doing a lot of things. So it’s just finding the time and navigating it. It’s not that the work itself is frustrating or that I don’t enjoy it. It’s just juggling everything. But I think that per hour, I mean, if I work at Trader Joe’s like 60 hours a month, I might bring in a little over $600 in my paycheck with some of that going to my 401(k). But the Airbnb would be like $800. And I don’t think it’s anywhere near 60 hours of work, maybe 10.

Scott:
So this is great. I think this is giving us a direction to begin heading in terms of where you’re moving with this kind of stuff. I would rank all of these items by their level of activity and involvement. And I think that if you were to make your casita passive, totally passive and rent it out, you’ll make 850 a month is what you told us. But you think you can make up to 1,500 a month by Airbnb-ing it.
And if the level of effort you need to maintain it is more than $15 an hour, and it’s probably much more than $15 an hour, even with coordinating a couple of cleanings here and there and somebody let them in when you’re not available and those types of things, then that would be inefficient arbitrage to make that totally passive, at least for the next year or so until you move away or whatever it is. To do that at the expense of continuing to work at the Trader Joe’s job with that many hours, that would be my first instinct with that is to think about it in terms of dollar per hour and in terms of long-term passive goals there. But what’s your reaction to that?

Amanda:
Yeah, I think that that absolutely makes sense. I had been thinking about that too, $15 an hour is not that much. It’s nice in some ways, because I just clock in and clock out, but I don’t know that it’s going to be a good long-term job for me.
And I think that with the Airbnb, I have opportunities to be creative too, because in the winter, since we’re in the South, people come and rent out houses longer term. So this winter, actually I’m going to move into the casita for a couple of months and have snowbirds, so people from colder places who are retired, who were coming and rent out my entire house. So I’m going to do that for two months in the winter. And then I told myself, I would make a decision after that, about what I’m going to do longer term with Airbnb versus long-term rentals, etc

Scott:
If you were to buy this property again, you said it would cost 450.

Amanda:
Probably.

Scott:
That’s how much it’s worth right now?

Amanda:
Yeah.

Scott:
And how much income will you make when you move into the casita and rents out the other two units?

Amanda:
So for the highest season, they will be paying about 3,500 per month. So that’ll be two months.

Scott:
Okay. And what about on average throughout the course of the year?

Amanda:
On average, if I rented it out long-term, it would probably be going for 2,100. If I rented the [crosstalk 00:19:19]-

Scott:
And how about for Airbnb?

Amanda:
For Airbnb, it’s hard for me to tell the… I’m not sure if a three bed, two bath home would go for as much. I’ve tried to compare and look at the Airbnb market, but I can’t really figure it out. And Airbnb estimates that I’ll make less than $2,000 a month doing Airbnb, but I don’t always find that their estimates are accurate.

Scott:
Okay. And what is your mortgage payment on this currently?

Amanda:
It’s 1,200 a month. And that includes the principal interest and insurance and property taxes.

Scott:
Okay, great. So look, I think you’ve got a path to making huge arbitrage on your place here. And one potential approach, you can do more than this, but if you think about it, can you, over the course of this year, really refine your systems and processes for this Airbnb? Which is, it seems like your highest dollar per hour activity right now, to me, that’s immediately available without getting super creative. And then can you set yourself up for next summer, the opportunity to buy a place very close by that would repeat the process here with some of these things?
And that might be one potential first thought at beginnings of a strategy here where because as a teacher you likely have the summer available, that might be a really high value activity to do is to buy a place and get it set up for the next year. And you could repeat this in a sustainable fashion where you can even move in to that next place. And that depends on a lot of ifs and a lot of things. But any thoughts about that?

Amanda:
Yeah, I mean, I think that I would definitely be open to that option. I have some questions about what kind of place I could buy on my income and what that would look like. But as far as doing it, I can visualize how that would work just based on my limited experiences.

Scott:
Well, how long have you been renting out your current place?

