If you want Ashley and Tony to answer a real estate question, you can post in the Real Estate Rookie Facebook Group! Or, call us at the Rookie Request Line (1-888-5-ROOKIE).
Ashley:
This is Real Estate Rookie, episode 222.
My name is Ashley Kehr, and I’m here with my co-host Tony Robinson.
Tony:
And welcome to the Real Estate Rookie Podcast, where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey.
I want to start off today’s episode by shouting out some folks from the Rookie audience. We got another five star review. This one says, “I’m a small time real estate investor with one property, and I want to get to three to five. This podcast is amazing because they focus on the basics.”
So if you haven’t yet, leave us an honest rating and review on whatever podcast platform it is you’re listening to. The more reviews we get, the more folks we reach. The more folks we reach, the more folks we can help. And that is our ultimate goal.
So, with that out the way, Ashley Kehr, what’s up? What’s new? Tell me how things are.
Ashley:
Well, to be honest, today I’m going to use the Rookie Reply as my own confessional. I’ve had something just weigh me down on my shoulders and I just need to get it off my chest, and hopefully it will help some other people and everyone will realize that I am not perfect and bad things can happen. This bothered me so much, and I feel like I just need to get it out there in case it happens to someone else, that you know you’re not alone in this.
So at one point in time in the past year, I hired somebody to do my payables for the business.
Tony:
A bookkeeper.
Ashley:
Not even a bookkeeper, just paying the bills. So not even entering in any of the data, so just paying the bills. They would go and get my mail from the PO box. They would open the mail, they would scan in the mail, and I’d be able to look at it from there. And then they would write the check. They would bring the checks to my house that they wrote, have me look at them, compare them to the bill, sign them, and then they would make the envelope and mail them out.
So, first, I know you guys are all thinking that, “Well, why don’t you set all your things up on autodraft and automatic withdrawal?” Well, when you invest in small rural towns, sometimes there’s no online system. The only form of payment is walking into the place or mailing a check, unfortunately.
So there was things that would come in … or if a contractor, vendor, or something, something that’s an occasional occurrence, or the property tax bills, even the water bills. For in the small towns, the electric bills, they have their own utility company, and they only will mail out a bill and accept a check payment.
Anyways. So I got a letter in the mail about a month ago, and it said that my property taxes were not paid on one of my properties. In bold print across the top, foreclosure, property tax foreclosure, across … I seriously had a heart attack. At this moment I can’t even recall exactly what it said because all I did was panic inside. And it said: past due, nonpayment. These were due, I mean, like six months ago, that this happened.
And at the same exact date that I got that letter, I got an email from my bank that I have the loan with, saying, “Hey Ashley, just wondering what’s going on? This third-party company we check, to make sure things are paid on a property, said that the property taxes were not paid. What’s going on?”
Immediately, I felt embarrassment. I got sick to my stomach. I felt anger. What happened? So this person just did not do what they were supposed to do. So we went through the scanned documents, things like that. There was property taxes that were scanned in. Never paid. There was some that were never scanned in. Did she not get them? Things like that.
So I had to go through a lot of my accounts and just make sure everything was paid. Go through every property and pull up … And it ended up there was two properties that the property taxes were not paid for. Actually, no, I’m sorry, there was three. So one of them, what happened was that the property taxes were actually added to my next round of property taxes, and they were re-levied, they call it. So it was actually included into that bill. So they ended up being paid.
So what I did, was I went online to pay the property tax bill. And it says that they’re no longer accepting online payments. So I go into the town clerk in the small town and I go to pay the property tax bill. She’s like, “Oh no, I can only accept payments until June 30th.” And I was like, “Okay. How should I pay this?” And she goes, “Well, I don’t know. I’ve never been in this situation.” My embarrassment just overloaded even more. I’m like, “Oh my God.”
Tony:
“I’ve never had any bum landlords be this late on their property taxes.”
Ashley:
I know. And I was just like, “Okay. Yeah. I’m sorry, I’m not sure what to do. I was just asking for some guidance.” And she’s like, “Well, I guess I could Google it for you.” And this clerk is the one that you would write your check out to, to pay your property taxes. I just assumed they would know …
Tony:
Know what to do.
Ashley:
… what to do if someone’s paying late. So my embarrassment was awful. I had to work up the nerve to even go into it. I tried to make Darrell do it, but it would’ve had to wait another day until he was available because I didn’t want to walk in there. So it just got 10 times worse.
But what you ended up having to do was … she’s like, “You’ll have to go downtown Buffalo and you’ll have to pay it to the county now,” or whatever. So I got back in the car, I did my own Googling, and they actually accepted the payment online. So I didn’t even have to go into the clerk’s office, I could have paid it online. It was taken care of.
And then I learned that it’s actually two years of back taxes that you need before they will actually come and take your house and put it up for auction. But that was just a horrible, horrible feeling for me, is having that happen. So my biggest things that I learned, is that if you hire and outsource someone to do something … and I learned this with my property management company too … is that that doesn’t mean that you can forget about it. You need to still stay on top of things.
So that was my biggest takeaway from that. And if a bill is not paid, like your property taxes, it’s not the end of the world. But maybe I need to implement some kind of system, where I have a VA that’s going in and: check, check, check. Okay. All these property taxes are paid. Because if I don’t get a bill for something I don’t know to pay it. I can’t remember all of the property tax bills that should be coming in for my properties.
So if there’s anybody else out there who hired somebody that missed a payment, or maybe just forgot or something and missed a bill, I’m right there with you and felt the embarrassment.
Tony:
Yeah. Well, first, thank you for sharing, Ashley. I appreciate you sharing this super embarrassing story. I’m embarrassed for the both of us. I’m embarrassed that we’re even associated with one another now because I don’t want people to think that I don’t pay my property tax bills.
But, I guess, a couple questions. So, for me, I never have to worry about paying my property tax bills because my property taxes are impounded with my insurance payments for literally every single property. Is that not the case for your properties in New York?
Ashley:
So you have them in escrow?
Tony:
Yeah, all my payments are escrowed. Yeah.
Ashley:
Okay. So yeah, I have a lot of commercial lending on my properties, where they usually don’t require you to escrow your property taxes. So the nice thing about that is my monthly payment is low. Yes, I have to save up to make a payment, but a lot of my commercial loans, they don’t offer it or they don’t require it.
Tony:
Have you called to ask them if they would be able to do that on your behalf?
Ashley:
No, because I don’t know if I would actually want to. I mean, maybe now would be a good example. But I like that I’m just paying my insurance bill once. Because I have had it happen … this has actually happened twice now with a hard money lender … where I paid, at closing, for my insurance upfront, and they took the check and they were going to pay the insurance themselves, just for that one year, with the hard money lender.
I got notices stating that they have no record of the insurance, blah, blah, blah. So I’ve had a lot of issues with that recently. But I’m sure if they wanted to … I do have one commercial loan that has it in escrow, but that’s it.
Tony:
Yeah. For me, like you, there’s too many things going on, I think, for me to be able to keep track of that. So, for me, being able to escrow all that stuff has been super helpful.
Ashley:
Maybe that’s something I need to reevaluate going forward, is make sure that they are all escrowed. Yeah.
Tony:
Yeah. So my second question: did they send any notices before then about the nonpayment, and was this person who was in charge of that just not catching that? How do you think it went that far without it being brought to your attention?
Ashley:
So, actually, they would’ve received the bill a month before I let them go. So there was other things that were happening. So I had let them go, and then somebody else took over. And no, there was no bill received. This was the first notice that we got in the mail. And the bank had found out the same information at the same exact time. Which I thought was weird too.
But also, the next round of taxes for that property is coming up due now. So maybe they sent a notice before they re-levy it onto the next set of taxes for that property? So it’s like the school taxes are all coming up now. But yeah, I don’t know. But we thought that was really strange too, was that this was the first notice of it. And coming up too, is the big county auction for properties that they’ve taken for properties tax.
Tony:
So you’re like, “Oh no.”
Ashley:
I was like, “Oh my god, it’s going to be on the list. My LLC.” Oh my God, I was just sweating. People are probably Google satelliting the property, like, “Oh yeah, we want to bid on this one when it comes up to auction.”