Amanda:
So I bought it two years ago and since that time I’ve done occasional Airbnbs, like times when I knew that it could bring in money, like on weekends that were popular. And then for the past four months or so, I’ve been doing it longer term, like the back unit.

Scott:
Did you declare the income on your 2020 taxes when you filed them in 2021? Did you declare the rental income or the Airbnb income?

Amanda:
In 2020, I declared the rental income that I’m getting from my casita and I did the Airbnb for under 14 days, so I didn’t have to declare it.

Scott:
Okay. So here’s one way to… And this is something where you should talk to a lender, but one phenomenon that the house hacker, you, you are a house hacker, experiences that you’re not anticipating is a dramatic rise in loanable income, income that your lender will qualify you with because you are renting out your place. And so if you can drive rents and really maximize that over the course of this year, and then come in when you’re…
Let’s say you’re thinking about buying in summer of 2022, and you’ve got a lot of Airbnb income that showed up on your 2021 taxes, and you’ve got a consistent thing that’s going with that. You’ve got stable rental income and/or Airbnb income, talk to your lender and make sure you set this up well in advance, that’d be a good time to talk to them now and say, “Hey, this is where I’m at right now. Right now you can only lend on about 45, $50,000 in taxable income between my teaching job and this, but next year, I think I’m going to have closer to $100,000 in annual income because I’m getting this from my Airbnb and for my rental unit.”
They will lend not only on that income, but on the anticipated future income from your next investment. So that can dramatically increase your purchasing power in a way that you’re probably not anticipating right now or not even thinking through with that. So that’s a pretty cool situation. You think about how much harder that is if you just bought a house and weren’t renting out anything, and we’re on a teacher’s income, it would be almost impossible to qualify for that next mortgage. But because of what you’re doing and the creative and the hustle, you’re going to get rewarded, I think, with the ability to borrow against much more income than just your salary job within a year.
Now, there’s a lot of ifs there. You talk to a lender and hopefully, if there’s a lender that’s listening to this, you can post in the Facebook group and tell me if there’s any nuances that I’m missing here, because I’m not a lender and I don’t do that for a living. But I believe that directionally I’m in the ballpark of what you can anticipate for next year.

Amanda:
Okay. I had no idea that that was the case. I’ve been interested in the idea of doing this in the future, but I’ve just been saving in my taxable brokerage and I thought this was years away.

Scott:
Well, that might be very exciting news if that’s something you weren’t anticipating, because I think that you actually have a very good shot at being ready to do that. And again, we need a lender to come in and talk through some of this stuff, but your lender may say that maybe the long-term rental income is something you can borrow against and the Airbnb income is something you can’t borrow against. So you would need to factor that into your strategy, because if, for example, the lender wants to have long-term rental income, then you might want to set it up so that you have two long-term tenants in your current place if you’re going to buy another place, for example, downstream.
So I’m getting way too specific with this, but one thought that comes into mind with an approach is, okay, I set things up so I have two Airbnbs for the rest of the year. I maximize that income and make it a large dollar per hour and put all that towards the other investments or emergency reserve or the down payment on another property. As the next year approaches, I talk with the lender and I set things up so that I make sure that I’ve got loanable future income for my next place with that. And I’m a biding by all the rules with those kinds of things.
I buy the next place in a way that is another excellent house hack, automate operations at my current place, either with a long-term tenant or an Airbnb with that, or I sell the place because you’ve got $250,000 in tax-free gain for that. And now you can begin just the next step on a journey to begin creating more of that passive income with that. How are we like in that direction?

Amanda:
Yeah. Now, I think that makes a lot of sense. Like I said, I didn’t even realize that that wasn’t really an option, so this is good news that I can explore this.

Mindy:
Something to think about when you are furnishing these properties is, why are people coming to your area to stay in an Airbnb? And can you furnish it to take advantage of those visits? Like college sports or national sports, or annual events, something that gets people excited about staying in your place. And a good way to think about this is like an Orlando Airbnb decorated completely in Disney stuff. The moms want to stay there because then the kids are super excited to sleep in the princess room or whatever.
So taking advantage of local things that people will be excited about. Another thing I’ve seen is somebody did this huge mural with an Instagram hashtag at the bottom, and people will take pictures in front of the mural because it’s like angel wings or something. And then they’re advertising for your Airbnb too. So there’s some really creative options around Airbnb and making it so people want to choose you over somebody else is really going to be super key. And the time to think about that is now before you’ve started to furnish the property.
Another thing to think about is to get start off with slightly lower rates to get really spectacular reviews on your property. I’m not a short-term rental expert. That used to be something that was really, really good to get. You get a lot of reviews really quickly. I don’t want to stay at a place that has one review because I don’t know that might be their friend. Scott let his buddy come stay and, “Yeah, it was great.” And then I get there and I’m like, the bed is uncomfortable, there’s nothing in the kitchen. Having a bunch of reviews is really, really helpful for those of us who use Airbnb.

Amanda:
Yeah. That’s-

Mindy:
Oh sorry. We have a book coming out in September called Short-Term Rental, Long-Term Wealth. And as soon as that pops up, I will send you a copy so you can get more, really great information from Avery Carl, who is our resident Airbnb expert. She was on the BiggerPockets Real Estate Investing podcast, episode 364. And that’s an amazing episode to listen to. She’s got a ton of really great advice on specific Airbnb stuff.

Scott:
Where specifically are you located in Arizona?

Amanda:
In Tucson.

Scott:
In Tucson. Does Tucson allow you to Airbnb? And do you believe that that state will continue for many years with this?

Amanda:
Yes. Tucson does allow it and then, well, I believe that we will be able to continue. And here in Tucson, there are a lot of Airbnbs that exist. A lot of people have casitas in the area. Just because of the year the houses were built, a lot of them were built with casitas. And I also think that the area has a lot of appeal, both because of the major university located here and also because of the weather, which brings a lot of visitors in winter. And there are some events in the winter too that bring a lot of people.

Scott:
Okay, great. So that’s a good sign. You always to be careful about that because some towns are not allowing Airbnb or only allow it if you live in the property versus keeping it as a separate unit and those kinds of things. But it sounds like that’s on the right trend. I really like a lot about this now that we’re talking about, because I love the Arizona market. I think people are moving there because they want to move there. It’s one of the fastest growing parts of the country. I know Phoenix in particular is just exploding with a lot of that stuff. I invest in Phoenix because of that, because of the growth and prospects in that market.
I think where you’re buying is about as good as anywhere in the country in terms of long-term prospects. I don’t know specifically Tucson, but you think that it’s going to share a lot of the long-term trajectory of Arizona in general with that. And to cash flow at the same time is awesome. You look like you’re about to say something though. Sorry.

Amanda:
Oh no. I agree with you. I love the area and I love living here, but also prices here have been relatively low compared to many parts of the country for being in a desirable city. And they’re going up, housing prices are going up recently. And I think that that trend will continue.

Scott:
Great.

Amanda:
So that’s good.

Scott:
Great.

Amanda:
Another thing with the Airbnb, I own it as an owner occupied place and I actually called the city to ask if that status would be jeopardized because my taxes are a little bit lower. And they said that they didn’t care if I didn’t Airbnb if I’m living on the property. I don’t know if the person was like an expert on it but she didn’t seem concerned at all. So I don’t know if I should do more due diligence, but I was concerned about that when I started it about whether it would still be owner occupied, if I occupied it and rented out a room in the back.

Scott:
Well, I just think that you need to validate a lot of assumptions around this. But I think we’re searching in the right direction for what you’re doing here. And I think you need to pop out of the zone of like, “I’m a teacher and I make $15 an hour at Trader Joe’s.” No, no, no. You are about to be 100,000 a year income earner, I believe, just by automating your current business as soon as… And I think you’ve got great tenants in that other place, but if they’re paying 600 a month, what was it again?

Amanda:
Yes, 600.