Tony:
But luckily you avoided that.
Ashley:
Yeah. Yeah. Yeah.
Tony:
Crisis averted.
So I know you mentioned trust would verify, which I think is a big thing. And for folks, even if you just have one property, if you’re not doing everything yourself, I think there does have to be some kind of checks and balances in place to make sure that the things you’ve delegated to other people are actually getting done.
Just a quick backstory. So, for me, in my old W2 job, I was in a manager level position, so a lot of my information came secondhand from folks who were on my team. And obviously I had to trust them, that they were giving me the right stuff. But a lot of times I would just go back and I would just randomly pick different things that I would double-check, like if they were sending me data on how their shift perform for the last day, I would look at the email they sent me, but then I would just go into the system myself and pull some of that data to see if it all lined up.
So those little spot checks sometimes, I think, help catch some of those issues. And typically, what I’ve found, is that if you have someone that’s a low performing employee, if you find one mistake there’s probably some other mistakes in there as well. So it might be a telltale sign that there’s some other things you might want to dig into.
Ashley:
Yeah. And there’s probably things that are still going to come up from this too, I’m thinking.
Tony:
Yeah.
Ashley:
So we’ll see. But I had to get that off my chest. I had to do a real estate confessional of mistake.
Tony:
Yeah. And like you said, I think it’s helpful for the rookies to hear as well, because they hear our voice, they hear our stories every week. I know there’s this maybe misconception that things just always go right for us.
Ashley:
Yeah.
Tony:
But I shared my story about the Shreveport house that I lost money on. And things like this happen. As you’re building your business, things don’t always go right. So it’s not necessarily about maybe not letting those bad things happen, because sometimes it’s out of your control, but it’s about: how do you respond and how do you take those lessons and put them into your business so you can continue to get better?
Ashley:
And I think those are the people you want to have in your network too, who are open and honest about those things. While I was waiting for my kids to get off the bus today, I was on the phone with my friend Layka, who’s an investor in Seattle, and I was just telling her how some things were going wrong. We just found out this morning we have to put a new well on a property. And just every day there’s new costs, and it’s just like you’re moving money from the good properties to support the bad properties.
Tony:
Totally.
Ashley:
You never seem to have money because you’re always buying stuff.
Tony:
Buying stuff.
Ashley:
She’s like, “Yeah, you really get to enjoy real estate when you actually stop buying things and you just live off your rental income because you’re not putting it towards more properties.”
But she just rattled off all these things that are going wrong with her properties and then things that are going right with some. And it’s like, those are the investors you want to put yourself around, to share the good and the bad.
Tony:
I just want to share one thing that’s gone wrong in our business. So one of our cabins in Tennessee, summer is usually one of the busiest times of the year. Last summer we absolutely crushed it. And our second biggest cabin, there was a small leak, a little pinhole leak, that no one noticed. But we only started to notice because the floor was a little uneven and a floorboard started to pop up.
So our handyman went, he popped up the floorboard, and saw that it had just been leaking for who knows how long. So we had to cut out a big … I don’t know, like eight by eight square. And he replaced the subfloor and then put new flooring down. So this was two weeks ago.
We get a message from our cleaner on the same exact property, a few days ago, that they walk into that same lower level where we just replaced the floor and it’s soaked again. But this time it’s because the bathroom was clogged, the toilet in the bathroom down there was clogged, and literally re-damaged that whole section of floor that we just replaced.
So we had to block the calendar two weeks ago because of that first issue; we have to refund guests. And we have to do it again this week because of the second issue. So things that are totally out of our control. But like you said, it’s all-
Ashley:
And does that hurt getting super host, when you have to cancel people too?
Tony:
Yes, it definitely does. But if you have a cool guest and you just explain to them what happened, it’s like, “Hey, here’s what happened. You can stay if you want to. But just know this little section’s going to be unusable.” And if they cancel on their own, then you’re fine. But if they go to Airbnb and said I canceled on them, then automatically we would lose super host status.
Ashley:
Okay. I think that little tip is worth anyone listening to that episode because that’s great advice. Because my first thing was, wow, you had to cancel all these people. But no, you tell them what’s happening, and then you say, “I’ll give you a full refund if you choose to cancel,” so it’s on them. Ah, that’s a great idea.
Tony:
Yeah.
Ashley:
I mean, hopefully I don’t have any major …
Tony:
Yeah. Fingers crossed you never got to use that one.
Ashley:
Yeah. Yeah. Okay. Well, thank you guys so much for listening to my real estate confessional this week. We will be back on Wednesday with another Rookie Reply.
I am Ashley at WealthFromRentals, and he’s Tony at Tony J. Robinson. Don’t forget to check out our YouTube channel, Real Estate Rookie. And we’ll see you guys next time.
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These 20 Housing Markets Are Cooling the Fastest, According to Redfin
According to the latest data from Redfin, the housing market is slowing down in several major U.S. metros. The report included the top 20 U.S. hotspots and ranked them according to the number of home sales, home prices, supply and demand ratio, and the time it took for a listing to go to pending sale status.
After two years of record-breaking data, the newest report shows a stark change of direction for many major U.S. housing markets. Notably, the cities that led the pandemic-fueled homebuying frenzy are increasingly less attractive to homebuyers put off by the high home prices that are now coupled with rapidly rising mortgage rates.
The latest data and news coverage swirling around the housing correction has caused a lot of concern amongst real estate investors, and rightfully so. The question is: how should you react to this?
The West Coast Is Slowing Down The Fastest
The most obvious takeaway is the cool-off in popular west coast housing markets. Seattle, in particular, is experiencing the most dramatic downturn, with home sales down 34% year-over-year as of August. It’s a marked contrast with the 23% increase in the number of home sales in the city, which came as recently as February 2022, going to show how quickly things have changed.
Seattle is not an isolated example, either. Several major cities in California are experiencing a similar drop-off in buyer demand and, thus, home prices. Sacramento, San Jose, San Francisco, and San Diego are all seeing double-digit percentage decreases in home prices. Below are the 20 markets that are experiencing the fastest cool-offs, according to Redfin.
The west coast has had a problem with increasing unaffordability for a long time, and the pandemic merely exacerbated an existing trend. It’s unsurprising that buyers are already feeling the squeeze from high home prices and are now reconsidering buying in these areas, especially since the typical mortgage interest rate is almost double what it was at the beginning of the year.
According to Redfin Chief Economist Daryl Fairweather, “These are all places where homebuyers are feeling the sting of rising home prices, higher mortgage rates, and inflation very sharply. They’re slowing down partly because so many people have been priced out and partly because last year’s record-low rates made them unsustainably hot.”
Similar effects are observable in areas that became popular pandemic relocation hotspots, notably Las Vegas, Nevada, and Phoenix, Arizona. These markets consistently made headlines over the last few years as the best cities for professionals migrating from the expensive markets of California. This year, however, they are experiencing the same issues. Housing markets in these metros became overpriced fast, and there are plenty of indications that buyers no longer see these destinations as attractive alternatives to overheated, overpriced coastal markets.
Las Vegas, for instance, peaked at $440,000 in median home prices this summer, up from $289,000 in February 2020. The median home price has since fallen sharply to $405,000.
On the other hand, Phoenix peaked at $469,000 in May and has since fallen to $430,000. In February 2020, the median home price was $279,000.
Does It Make Sense To Invest Right Now?
There’s no denying that with the housing market cooling off, investing requires a more cautious and calculated approach. According to Bloomberg, the first reaction to a market slow-down from investors is always an instinctive pull-back, with landlords canceling contracts and house flippers selling off their stock to clear inventories.
Does this have to be you? Not necessarily. One thing to remember about this housing market is that it’s not poised to crash, but instead, correct. With the right approach, you can still turn a profit, whether you invest in long-term rental properties, short-term rentals, develop, etc.
In a buyer’s market, it becomes necessary to consider buyer needs and seller perks that will entice buyers who may be hesitant, given our higher interest rates.
If you flip homes, which is of course one of the more challenging strategies in a receding market, seeking out cash buyers is the wise thing to do right now. According to Redfin CEO Glenn Kelman, accepting lower offers is the better strategy in a slower market over ‘’accruing interest expenses and other carrying costs as listings linger.’’