Scott:
600 a month. I mean, you’re missing out on $900 incremental to that per month based on what you’re telling me from that Airbnb. And I think that you might like those folks, but would you write them a $900 check every month over the next six months with that? I don’t know how great of tenants they are, but they’re not that good most likely with that. So I think that you have a clear, better option to me there in the short run here, and that puts you at 1,500 a month is $18,000 a year plus $800 a month from your back unit is $10,000 a month. So that’s another $30,000. That’s $80,000 in annual income that we stack that on top of what you’re doing with the teaching job and all that kind of stuff.
So I think you’re doing really well compared to how maybe you thought you were doing coming into this call here. And I think that should spark some ideas and pop you out into another level of thinking about how you’re going to run your life and your business with some of these things. That’s my biggest… I think, if we have one takeaway from today, that’s where I would point you is to begin just thinking like that and allowing that to change the options in the way that you allocate some of your time. Mindy, you’re going to say something.

Mindy:
I was. I have a couple more things to think about. You have mentioned popular weekends a couple of times, can you plan in advance and you move into the one bedroom mother-in-law suite and rent out the rest of the house, the big house, and the casita on those big weekends? That’ll give you even more income, just a little bit of a boost. And it seems to me like those popular weekends are recurring. So like probably Christmas and Thanksgiving and that sort of thing, “Hey, you can live in my whole house.” And that’ll take some advanced planning, some prior thinking and, oh, I have to lock off my private things. I have to take my clothes out of the dresser. I have to… whatever it is you’re going to do. But I think that that little bit of planning can be a huge boost to your income.
And can you streamline the cleaning process so you can turn the property really quickly. In my last house, I swore my neighbor was going to die any day and I was going to buy his house and turn it into an Airbnb. My plans were to Airbnb that house and I was going to invest in extra everything, so I don’t have to wait for the laundry to be done at the unit. And I don’t have to wait for the towels to come out of the dryer before I can remake everything. Can you invest a few $100 in an extra set of everything, have it in a tote, take it over there, take everything clean out of the tote, put everything dirty into the tote, make the beds. I mean, that’s a 20 minute flip right there.
And dishes ask them to start… I really hate staying at an Airbnb and they’re like, “Hey, can you do all the laundry?” No, I don’t work here. I don’t want to even start the laundry, frankly. So if you have the extra set, you can wash them at home later or wash them in your washing machine later. If you ask them to start the dishes, I don’t think that’s such a big deal. Throw everything the dishwasher.
But really think about how long it’s going to take you to completely turn the property and then think about ways to do that faster because I’m with Scott, I think this is a super huge, dollar per hour, easy to do way to really increase your income. And those two, I mean, you’ve got a really awesome property right now. In addition to Scott saying that you should buy another property, I totally agree with that.
I would start sending letters to people, if you see a house with a casita, “Hi, I’d like to buy your house. If you’re ever thinking about selling, let me know.” And then that can be a really easy way to get… not easy, I don’t think I should say easy. That could be an interesting way to find properties that maybe you’re not competing with a lot of other people to purchase. The market right now is just ridiculous.

Scott:
Yeah. I agree with everything Mindy said. I think that automating your business, if you’re looking for ways to make your life more passive with that, you do not have a financial profile right now that will allow you to create large amounts of truly passive income in the short run. I don’t think that’s news. You don’t have a large stock portfolio, you don’t have a bunch of rentals, that kind of stuff. But you can do the next best thing, which has dramatically increase the amount you earn per hour.
And that would be, I think, a really valuable way to think about your movements over this. And the way you do that is you automate parts of your Airbnb business like Mindy said. So yes, it’s more. You can save 200 bucks by not buying the second pair of sheets, but you’re going to save so much time and mental energy and you can just do everything on your own time if you have two or three sets that you can cycle through it, that kind of stuff. So I think that’s really good advice from Mindy there.
And I think if you spend a year thinking about it, I bet you, you can find another good candidate property that would have many of the advantages, maybe even more advantages than what you’ve currently got if you’re creative and think through it and learn over the next nine months while you’re setting yourself up for that summer 2022 purchase, if you like that.