If you’re an institutional landlord, then you may choose to hold back on expanding your inventory just now. It’s all about waiting for the right moment when home prices come down even more. As Mark Zandi, chief economist for Moody’s Analytics, explained to Bloomberg, “Institutional buyers are opportunistic. I’m sure they’re waiting, thinking they’ll get a much better price for these properties in the not-so-distant future.”
While it’s easy to run the wait-and-see strategy going into 2023, there are still plenty of opportunities to find in this housing market. That’s why it’s more important now than ever to become a BiggerPockets Pro Member to stay on top of the latest news and proven approaches to real estate investing.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
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How to optimize deal flow in today’s housing market
With mortgage rates on the rise, mortgage professionals have been dealing with their fair share of challenges this year. HousingWire recently spoke with Charles J. Williams IV, founder and CEO of Percy.ai, about what housing professionals can do to improve their deal flow despite the turbulence of the current housing market, and how investing in valuable data insights could be the key to success.
HousingWire: What are the greatest challenges to quality deal flow in our current rising interest rate environment?
Charles J. Williams IV: Mortgage market volatility should not be having a huge impact on quality deal flow if your tech stack is tried and true. In fact, now is arguably the best time to improve QC across the board, as we are in a period of reduced transactional volume. It’s true that interest rates are currently high. For homebuyers, home sales continue to decline, and both of these are impacting affordability. But real estate transactions are happening out there, and savvy practitioners can still get a slice of the action.
However, investing in real estate is not for the timid, and we’re seeing seasoned professionals in the space deliver stellar results, even today. The truth is there are more and more tech elements out there that help real estate investors, be it potential homebuyers, cash-only buyers or iBuyers. These systems can help property purchases happen in ways we only dreamed of as little as five years ago.
What do I mean by that? Well, there are fintech solutions that allow you to invest fractionally in a home. Only got $1000? There is an app for investing that money in real estate. So the challenge is seeing new faces enter into this relatively unregulated arena and try to lure away smart money from well-established real estate investment platforms. Is investing in 5% of the home really a solid contributor to the idea of quality deal flow? We don’t believe so. It’s innovative for sure, but so is Percy.ai.
Percy.ai replaced the previous model of “I can sell your home; here are similar homes which have sold recently” with “I can sell your home; here are a number of active buyers looking for a home just like yours!” Our real estate agent and mortgage lending partners experience a strong ROI, generating leads by engaging with consumers through unique and compelling information based on data. We don’t use bells and whistles, we deliver high-quality results. Period.
HW: How can real estate agents and loan officers collaborate to foster strong relationships with clients despite rising rates?
CW: Well, finding and using a single platform to digitally collaborate is key and also a big reason for Percy.ai being brought into existence. Percy.ai aggregates client activity during their real estate pre-buying and pre-selling activities, using it to power actionable insights and intelligent marketing tools that help build relationships, capture seller leads, win more listings and close more transaction sides.
Our team brings decades of real estate and technology industry expertise. We understand the unique challenges real estate and mortgage brokers face and we wake up each day excited to help you conquer them.
HW: How is Percy.ai utilizing data to help improve deal flow in today’s market?
CW: Percy.ai is known for its ability to harness the power of data to provide meaningful and actionable insights for homeowners and therefore maximize opportunities for both real estate agents and mortgage lenders. We’re leading the charge to further unlock the potential of the Percy.ai platform by building new, faster and more robust systems and algorithms.
Commissioning a team to rebuild large parts of the platform from the ground up with an emphasis on speed and reliability and utilizing best-in-class tools, we are setting the bar high and excellent results are expected.
At our heart, Percy.ai is a real estate data and analytics company that combines real-time and archival consumer behavior data with a proprietary machine learning engine to help real estate professionals and mortgage lenders find new clients and close more transactions.
In 2021, Percy.ai clients closed more than $130 Billion in sales through Buyside, averaging over a 400% ROI. Percy.ai supports over 100 large real estate brokerages and customer leads have run over $1 Trillion in sales opportunities through Percy.ai’s Home Valuation Pages.
To learn more about utilizing data to improve deal flow, visit percy.ai.
The post How to optimize deal flow in today’s housing market appeared first on HousingWire.
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With job growth still strong, the Fed beatings will continue
In late August, Gary Keller told the 11,300 Keller Williams agents, brokers and team leaders gathered in Austin, Texas for Keller Williams Mega Camp that this is the most confusing market he has ever seen.
“It’s confusing, and it’s only confusing because you have mixed signals,” Keller told attendees.
Among those mixed signals were the rising interest rates and continued job growth.
The job growth trend continued into September as total nonfarm payroll employment rose by 263,000 jobs from the month prior according to data released Friday by the Bureau of Labor Statistics.
So far this year, monthly job growth has averaged 420,000, down from 562,000 per month in 2021.
With September’s job gains, unemployment dropped back down to 3.5% from 3.7% in August, with a total of 5.8 million unemployed persons.
“While the pace of growth slowed in September to 263,000, this is still faster than can be sustained in the US economy over time,” Mike Fratantoni, the chief economist and SVP of the Mortgage Bankers Association, said in a statement. “And other data clearly signaling a slowing economy lead us to forecast a sharp drop in job growth over the coming months.”
The construction industry added 19,000 jobs in September, the majority (17,700) of which were specialty trade contractors, with 6,500 being residential specialty trade contractors. Meanwhile, residential building lost 100 jobs from the month prior.
“Construction and general contractor jobs also expanded, though these lean more toward the commercial building of warehouses and apartments and less building of single-family homes,” Lawrence Yun, the National Association of Realtors’ chief economist, said in a statement.
Odeta Kushi, First American’s deputy chief economist, added: “While the construction industry has faced a labor shortage for many years, the slowdown in the housing market and homebuilding, particularly for single-family homes, will likely put downward pressure on job gains in months to come.”
The real estate, and rental and leasing services sector gained 5,000 jobs in September, with real estate gaining 7,200 jobs, while rental and leasing services lost 2,300 jobs.
In February 2020, a combined 300,000 were employed in “real estate credit” and as mortgage and nonmortgage loan brokers. As of August, there were about 400,000 people in those jobs, suggesting the industry still has a massive amount of cuts to make in the coming months.
The lion’s share of the job growth in August came from gains in the leisure and hospitality sector (up 83,000 jobs), and the health care sector (up 60,000 jobs), which is now back to its February 2020 level of employment.
“Overall, the September jobs report reflects a still-strong labor market that is gradually cooling,” Kushi said. “The Federal Reserve really wants to see the labor supply increase, and the September jobs report did not deliver.”
The report also noted that Hurricane Ian, which made landfall at the tail end of the month, had no discernible effect on employment and unemployment data for September.
The post With job growth still strong, the Fed beatings will continue appeared first on HousingWire.
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Rumors of Credit Suisse’s death are greatly exaggerated
Switzerland-based global lender Credit Suisse Group AG had a rough start this week after its stock was beaten down by 11%, the value of its riskiest debt fell more than 10% and the cost of purchasing derivatives insuring against the bank defaulting rose sharply.
The bank’s stock eventually recovered most of the losses by the end of the day Monday, Oct. 3. Still, the global lender’s market capitalization is at about half of what it was at the start of the year and its earnings for the first half of the year are in the red.
Adding to the global lender’s woes this week was investor speculation on social media questioning the bank’s stability. That speculation raised the specter among some market watchers that if Credit Suisse did fail, it might trigger a global contagion similar to the Lehmann Brothers’ crash that helped to spark the Great Recession a decade and a half ago.
That concern is overblown, according to several market experts. Even so, Credit Suisse is pursuing a restructuring effort that is expected to result in asset sales that will affect global markets to a degree, including the private-label mortgage securities market in the United States — where the European lender also operates.
With respect to the contagion fears, however, Citigroup analyst Keith Horowitz, in a recent research note, wrote that “we don’t see cause for concern.”
“We believe the U.S. bank stocks are very attractive here,” Horowitz said, according to a recent MarketWatch report. “We understand the nature of the concerns [with Credit Suisse], but the current situation is night and day from 2007 as the balance sheets are fundamentally different in terms of capital and liquidity, and we struggle to see something systemic.”
Boaz Weinstein founder of the hedge fund Saba Capital Management said in a post on Twitter related to the social-media generated speculation over Credit Suisse facing the prospect of collapse: “Oh my, this feels like a concerted effort at scaremongering.”
Credit Suisse in some ways is an easy target for critics. Last year, the bank incurred billions of dollars in losses linked to the failures British financial firm Greensill Capital and a U.S. fund called Archegos Capital Management.
In addition, U.S. Department of Justice announced in October 2021 that Credit Suisse pleaded guilty to a conspiracy to commit wire fraud and entered into a three-year deferred prosecution agreement with the lender.
“Credit Suisse Group AG, a global financial institution headquartered in Switzerland, and Credit Suisse Securities (Europe) Limited, its subsidiary in the United Kingdom, have admitted to defrauding U.S. and international investors in the financing of an $850 million loan for a tuna fishing project in Mozambique, and have been assessed more than $547 million in penalties, fines, and disgorgement as part of coordinated resolutions with criminal and civil authorities in the United States and the United Kingdom,” a press release issued by the U.S. Department of Justice states.
Then, in May of this year, the United Kingdom’s Financial Conduct Authority put Credit Suisse on a watchlist for institutions deemed in need of stricter oversight, according to a report by the Financial Times.
Despite the warts, Credit Suisse still has one of the strongest capital ratios among its peer lenders, 13.5% as of the end of Q2, well above the 9.6% minimum required level, and also boasts a $100 billion capital buffer, according to bank officials.
Some of the speculation over the global bank’s fate was sparked by a recent memo sent to employees by Credit Suisse’s new CEO, Ulrich Korner. In the memo, he indicated a new business strategy for the bank would be unveiled later this month when Credit Suisse announces its third-quarter earnings. The lender recorded a net loss of nearly $1.9 billion over the first half of 2022, according to its most recent earnings statement.
“The bank is currently executing on a number of strategic initiatives including potential divestitures and asset sales,” Credit Suisse said in a recently released statement, Bloomberg reported.
Among the asset sales on the table is the lender’s securitized products group, according to a report by S&P Global Market Intelligence. The Credit Suisse trading business, with an estimated $75 billion in assets, encompasses the global bank’s U.S. residential mortgage-backed securities (RMBS) operations.
“Credit Suisse will explore ‘strategic options’ for its securitized products business, including opening it up to third party capital,” the S&P Global report states.
Apollo Global Management Inc. and BNP Paribas SA are among the parties seeking to acquire a stake in the business unit, Bloomberg reports, adding that Credit Suisse also would likely retain an ownership share in the business.
“Our trading platform [the securitized products group] provides market liquidity across a broad range of loans and securities, including residential mortgage-backed securities (RMBS), asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS),” Credit Suisse states in its 2021 annual report.
Adds Leo Wong, a partner with New York-based Waterfall Asset Management, a global alternative investment manager with some $11 billion in assets under management:
“I’m not sure we can comment on [Credit Suisse] and whatever potential deals that they’re working through, but they are a dominant liquidity provider in the mortgage space in particular, both on the banking side and also lending to a lot of mortgage banks or mortgage lenders.”
Credit Suisse through its subsidiary DLJ Mortgage Capital Inc., based in New York, and its RMBS conduit, CSMC Trust, has brought eight private-label securitization deals to market in the U.S. this year through September. The deals were backed by nonprime mortgage pools valued in total at $3.27 billion, according to RMBS deal data tracked by the Kroll Bond Rating Agency.
For all last year, there were 11 deal issued through the CSMC Trust valued at $3.6 billion. All but two of those offerings involved nonprime loans as collateral.
“The mortgage industry has been a core investment area throughout Credit Suisse’s operating history,” states a Fitch Ratings report on major aggregators in the U.S. RMBS market. “… Loans are actively sold to various investors in both whole loan sales and securitized transactions, depending on client appetite. … Credit Suisse is also actively involved in the PLS [private label securities] secondary market as an underwriter and warehouse finance provider.”
Credit Suisse may not be on the brink of collapse, but it is facing challenges as a global bank that also impact the U.S. housing industry’s liquidity channels — such as the pending ownership shift in the bank’s securitized products business. The European economy overall and the players in its housing-finance industry also are under intense economic pressures, similar to and ultimately interconnected with those now playing out in the U.S. economy.
Across the eurozone as well as in European nations not part of the European Union — including Switzerland and the United Kingdom — inflation is running hot, reaching 10% in September in the 19-member eurozone economy. And like in the United States, the central banks of Europe are raising their benchmark interest rates to combat what is, in fact, a global inflation crisis driven by rising energy and food prices as well as bottlenecked supply chains — all exacerbated by the war in Ukraine.
“The bank’s performance was significantly affected by a number of external factors, including geopolitical, macroeconomic and market headwinds,” Credit Suisse’s second-quarter earnings release states. “These challenging circumstances led to results which overshadow the strength of our leading client franchises in all four divisions of the bank. The urgency for decisive action is clear….”
Tom Capasse, managing partner and co-founder of Waterfall Asset Management, adds that there’s more pain ahead for Europe as well. He points to data on the United Kingdom’s housing market — where millions of mortgages are set to expire over the next couple years and will need to be reset in a rising-rate environment. The Bank of England late last month raised its key benchmark rate a half percentage point, to 2.25%, the highest mark since 2008, with the annual inflation rate in the United Kingdom (UK) projected to top 10% before year’s end.
“You are going to see significant defaults [in the UK], like you saw in the 1970s and 1980s [in the U.S.],” Capasse predicted. “In terms of the relative risks in this rising-rate environment as it relates to residential credit, there’s definitely in the Commonwealth countries[going to be] significant defaults related to payment risks.”
An analysis by the UK’s Financial Conduct Authority (FCA) shows that 74% of mortgages (6.3 million) in the UK are on fixed rates typically between two to five years, and the balance (26%, or 2.2 million) carry variable rates set to some benchmark.
“Mortgage borrowers, including those who do actively switch their mortgage, face increasing pressure from the rising cost of living,” the FCA report states. “Around half of mortgages currently arranged on fixed rates expire in the next two years.”
The post Rumors of Credit Suisse’s death are greatly exaggerated appeared first on HousingWire.
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11 Ways to Invest in Real Estate During a Housing Correction
We are in a housing correction. It remains to be seen what this means for prices in the national housing market, but some trends are becoming clear. We can gather important insights from these trends to inform our investing strategy and help us all navigate and earn great returns during the correction.
The National Housing Market Has Peaked
First and foremost, the national market has likely peaked in absolute terms. In plain English, most markets hit their all-time highs in June and have started to come down month-over-month since then. The housing market is seasonal, and prices typically peak in the summer and then start declining in absolute terms. But peaking in June is a little early and reflects the beginning of a correction, in my opinion.
Due to this seasonality, the housing market is often measured in year-over-year terms (i.e., what happened in August 2022 vs. August 2021.) When we look at the national housing market this way, it is still up about 6% year-over-year. That would be considered rapid appreciation in a normal year, but this represents a massive deceleration from the growth rates we’ve seen over the last few years. Just a few months ago, in May 2022, year-over-year appreciation was over 15%!
Of course, everyone wants to know if the national housing market will turn negative year-over-year, but we just don’t know. In terms of where we’ll end 2022, I think it’s a toss-up. We’ll either see very modest growth rates or slightly negative growth rates for the national housing market at year’s end. It is worth noting that in August, San Francisco and San Jose, California, were the first two markets to show year-over-year declines. In terms of 2023—it’s too hard to tell right now.
The Real Story is Within Individual Markets
The above answer about the national housing market might not be satisfying, but in some ways, what happens with the national housing market doesn’t matter. Well, it matters, but by only paying attention to the national housing market, you miss the most important story about the housing market: the discrepancy between markets.
In some markets, dynamics have barely changed and still look like a strong seller’s market. In others, the shift towards a buyer’s market has been dramatic.
To measure this, I like to look at two lead indicators for housing prices: inventory and days on market (DOM). When either of these metrics is low, it indicates a seller’s market. When they are high, they indicate a buyer’s market.