Amanda:
Yeah. Yeah, I do. And I actually always look at Zillow and our local app that we have where I bought my home. So I’m always like watching the market, even though I haven’t been actively planning on buying anything.

Mindy:
So since you’ve lived in your current house for at least two years, you could… Well, since you’ve lived in it for at least one year, you’ve satisfied the owner occupancy requirements for your current mortgage. You can now keep that mortgage, move into another property as your primary residence, live there for a year, do the same Airbnb thing. And the benefit that that gives you is the lower down payment that an owner occupied property comes with. So if you are okay with moving, that can be a good option as well. One last thing before we move away from the Airbnb is, do you charge it cleaning fee?

Amanda:
I do, just like $25.

Mindy:
Okay, good. Oh no, no. It costs more than $25 to clean. I would look at what other people in your area are charging for their cleaning fees for the casita, for the three bedroom, for the one bedroom and charge a similar fee. That’s what you would have to pay your neighbor if they were going to clean for you.

Scott:
Yeah, that’s how you should charge it, I think. It’s how much does it cost to hire somebody to do it? And then you can decide if it’s worth your time or not to do it yourself or to hire it out with that. But I would charge exactly what you have to pay to a qualified contractor to do that work for you.

Amanda:
That makes sense.

Mindy:
Yeah, because that’s a lot easier to make the decision, “Oh, I don’t really want to have my neighbor clean it because now it’s going to cost me money.” It shouldn’t cost you money to have the house cleaned. You pass that along to the Airbnb guests. That’s just standard operating procedure with Airbnb. And also, have you talked to your neighbor about more consistently doing the cleaning? Are they interested in it or is it just kind of, I’ll cover you when you absolutely have to. They might be interested in getting another source of income for themselves?

Amanda:
Yeah, I think they are interested. I think that they basically said that they… I mean, they’ve been great, very reliable and happy to anytime I’ve said, “Are you interested on these dates?” They’ve always said yes. So I can talk to them about that too.

Mindy:
Perfect. Yeah. I really think that the Airbnb is going to be the lever that you can pull easily to generate a lot of income. I’m going to throw out another plug for the Freebie Alerts app, so people will get rid of stuff for free all the time. Here’s the couch. Great, go smell it. Does it smell gross? Don’t pick it up. Is it great? Now you have a free couch. I would buy a brand new mattress, but free bed frames, free dressers, free, all of these things. Why pay to furnish your house when you can do it for free?

Scott:
Can I just say one thing?

Mindy:
Yes.

Scott:
I did that once and I got a couch with bedbugs in it and it was a-

Mindy:
Well, don’t get that couch, Amanda. [crosstalk 00:41:12].

Scott:
I didn’t know. I found out later and that was a disaster. I had to just crush my whole house with all that kind of… I don’t think I got them anywhere else.

Mindy:
Okay, fine. That’s fair.

Scott:
And it’s been eight years ago. But just be-

Mindy:
Go buy a couch.

Scott:
… really careful about the couch and the bed and those types of things, because that is not going to help your reviews on Airbnb if you find some of those guys.

Mindy:
That is true. So maybe only pick up hard cited things, and then you buy a couch for brand new, or your friend is getting rid of a couch or you buy the mattress. But yeah, that’s a good point. You’re right, Scott. I always forget about that.

Amanda:
Yeah, the buy nothing groups on Facebook groups are great too.

Scott:
I like your point, Mindy, just be careful with that.

Mindy:
Yes, be careful.

Scott:
Inspect those things. But yeah, I think as far as this goes, to me, this seems like the 80-20 of the way to move forward here. You can start a business, you can do those kinds of things as well, but it seems like just those are going to be another level of effort around the… you can think about doing that in the summer instead of one of these, but this seems like a pretty clear path forward. And I think that given the new information that you will likely be able to use some of the income from your rental or your Airbnb to help you qualify for the next property probably makes that seem like a leap forward in accessibility for you over the next year or two, I would hope.

Amanda:
Yes, absolutely.