First, let’s take a peek at Philadelphia, Pennsylvania. In the chart below, you’ll see that inventory remains extremely low in a historical context and hasn’t really increased at all—indicating this metro area is still in a seller’s market.
Philly isn’t alone. Many cities (predominantly in the midwest and northeast) look this way. Check out Boston, Massachusetts; Chicago, Illinois; Hartford, Connecticut; Cincinnati, Ohio; Madison, Wisconsin; and the many others still seeing pandemic-level inventories.
On the other hand, let’s look at some of the “winners” of the pandemic era. Below is the monthly inventory graph for Boise, Idaho, one of the poster children of rapid appreciation. Notice a difference here? Not only has inventory started rising, but it’s also risen above pre-pandemic levels. This strongly indicates that Boise has shifted to a buyer’s market. Other cities seeing rapidly rising inventory are low-affordability cities like Austin, Texas; Las Vegas, Nevada; San Francisco, California; and San Jose, California.
We don’t know what will happen with prices in these markets, but it can be helpful to look at lead indicators like inventory and DOM to get a sense of the varying dynamics. I recommend everyone reading this goes and does some research on their own market. Redfin has a great tool for this.
However, I want to caveat this data by explaining that these metrics only describe the current situation and provide an outlook for the next few months. Inventory and days on market say nothing about the long-term prospects of any of these markets. For that, you need to understand population growth, supply and demand, and job/wage growth.
I call this out because many markets that are now seeing the biggest potential for correction are cities that may still be good long-term opportunities. Austin is a perfect example of this. Austin grew really quickly over the last few years, and for good reason! The city has enormous economic and population growth and shows no signs of slowing down. But, perhaps home prices grew too quickly and could see a “reset” in prices (declines) before starting to grow again (probably when interest rates go down again, at some point.)
On the other hand, some markets that are more “stable” at the moment, like Chicago, have seen modestly declining populations over the last few years, which could hamper future price growth.
Overall, Housing Prices Are Set to Decline
Overall, I think we’re likely to see housing prices decline in absolute terms over the coming months. Rising interest rates have depleted affordability in the market. With recent events and persistent inflation, it seems that rates will stay high for the foreseeable future. I am not convinced the national market can withstand sustained downward pressure exerted by low affordability. Something has to change, and if rates stay high for a while, as it now seems they will, the thing that has to change is housing prices.
That said, I still don’t think we’ll see a “crash” (declines greater than 20%.) There are a lot of reasons for this, such as better lending practices, long-term supply shortages, etc. But one emerging trend that could provide a backstop for price declines is a sharp drop-off in new listings.
This graph is very telling (take note of the scale on the vertical axis, but still!) People just don’t want to sell their houses right now. The housing market is not the stock market, and when homeowners are faced with the prospect of selling into an adverse market, they just opt out.
Unlike in 2008, the vast majority of Americans are in a good position to service their debt. Many Americans will opt to stay in their homes and wait out the rough market. This is particularly appealing because over half of American homeowners have mortgage rates under 4%. Who wants to sell into a declining market, only to have to rebuy with a much higher interest rate? It seems like many homeowners are rejecting that idea.
That’s how I see the market right now. Market dynamics are changing rapidly, but I hope sharing my current read on the housing market is helpful to you. The market is cooling off rapidly, and there is a huge variance between regional markets, but a “crash” remains unlikely. Just for reference, most forecasters see the national housing market landing somewhere between +3% and -8% in 2023 on a year-over-year basis. Not a crash, but there is potential for a significant correction.
11 Ways to Invest During the Housing Correction
The question then becomes, how do you invest in this type of market? Here are a few of my thoughts:
1. Invest in hybrid cities
Ideally, cities that offer decent cash flow, are seeing stable prices right now, and have decent long-term prospects. These are often smaller cities like Madison, Wisconsin; Birmingham, Alabama; and Virginia Beach, Virginia.
2. Negotiate with sellers
Negotiate! If you want to invest in markets with great long-term prospects, look for under-market deals. Once prices start to drop, sellers sometimes panic, and you can often find value. The data might not show this, but every experienced investor I know says that sellers are willing to negotiate right now. If you can buy below market rates, that offsets the risk of modest declines in the coming months. In this type of market, it’s more important than ever to use an investor-friendly agent who can help you navigate local market dynamics. BiggerPockets can help you find one for free—just use the link above.
3. House hack
House hacking is pretty much always a good option, in my opinion.
4. Stay away from flipping
Don’t start flipping houses. I don’t flip houses, so I’m biased, but I wouldn’t advise anyone to start right now. There is market risk, labor risk, and material cost risk. Experienced players are probably still doing well, but I don’t think it’s a good time for newbies to start flipping.
5. New construction might be lucrative
Prices on newly constructed homes are likely to decrease more than existing homes and could provide a relatively good value for long-term investors. Traditionally, new construction isn’t a great option for rental property investors, but with many developers offering incentives and discounts, I’m keeping an eye on newly constructed homes that are unique and in good areas. I don’t like cookie-cutter developments in the suburbs. It’s too hard to differentiate your property to prospective tenants and can create a race to the bottom in adverse market conditions.
6. Beware of short-term rentals
I think high-priced vacation rental markets are going to get hit the hardest. During the pandemic, demand for second homes skyrocketed alongside interest from short-term rental investors. That demand (not prices) has come crashing back down to earth (I don’t use that word lightly.) I worry that some STR investors bought at a bad time, and if demand falls off during a recession, there could be some forced selling. I never root for anyone to lose their shirt on a home they bought or an investment, but if that does come to pass, it could present buying opportunities.
7. Explore creative financing options
Consider creative financing options, like Subject To (SubTo) and seller financing. These financing strategies offer the opportunity to buy real estate at lower rates than conventional mortgages and can help boost your spending power.
8. Hold on to what you got
If you bought property within the last 10 years with low-interest debt, stay calm and carry on. You may give back some recent appreciation, but if your property cash flows, rent growth is improving your cash flow and might continue to do so into the future—making it a solid long-term investment. It may sound boring, but deciding to hold a property that cashflows, has a low rate, and could see increased income is a good move in this market! The alternatives, such as a cash-out refinance, 1031 exchange, or selling and paying taxes, will likely yield worse returns than just holding on.
9. Use cash, if you can
If you have the means, consider buying with all cash. We all know debt is expensive. If you believe the consensus that price growth is likely to come in between 3% and -8% next year, then investing in real estate using high-interest rate debt may actually be dilutive to your returns compared with buying in all cash in the near term. If you buy a property generating income at a 4% cap rate, and assume 2% appreciation next year, then 6-7% interest rate debt will likely make your returns worse than if you buy all cash. Don’t believe me?
Try it out on the BiggerPockets Rental Property Calculator for yourself. Depending on your appreciation assumption, financing with debt may actually make your returns worse than buying all cash. Not many people have this option, but if you do, it’s worth exploring.
10. Become a private lender
As rates continue to rise, it could be a great time to shift at least part of your real estate strategy to the lending side. Returns on private lending can be as high as 10-14% in the current market, and demand for private loans is likely to rise significantly in the coming months. Your worst-case scenario as a lender is that you become an equity holder in the real estate property you are lending to. If researched and executed carefully, lending may produce much higher returns than equity investments over the next 12 months, with a dramatically lower risk profile.
11. Time the market if you have a crystal ball
Lastly, you could try to time the market, but that is notoriously difficult and something I would not try to do. Instead, I stick to the basics and look for good long-term opportunities. Remember, property values are not the only way you make money with rental property investing. You could try to time the market, but in the meantime, you’ll miss out on cash flow, loan pay down, and tax benefits.
I’m not saying you should buy just anything, but you need to factor in variables other than property prices when deciding where to allocate your capital. If you want to learn how to analyze deals with all of these metrics, you can check out my new book, Real Estate By The Numbers, which I co-authored with BiggerPockets legend, J Scott.
Conclusion
This advice is all based upon my current read of the market, so you may want to consider alternative strategies if you think my read is incorrect. With all the economic uncertainty right now, it’s really difficult to know what will happen next, but I hope this analysis helps you interpret what is going on and how to invest in the current market. I’d love to hear your take in the comment section below.
Run Your Numbers Like a Pro!
Deal analysis is one of the first and most critical steps of real estate investing. Maximize your confidence in each deal with this first-ever ultimate guide to deal analysis. Real Estate by the Numbers makes real estate math easy, and makes real estate success inevitable.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
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FHA solicits feedback on the rare small-balance mortgage
The Federal Housing Administration (FHA) on Tuesday issued a request for feedback from the public on how it can increase access to small balance mortgages through its single-family mortgage insurance programs.
The Department of Housing and Urban Development (HUD) back in April said it would be taking a hard look at small balance mortgages, which typically have balances less than $200,000 and are hard to find.
“The input we receive through this RFI will help us better understand how FHA can make small mortgages more broadly available and affordable for those who need them,” said FHA Commissioner Julia Gordon in a press statement. “The RFI responses will help drive our programmatic work to increase access to homeownership and to close the racial homeownership gap.”
The RFI, published in the Federal Register, asks questions related to the current availability of small mortgage financing, barriers and disincentives to small mortgage lending transactions, as well as changes to policies or processes that would encourage more origination of such products.
In a recent analysis by the Pew Charitable Trusts, researchers noted that a lack of small mortgage products pushes some borrowers into using alternative financing, which generally comes with far higher interest rates relative to traditional mortgages and fewer consumer protections in the case of delinquency or default.
Due to high fixed origination costs, many mortgage lenders shy away from offering mortgages under $150,000.
The Urban Institute in 2021 found that only one in four low-cost homes sold was likely to be financed with a mortgage. The inaccessibility of small-dollar mortgage loans is a key barrier to homeownership for many low- and moderate-income families, leaving them “continuously rent burdened with few options for upward mobility and wealth building,” researchers said.
Black and Hispanic families are disproportionately affected, and the FHA’s programs have fallen short, some housing groups have argued.
Notably, denial rates for small-dollar mortgage loans are higher than for larger loans in both government and conventional channels.
“Lack of creditworthiness is not the reason for the higher denial rates for small-dollar loans,” the Urban Institute’s Laurie Goodman and Bing Bai wrote in 2018. “Instead, the lower return on investment for smaller mortgages does not provide incentives for government and conventional lenders to provide access to credit.”
Suggestions to improve the small balance lending in recent years includes more flexible underwriting, homebuyer education, a reduction in fees, automated valuations and more utilization of community development financial institutions (CDFIs) and community banks.
Michael Loftin, CEO of Homewise, whose work focuses on sustainable homeownership, told HousingWire in July that HUD should take a cue from the government-sponsored enterprises. Fannie Mae and Freddie Mac, although they rarely back small-dollar loans, subsidize lenders for originating them.
“Freddie Mac and Fannie Mae give [lenders] a little bump on their origination fee to encourage small-dollar lending,” said Loftin. “It’s an acknowledgement that you’re making less on a small-dollar loan.”
The FHA will be soliciting feedback through Dec. 5, 2022.
The post FHA solicits feedback on the rare small-balance mortgage appeared first on HousingWire.
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LodeStar integrates with Stewart
Closing fee-related compliance tool provider LodeStar is integrating with title insurance provider Stewart, the companies said Monday.
The Philadelphia-based firm said that the integration will allow all users of LodeStar’s closing fee calculator to access the title and settlement fees of any Stewart-related company, including those of independent title agencies issuing Stewart policies. Users can also streamline cost estimates and documents mandated by the TILA-RESPA Integrated Disclosure Rule (TRID) such as the Loan Estimate (LE).
“This integration makes accurate fees available instantly from a sizable population of the title agent community,” Jim Paolino, the CEO of LodeStar, said in a statement. “As a result, we’re bringing greater clarity to the process for consumers and professionals alike, and empowering loan officers and lenders to redirect their human resources away from manual tasks like researching closing fees and toward more complex functions like marketing, sales and customer service.”
LodeStar said its Loan Estimate Calculator provides guaranteed closing cost estimates for all 50 states including title insurance premiums, transfer taxes, municipal recording charges and settlement services fees.
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The One Mistake That Almost Got My House Foreclosed
A rental property falling into foreclosure is a sad sign. “What happened to that landlord?” you might ask. Did a tenant do extensive damage, leaving them with a too burdensome repair bill? Did the landlord forget to pay their mortgage? What could have caused this? Well, if you’re like Ashley Kehr, someone else may have caused your home to (almost) slide into foreclosure, without you knowing.
Welcome back to this week’s Rookie Reply. Wait, scratch that. This week’s Rookie Confession, featuring our own Ashley Kehr! Many listeners know Ashley as a fast-moving, quick-thinking, real-life monopoly player, but in this episode, she opens up about a mistake that almost lost her multiple properties. It was an easy real estate mistake to make, but even veterans in the game get caught now and again. Want to avoid what happened to Ashley? Tune into this episode!
If you want Ashley and Tony to answer a real estate question, you can post in the Real Estate Rookie Facebook Group! Or, call us at the Rookie Request Line (1-888-5-ROOKIE).
Ashley:
This is Real Estate Rookie, episode 222.
My name is Ashley Kehr, and I’m here with my co-host Tony Robinson.
Tony:
And welcome to the Real Estate Rookie Podcast, where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey.
I want to start off today’s episode by shouting out some folks from the Rookie audience. We got another five star review. This one says, “I’m a small time real estate investor with one property, and I want to get to three to five. This podcast is amazing because they focus on the basics.”
So if you haven’t yet, leave us an honest rating and review on whatever podcast platform it is you’re listening to. The more reviews we get, the more folks we reach. The more folks we reach, the more folks we can help. And that is our ultimate goal.
So, with that out the way, Ashley Kehr, what’s up? What’s new? Tell me how things are.
Ashley:
Well, to be honest, today I’m going to use the Rookie Reply as my own confessional. I’ve had something just weigh me down on my shoulders and I just need to get it off my chest, and hopefully it will help some other people and everyone will realize that I am not perfect and bad things can happen. This bothered me so much, and I feel like I just need to get it out there in case it happens to someone else, that you know you’re not alone in this.
So at one point in time in the past year, I hired somebody to do my payables for the business.
Tony:
A bookkeeper.
Ashley:
Not even a bookkeeper, just paying the bills. So not even entering in any of the data, so just paying the bills. They would go and get my mail from the PO box. They would open the mail, they would scan in the mail, and I’d be able to look at it from there. And then they would write the check. They would bring the checks to my house that they wrote, have me look at them, compare them to the bill, sign them, and then they would make the envelope and mail them out.
So, first, I know you guys are all thinking that, “Well, why don’t you set all your things up on autodraft and automatic withdrawal?” Well, when you invest in small rural towns, sometimes there’s no online system. The only form of payment is walking into the place or mailing a check, unfortunately.
So there was things that would come in … or if a contractor, vendor, or something, something that’s an occasional occurrence, or the property tax bills, even the water bills. For in the small towns, the electric bills, they have their own utility company, and they only will mail out a bill and accept a check payment.
Anyways. So I got a letter in the mail about a month ago, and it said that my property taxes were not paid on one of my properties. In bold print across the top, foreclosure, property tax foreclosure, across … I seriously had a heart attack. At this moment I can’t even recall exactly what it said because all I did was panic inside. And it said: past due, nonpayment. These were due, I mean, like six months ago, that this happened.
And at the same exact date that I got that letter, I got an email from my bank that I have the loan with, saying, “Hey Ashley, just wondering what’s going on? This third-party company we check, to make sure things are paid on a property, said that the property taxes were not paid. What’s going on?”
Immediately, I felt embarrassment. I got sick to my stomach. I felt anger. What happened? So this person just did not do what they were supposed to do. So we went through the scanned documents, things like that. There was property taxes that were scanned in. Never paid. There was some that were never scanned in. Did she not get them? Things like that.
So I had to go through a lot of my accounts and just make sure everything was paid. Go through every property and pull up … And it ended up there was two properties that the property taxes were not paid for. Actually, no, I’m sorry, there was three. So one of them, what happened was that the property taxes were actually added to my next round of property taxes, and they were re-levied, they call it. So it was actually included into that bill. So they ended up being paid.