Scott:
So to me, that seems like a really good place to really explore. You may or may not go down that path, but that would be the first place I’d look. At over this year while you generate more cash, you said you’re saving about $1,000 a month on average, if you can increase that to 1,500 or 2,000 or whatever through some of these things, that’d be great. But I would keep doing what you’re doing for the large part, I think, with your investments. I think you’re doing a good job with the retirement accounts. I love the Roth. If you are going at this rate, you’re going to be really rich one day. So you’re going be in a high income tax bracket later. So, don’t want to pay tax later, you got to pay tax now for the most part, I think.
So I like that as a philosophical thing. I think your emergency reserve needs to be much bigger if you do decide to move forward with another purchase in a year or two. And so that would be a good place to think about beefing up. You have a lot of homework and analysis to do in noodling on what we’re saying, but if you generally arrive at the conclusion that another rental home or house hack or Airbnb is the right path forward, then money thrown towards your emergency fund over the next year could generate much higher returns than money dumped into the stock market on a risk adjusted basis, especially if you’re willing to run the Airbnb and expand the business a little bit like this or put in those things.
So just an idea to potentially allocate more cash towards the emergency reserve in the next house, if you’re going to go that direction, rather than maybe more in that the taxable brokerage accounts at this stage, well, you have to make those trade offs. I’m giving a lot of stuff here, but I think you’re in a good spot. And I think this was a really interesting discussion. I think we hit the key points. Do you have any other questions or areas you want us to cover?

Amanda:
No. I mean, that’s really helpful. I always feel a little bad that I can’t max out my 403(b) and some of those accounts just because I think to do that, I would have to contribute 1,500 a month approximately a little more than that and I take home about 2,000 a month. So I’m constantly trying to increase those contributions, but it sounds like it might make just as much sense for me to just keep it in my emergency fund and build it for a purchase, like a home purchase that would become an investment.

Scott:
Yeah. Everything in life is a risk with these kinds of things and you have no idea about the future. But it seems to me like the better bet is to pile on what you’ve got as a winning formula with what you’re doing with the house hack rather than to max out an index fund investment inside of a 403(b) with that. I mean your return, if you just assume average inflation or average appreciation with that is probably going to be much higher doing this kind of stuff than it would be in there.
The market could always tank and it can tank in a stock market and it can tank in the real estate market both with that. But to me, whatever you’re doing, it sounds like it’s really winning, $1,500 a month from the casita covers your entire mortgage. The second room is just gravy. And so that’s a really powerful spot to be in with that, if you can even come close to repeating that in the next year or two.

Amanda:
Yeah, that sounds great. I really liked that plan and I was really nervous starting, but it’s been going well so far. So I’m still a little bit nervous, but I feel more confident since I’ve been experimenting with it.

Mindy:
That’s awesome. I’m glad. I didn’t jump on the short-term rental bandwagon in time and I wish I would have. But yeah, I’m excited for your prospects. I think there’s a lot of opportunity for you even just with the current property, a little bit of thinking outside the box, like staying in the mother-in-law suite instead of the big house, when there’s a big opportunity to make a lot of money over a quick weekend. I think we’ll give you a lot more income than you’re currently realizing.

Amanda:
That’s true. And I also like the flexibility that that Airbnb has provided when compared to maybe having a roommate, for example, longer term. It’s just nice because I can decide, I have access to my whole space. So it generates more income and it provides a little more flexibility for me, so I really appreciate both of those aspects of it.

Mindy:
Yeah. Well, awesome. Amanda, thank you for joining us today. This was a lot of fun. Like I said, I’m a little jealous of your Airbnb adventures that are forthcoming.

Amanda:
Thank you so much.

Mindy:
But I’m super excited for you. I’d love to hear what you do with the different options and I’d love to hear how you optimize the property that you have now. So please check back in with us in a few months after you’ve made some changes.

Amanda:
Absolutely. Sounds good. I will. Thank you.

Mindy:
Okay. Then we’ll talk to you soon.

Amanda:
Oh great.