So what I did, was I went online to pay the property tax bill. And it says that they’re no longer accepting online payments. So I go into the town clerk in the small town and I go to pay the property tax bill. She’s like, “Oh no, I can only accept payments until June 30th.” And I was like, “Okay. How should I pay this?” And she goes, “Well, I don’t know. I’ve never been in this situation.” My embarrassment just overloaded even more. I’m like, “Oh my God.”
Tony:
“I’ve never had any bum landlords be this late on their property taxes.”
Ashley:
I know. And I was just like, “Okay. Yeah. I’m sorry, I’m not sure what to do. I was just asking for some guidance.” And she’s like, “Well, I guess I could Google it for you.” And this clerk is the one that you would write your check out to, to pay your property taxes. I just assumed they would know …
Tony:
Know what to do.
Ashley:
… what to do if someone’s paying late. So my embarrassment was awful. I had to work up the nerve to even go into it. I tried to make Darrell do it, but it would’ve had to wait another day until he was available because I didn’t want to walk in there. So it just got 10 times worse.
But what you ended up having to do was … she’s like, “You’ll have to go downtown Buffalo and you’ll have to pay it to the county now,” or whatever. So I got back in the car, I did my own Googling, and they actually accepted the payment online. So I didn’t even have to go into the clerk’s office, I could have paid it online. It was taken care of.
And then I learned that it’s actually two years of back taxes that you need before they will actually come and take your house and put it up for auction. But that was just a horrible, horrible feeling for me, is having that happen. So my biggest things that I learned, is that if you hire and outsource someone to do something … and I learned this with my property management company too … is that that doesn’t mean that you can forget about it. You need to still stay on top of things.
So that was my biggest takeaway from that. And if a bill is not paid, like your property taxes, it’s not the end of the world. But maybe I need to implement some kind of system, where I have a VA that’s going in and: check, check, check. Okay. All these property taxes are paid. Because if I don’t get a bill for something I don’t know to pay it. I can’t remember all of the property tax bills that should be coming in for my properties.
So if there’s anybody else out there who hired somebody that missed a payment, or maybe just forgot or something and missed a bill, I’m right there with you and felt the embarrassment.
Tony:
Yeah. Well, first, thank you for sharing, Ashley. I appreciate you sharing this super embarrassing story. I’m embarrassed for the both of us. I’m embarrassed that we’re even associated with one another now because I don’t want people to think that I don’t pay my property tax bills.
But, I guess, a couple questions. So, for me, I never have to worry about paying my property tax bills because my property taxes are impounded with my insurance payments for literally every single property. Is that not the case for your properties in New York?
Ashley:
So you have them in escrow?
Tony:
Yeah, all my payments are escrowed. Yeah.
Ashley:
Okay. So yeah, I have a lot of commercial lending on my properties, where they usually don’t require you to escrow your property taxes. So the nice thing about that is my monthly payment is low. Yes, I have to save up to make a payment, but a lot of my commercial loans, they don’t offer it or they don’t require it.
Tony:
Have you called to ask them if they would be able to do that on your behalf?
Ashley:
No, because I don’t know if I would actually want to. I mean, maybe now would be a good example. But I like that I’m just paying my insurance bill once. Because I have had it happen … this has actually happened twice now with a hard money lender … where I paid, at closing, for my insurance upfront, and they took the check and they were going to pay the insurance themselves, just for that one year, with the hard money lender.
I got notices stating that they have no record of the insurance, blah, blah, blah. So I’ve had a lot of issues with that recently. But I’m sure if they wanted to … I do have one commercial loan that has it in escrow, but that’s it.
Tony:
Yeah. For me, like you, there’s too many things going on, I think, for me to be able to keep track of that. So, for me, being able to escrow all that stuff has been super helpful.
Ashley:
Maybe that’s something I need to reevaluate going forward, is make sure that they are all escrowed. Yeah.
Tony:
Yeah. So my second question: did they send any notices before then about the nonpayment, and was this person who was in charge of that just not catching that? How do you think it went that far without it being brought to your attention?
Ashley:
So, actually, they would’ve received the bill a month before I let them go. So there was other things that were happening. So I had let them go, and then somebody else took over. And no, there was no bill received. This was the first notice that we got in the mail. And the bank had found out the same information at the same exact time. Which I thought was weird too.
But also, the next round of taxes for that property is coming up due now. So maybe they sent a notice before they re-levy it onto the next set of taxes for that property? So it’s like the school taxes are all coming up now. But yeah, I don’t know. But we thought that was really strange too, was that this was the first notice of it. And coming up too, is the big county auction for properties that they’ve taken for properties tax.
Tony:
So you’re like, “Oh no.”
Ashley:
I was like, “Oh my god, it’s going to be on the list. My LLC.” Oh my God, I was just sweating. People are probably Google satelliting the property, like, “Oh yeah, we want to bid on this one when it comes up to auction.”
Tony:
But luckily you avoided that.
Ashley:
Yeah. Yeah. Yeah.
Tony:
Crisis averted.
So I know you mentioned trust would verify, which I think is a big thing. And for folks, even if you just have one property, if you’re not doing everything yourself, I think there does have to be some kind of checks and balances in place to make sure that the things you’ve delegated to other people are actually getting done.
Just a quick backstory. So, for me, in my old W2 job, I was in a manager level position, so a lot of my information came secondhand from folks who were on my team. And obviously I had to trust them, that they were giving me the right stuff. But a lot of times I would just go back and I would just randomly pick different things that I would double-check, like if they were sending me data on how their shift perform for the last day, I would look at the email they sent me, but then I would just go into the system myself and pull some of that data to see if it all lined up.
So those little spot checks sometimes, I think, help catch some of those issues. And typically, what I’ve found, is that if you have someone that’s a low performing employee, if you find one mistake there’s probably some other mistakes in there as well. So it might be a telltale sign that there’s some other things you might want to dig into.
Ashley:
Yeah. And there’s probably things that are still going to come up from this too, I’m thinking.
Tony:
Yeah.
Ashley:
So we’ll see. But I had to get that off my chest. I had to do a real estate confessional of mistake.
Tony:
Yeah. And like you said, I think it’s helpful for the rookies to hear as well, because they hear our voice, they hear our stories every week. I know there’s this maybe misconception that things just always go right for us.
Ashley:
Yeah.
Tony:
But I shared my story about the Shreveport house that I lost money on. And things like this happen. As you’re building your business, things don’t always go right. So it’s not necessarily about maybe not letting those bad things happen, because sometimes it’s out of your control, but it’s about: how do you respond and how do you take those lessons and put them into your business so you can continue to get better?
Ashley:
And I think those are the people you want to have in your network too, who are open and honest about those things. While I was waiting for my kids to get off the bus today, I was on the phone with my friend Layka, who’s an investor in Seattle, and I was just telling her how some things were going wrong. We just found out this morning we have to put a new well on a property. And just every day there’s new costs, and it’s just like you’re moving money from the good properties to support the bad properties.
Tony:
Totally.
Ashley:
You never seem to have money because you’re always buying stuff.
Tony:
Buying stuff.
Ashley:
She’s like, “Yeah, you really get to enjoy real estate when you actually stop buying things and you just live off your rental income because you’re not putting it towards more properties.”
But she just rattled off all these things that are going wrong with her properties and then things that are going right with some. And it’s like, those are the investors you want to put yourself around, to share the good and the bad.
Tony:
I just want to share one thing that’s gone wrong in our business. So one of our cabins in Tennessee, summer is usually one of the busiest times of the year. Last summer we absolutely crushed it. And our second biggest cabin, there was a small leak, a little pinhole leak, that no one noticed. But we only started to notice because the floor was a little uneven and a floorboard started to pop up.
So our handyman went, he popped up the floorboard, and saw that it had just been leaking for who knows how long. So we had to cut out a big … I don’t know, like eight by eight square. And he replaced the subfloor and then put new flooring down. So this was two weeks ago.
We get a message from our cleaner on the same exact property, a few days ago, that they walk into that same lower level where we just replaced the floor and it’s soaked again. But this time it’s because the bathroom was clogged, the toilet in the bathroom down there was clogged, and literally re-damaged that whole section of floor that we just replaced.
So we had to block the calendar two weeks ago because of that first issue; we have to refund guests. And we have to do it again this week because of the second issue. So things that are totally out of our control. But like you said, it’s all-
Ashley:
And does that hurt getting super host, when you have to cancel people too?
Tony:
Yes, it definitely does. But if you have a cool guest and you just explain to them what happened, it’s like, “Hey, here’s what happened. You can stay if you want to. But just know this little section’s going to be unusable.” And if they cancel on their own, then you’re fine. But if they go to Airbnb and said I canceled on them, then automatically we would lose super host status.
Ashley:
Okay. I think that little tip is worth anyone listening to that episode because that’s great advice. Because my first thing was, wow, you had to cancel all these people. But no, you tell them what’s happening, and then you say, “I’ll give you a full refund if you choose to cancel,” so it’s on them. Ah, that’s a great idea.
Tony:
Yeah.
Ashley:
I mean, hopefully I don’t have any major …
Tony:
Yeah. Fingers crossed you never got to use that one.
Ashley:
Yeah. Yeah. Okay. Well, thank you guys so much for listening to my real estate confessional this week. We will be back on Wednesday with another Rookie Reply.
I am Ashley at WealthFromRentals, and he’s Tony at Tony J. Robinson. Don’t forget to check out our YouTube channel, Real Estate Rookie. And we’ll see you guys next time.
Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Check out our sponsor page!
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
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UWM’s Matt Ishbia on future of the broker channel
What do the next 15-18 months look like for the broker channel? According to United Wholesale Mortgage (UWM) CEO Mat Ishbia, who rallied brokers at the Association of Independent Mortgage Experts (AIME) Fuse conference in Las Vegas on Saturday, the next year and a half will be a proving ground that will level set the market for brokers, and only some will come out winners.
In an interview with HousingWire after his presentation, Ishbia provided more context to his comments, especially on UWM’s aggressive pricing strategy and its impact on mortgage lenders’ decision to leave the wholesale channel.
UWM in June launched the ‘Game On’ pricing initiative, slashing prices across all loans by 50 to 100 basis points. “Game On pricing has no impact on where people exit the market. Their business model was not good, they’re not committed to the broker channel, and that’s fine,” Ishbia said. He added: “The broker community is stronger than ever. So, it’s got nothing to do with that. That’s just the business model that isn’t in a great position. And so they make those decisions.” The wholesale space, like other channels, has been affected by surging mortgage rates and shrinking origination volumes. But stronger competition has made rivals exit or plan to exit the channel to focus on more profitable business divisions. On the list are rivals such as loanDepot, Mountain West Financial, AmeriSave, Point Mortgage Corporation, Stearns Wholesale (owned by Guaranteed Rate) and Finance of America’s forward wholesale business. The latest victim is American Neighborhood Mortgage Acceptance Company LLC (doing business as AnnieMac). The company posted on its website last week, “As a result of worsening market conditions, it has made the difficult decision to cease wholesale operations effective October 31, 2022. “The company suspended new loan submissions at 5:00 PM EST on September 27, but it will honor all existing policies and procedures. Market share According to Ishbia, lenders leaving the space have no impact on his forecast for the wholesale channel to achieve 33% marketshare by 2026. AIME estimates that the wholesale channel currently has 23% marketshare. Meanwhile, an Inside Mortgage Finance’s (IMF) analysis of first-lien mortgage originations shows the broker channel accounted for just under 15% marketshare from April to June, with retail at 61% and correspondent at 25%. The data shows that brokers originated $94 billion in the second quarter, down 16% from the first quarter. “All those lenders have no impact on it (marketshare) at all,” Ishbia said. “As long as you have lenders out there, brokers are fine. These lenders have zero impact on the brokerage, and we will hit all those goals.” During his session at the AIME Conference, Ishbia said that his’ Game on” pricing strategy is an investment that will continue moving forward amid its mindset to grow its business. “It’s not designed for competitors to like me,” he said. “I’m not trying to survive, I’m trying to thrive.” Ishbia also unveiled three initiatives during his presentation, including an alternative to the traditional lender title process, called TRAC. The other two initiatives are UClose 3.0, a platform that will allow brokers to choose from three closing options, and Safe Check, a soft-pull credit check to get an appraisal waiver pre-check before submitting their loan without initiating trigger leads to brokers’ competitors.The post UWM’s Matt Ishbia on future of the broker channel appeared first on HousingWire.
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HW+ Member Spotlight: Sharon Park
This week’s HW+ member spotlight features Sharon Park, co-founder and CEO at Home Starter Inc.
Below, Park answers questions about the housing industry:
HW Media: What is your current favorite HW+ article and why?
Sharon Park: My favorite article is “Opinion: Taming inflation requires making housing affordability a national priority.” I believe that closing the housing supply gap — particularly the affordable homeownership supply gap — is one of the most critical issues we face as a society today. Stable housing and homeownership are the bedrock of long-term, meaningful and sustainable positive change in terms of race and wealth equity outcomes. The racial homeownership gap in our country is the worst it has been in 50 years. We need to come together to focus on promoting innovative and practical solutions to solve this issue.
HW Media: With HousingWire Annual right around the corner, which session are you looking forward to this year and why?
Sharon Park: I am looking forward to the conference in general, but am most looking forward to the “Fireside Chat with FHFA Director Sandra Thompson” given the importance of the GSEs in the affordable homeownership ecosystem.
HW Media: What is your most useful tech tool?
Sharon Park: My most useful tech tool is the Home Starter platform! I am an anchor investor in a debt fund that provides capital to emerging developers in Philadelphia who are renovating and rehabilitating homes specifically for affordable homeownership. The Home Starter platform allows me to see how my capital is being deployed and track outcomes.
The emerging developers who do this difficult and risky work are critical to creating affordable homeownership opportunities. They are doing extremely valuable work that is often overlooked when we talk about solutions for the affordable homeownership crisis. It is critical that we figure out how to provide capital to this specific group of emerging developers at scale.
HW Media: What is the weirdest job you’ve ever had?
Sharon Park: The weirdest job I ever had was as a young attorney. I am about to date myself, but I was an intern at a large, white shoe law firm in New York City. I was working on a very heated corporate litigation case. The senior attorney on the case was a bit of a chain smoker and smoked in the office (that is the dating myself part). My job one very late evening was to sit in the office holding an ashtray with the sole mandate of making sure that when the cigarette’s ash got long enough, it landed in the ashtray and not on the stack of papers on the desk.
HW Media: What is the best piece of advice you’ve ever received?
Sharon Park: The best piece of advice I’ve ever received is to try to look at things through other person’s lens. While I may not always succeed at that, I believe that keeping that in mind is very helpful whether in one’s professional or personal life.
HW Media: What keeps you up at night and why?
Sharon Park: The affordable homeownership crisis literally keeps me up at night. We are unfortunately in the perfect storm in the current environment. The supply demand imbalance is a huge factor, but when coupled with inflation and a rising rate environment, homeownership affordability is just getting hammered. To me, housing stability can dictate the forward of a person much like that of a root of a tree.
You need strong roots for strong trees. We talk a lot about the importance of homeownership for wealth creation and race equity, but I would like to see us focusing more on the “how” we get there. How do we promote affordable homeownership in an intentional, practical and sustainable way? Unless we do this, we won’t have strong trees.
HW Media: What’s one thing that people aren’t paying attention to that you think they should be paying attention to?
Sharon Park: On the affordable homeownership front, I don’t think people are paying enough attention to really unpacking how an affordable homeownership opportunity is created, especially in today’s environment. I believe that if we really want to solve this crisis, people need to get into the weeds about what the barriers and points of pain are for the key participants along the way.
I will never forget what a former FHFA director once said to me almost a decade ago — on the supply side, new construction is one piece, but on the affordable homeownership front especially, we need to fix the housing assets we already have. This is so true today more than ever.
Join HW+ members at this year’s HousingWire Annual by going here to register.
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The post HW+ Member Spotlight: Sharon Park appeared first on HousingWire.
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