Mindy:
Okay, great. Thank you.

Amanda:
Thank you.

Mindy:
Scott, that was Amanda and her burgeoning… Is burgeoning the right word? Burgeoning short-term rental business?

Scott:
Sure. Fledgling.

Mindy:
Fledgling, that’s the g sound I was looking for. Her fledgling Airbnb business, short-term rental business. I’m so excited for all the things that she’s going to be able to do. And I would like to give you kudos for having such a great suggestion in the first place. So kudos to you, Scott.

Scott:
Oh, thank you. I think this was a team effort here. And I really think, again, I just had so much fun with Amanda. I think it was exciting to see her pop out of like, “Oh, I’m a teacher and I work at Trader Joe’s.” No, she earns a really good salary. And first of all, love that she’s hustling at Trader Joe’s and doing that kind of stuff. But I think she has an opportunity to pop out and say, “I’m a teacher with really good benefits who loves that career during most of the year and I can build a substantial, an additional layer of income and wealth over time here,” in a way that maybe wasn’t accessible to her in her mind before this show.
And so I think that was really cool and powerful to see. And that’s why we do this. That’s the reward of… That’s my favorite part about this job and being able to do this is seeing those light bulb moments in folks. And who knows exactly what she’ll do, but I think she’ll be very successful over the next couple of years if she keeps at it.

Mindy:
In this episode today, we discussed a lot about short-term rentals. If you are interested in learning more about short-term rentals, BiggerPockets has a forum. And in the forums, we have a short-term and vacation rental discussion forum where you can go and ask questions about setting up your rental, ask for advice from people who have been there before, and get some tips and tricks that you may not have thought of, but will help propel you down the financial success through short-term rentals journey. Oh boy, that was a mouthful, ham-handed too. Sorry about that. But it’s a really, really great forum to go in and learn pretty much everything you need to know about short-term rentals.
And I mentioned earlier, we have a book coming out in the middle of September, it’s called Short-Term Rental, Long-Term Wealth and it’s written by Avery Carl. So if that is a topic that you’re really interested in, that’s going to be an awesome book. She knows a lot about short-term rentals.

Scott:
Awesome. Yeah, good. Definitely go check those out. We have a lot of cool stuff at biggerpockets.com. And if you have other files or suggestions or topics that you’d like to learn about that you can’t find on BiggerPockets, please post about them in the Facebook group or in the forums and tag me or Mindy and we can figure out how to create that or get you access to that because we’re here to help you guys be successful with real estate investing.

Mindy:
Yeah. Hit us up [email protected], [email protected] or tag us in the Facebook group. Okay, Scott, should we get out of here?

Scott:
Let’s do it.

Mindy:
From episode 216 of the BiggerPockets Money Podcast, he is Scott Trench, and I am Mindy Jensen saying, “Got to go, buffalo.”

 

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Three of the “Big Four” title insurers — First American Financial, Old Republic and Stewart Title — released their second-quarter earnings this week. Fidelity National will release its second-quarter earnings on Aug. 3.

First American reported $2.3 billion in total revenue for the second quarter, a 41% increase year over year and up from $2 billion in the first quarter of 2021. Net income in the second quarter was $302.3 million, or $2.72 per diluted share, compared with net income of $170.7 million, or $1.52 per diluted share, in the second quarter of 2020, said Dennis Gilmore, First American CEO.

“We also benefited from high productivity bolstered by our ongoing data and title automation initiatives,” Gilmore said in a release. “Our title segment posted a pretax margin of 19.1%, the highest in the company’s history.”

Stewart Title reported $802 million in total revenue for the second quarter. Net income in the second quarter was $94.8 million of net income, at $3.50 per diluted share. That’s up from $54.2 million net income, at $2.01 per diluted share, in the first quarter of 2021, and up from $34.1 million, at $1.44 per diluted share, for the second quarter 2020.

Stewart has been on an acquisition frenzy in the past 18 months, closing deals to acquire 13 companies — including Cloudvirga, NotaryCamPro Tek Valuation Intelligence, United States Appraisals, and A.S.K. Services, just in March.

Old Republic reported total revenue of $2.25 billion in the second quarter of 2021, and a net income of $316.4 million — down from $2.36 billion and $502.1 million, respectively, in the first quarter of this year. On a per-share basis, the Chicago-based title company said it had a profit of $1.05. Earnings, adjusted for investment gains, came to 73 cents per share.

“Total and per share year-to-date net income reflect significant increases in the fair value of equity securities by comparison to 2020 when equity markets were disrupted by the onset of the COVID-19 pandemic,” Old Republic stated in a release. “Title Insurance continued to experience robust growth in premium and fee revenues as low interest rates and a favorable real estate market persisted.”

The post First American, Stewart Title and Old Republic report for 2Q appeared first on HousingWire.



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Two dozen industry groups have joined forces to oppose any plan to raise Freddie Mac and Fannie Mae guarantee fees (g-fees) to pay for an infrastructure package.

Last weekend, a plan to raise revenue through expanded tax enforcement to pay for the bipartisan infrastructure package fell by the wayside. That measure was expected to bring in $700 billion in revenue. With that off the table, Senators are now casting about for an alternative.

The spectre of raising g-fees horrified industry stakeholders. Bill Killmer, the Mortgage Bankers Association’s senior vice president for legislative and political affairs, described g-fee increases as a “zombie pay-for that roams the earth.”

The industry groups wrote that g-fees should only be used as a risk management tool to buffer against potential mortgage credit losses and to support the GSEs’ charter duties.

The coalition — made up of groups that don’t always see eye-to-eye on other issues — spans nearly every corner of the industry.

The MBA, the American Bankers Association and the Housing Policy Council, which represent the mortgage finance sector, signed onto the letter, as did the Consumer Federation of America, which advocates for consumers, the National Housing Conference, an affordable housing advocacy group, the National Multifamily Housing Council, which represents large multifamily landlords and the National Association of Realtors, which represents real estate brokers.

Kilmer said members of the coalition got word that the Senate was considering using g-fees as a way to pay for the infrastructure package. Within 24 hours, the two dozen groups sprang into action to pen a letter explaining their opposition.

“It’s a tax on housing consumers for one purpose, risk management of the [Government Sponsored Entities] loan portfolio, to pay for some other purpose,” said Killmer.

Freddie Mac and Fannie Mae charge g-fees to lenders to cover credit losses from borrower defaults, administrative costs and a return on capital. In 2019, g-fees amounted to 58 basis points on average for a 30-year fixed rate loan. Those increases are passed on to borrowers in the form of a higher interest rate.

The use of g-fees to pay for non-housing related items is not an idle threat — it has precedent in recent history.

In 2011, to support a two-month period of payroll tax relief, Congress raised g-fees by 10 basis points for a period of 10 years. That increase expires in September. Members of Congress may be eyeing that deadline and considering re-upping the fees, sources said.

“Since then, whenever Congress or the Administration has considered using g-fees to cover the cost of non-housing-related programs, our organizations have united to emphatically let lawmakers know that homeowners cannot, and must not, be used as the nation’s ‘piggybank,’” the groups wrote.

“The benefits of affordable homeownership accrue to families, communities, and our national economy; we simply cannot allow these benefits to be jeopardized by efforts to raise g-fees unnecessarily,” the letter reads.

Negotiations are still underway in the Senate for bipartisan legislation which would take up traditional infrastructure like bridges, roads, rural broadband and upgrading the power grid. 

Those talks hit a snag earlier this week when Senate Majority Leader Chuck Schumer pushed for a vote on Wednesday to advance the measure. Republicans had opposed the timeline and the vote failed, although Schumer subsequently filed a motion to reconsider.

A bipartisan group of Senators have yet to agree on how to raise revenue for the package. Democrats are also pushing a separate $3.5 trillion infrastructure package, which would advance a social infrastructure agenda.

The post Industry to Congress: G-fees aren’t your “piggybank” appeared first on HousingWire.



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