Housing starts are surging today and the builder’s confidence data is now in expansion territory. Does this mean the housing recession is over?

As I have said many times over the last few months, the builders are efficient sellers and they’re taking advantage of an existing home sales market that is suffering from low inventory and higher mortgage rates. Tuesday’s solid housing starts print, combined with yesterday’s builder’s confidence data, shows a housing market back in expansion mode, but the permits haven’t risen yet, which is the missing piece of getting housing out of a recession.

The builders confidence index came out yesterday and it’s all smiles lately, as the builders believe they can sell more homes. Historically speaking, the key level for builders confidence is 50: Anything below 50 is a recession and anything above 50 is an expansion. As you can see below, we broke over 50 yesterday as the index came in at 55.


Tuesday’s massive housing starts print will get revised lower, but the trend for the homebuilders, new home sales, and builders’ confidence has been intact since November of 2022.

Let’s look at the housing starts data and make sense of it all.

From Census: Housing starts: Privately‐owned housing starts in May were at a seasonally adjusted annual rate of 1,631,000. This is 21.7 percent (±14.8 percent) above the revised April estimate of 1,340,000 and is 5.7 percent (±10.8 percent)* above the May 2022 rate of 1,543,000. Single‐family housing starts in May were at a rate of 997,000; this is 18.5 percent (±14.1 percent) above the revised April figure of 841,000. The May rate for units in buildings with five units or more was 624,000.

This was an extreme month-to-month print on housing starts. It is likely to be revised lower as this has always been the case with really big housing starts prints — both positive and negative. It was a such a shocking print that a few economic bears kicked their recession call out to 2024 because housing is traditionally a leading economic indicator.

Housing Completions: Privately‐owned housing completions in May were at a seasonally adjusted annual rate of 1,518,000. This is 9.5 percent (±12.3 percent)* above the revised April estimate of 1,386,000 and is 5.0 percent (±13.0 percent)* above the May 2022 rate of 1,446,000. Single‐family housing completions in May were at a rate of 1,009,000; this is 3.9 percent (±13.9 percent)* above the revised April rate of 971,000. The May rate for units in buildings with five units or more was 493,000.

Housing completion data is still the saddest housing data line we have, but it also shows how different the housing market is now versus when housing crashed in 2008. Housing completions have been prolonged and still need to be faster: As you can see in the chart below, we haven’t gone anywhere for some time.

Unlike the housing bubble years when starts, permits, and completions were moving up and down, this time the lagging caused by COVID-19 delays is evident. However, we are past COVID-19 time, and this data line is still slower than my tortoise Grundy. 

Building Permits: Privately‐owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 1,491,000. This is 5.2 percent above the revised April rate of 1,417,000, but is 12.7 percent below the May 2022 rate of 1,708,000. Single‐family authorizations in May were at a rate of 897,000; this is 4.8 percent above the revised April figure of 856,000. Authorizations of units in buildings with five units or more were at a rate of 542,000 in May.

The missing link to ending the housing recession is housing permits. Traditionally in all expansions, housing permits are rising wildly when builders’ confidence is bouncing hard off the bottom. Permits just haven’t gotten there yet, and for a good reason. First, as you can see below, housing permits have stabilized for sure but haven’t taken off yet.

I have a straightforward model for when the homebuilders will start issuing new permits with some kick. My rule of thumb for anticipating builder behavior is based on the three-month supply average. This has nothing to do with the existing home sales market — this monthly supply data only applies to the new home sales market, and the current 7.6 months are too high for the builders to issue new permits with any kick and duration. 

  • When supply is 4.3 months and below, this is an excellent market for builders.
  • When supply is 4.4-6.4 months, this is just an OK market for builders. They will build as long as new home sales are growing.
  • When the supply is 6.5 months and above, the builders will pull back on construction.

As you can see below, builders have made good progress getting the monthly supply down, but they are just not able to get a strong push on permits yet, as they are still working off their backlog. Some of those homes haven’t even started construction yet.

Many people use housing as a leading indicator of the U.S. going in and out of a recession. As you can imagine, with the builders’ confidence rising so much and now housing starts with a giant print, some are beginning to question their recession call for 2023. 

For me, it’s all about permits and demand growth, and we are working our way back to normal for this sector, we’re just not there yet. Can you imagine a housing market with mortgage rates at 5% instead of 7%? A lot of housing data would firm up more with lower mortgage rates. 

The builders have some significant advantages in selling their homes because they sell them as a commodity and don’t have to deal with some of the issues that the traditional home seller has to deal with. In a high mortgage rate environment, they can offer lower rates and peel off some buyers who would generally go into the existing home sales market. 

All in all, this was a shocking report on the headline. However, when you dig a bit deeper, it shows the positive housing trend that started in November of 2022 continues, but more work needs to be done.



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June is National Homeownership Month. It is a month when we celebrate the American Dream of homeownership and reflect on the current challenges that homeowners are facing today. The purchase of a home is one of life’s largest and most important investments, and it is critical that homeowners remain vigilant to protect this investment. 

During this National Homeownership Month in particular, homeowners should be wary of a new business practice preying upon vulnerable homeowners — non-title recorded agreements for personal service (NTRAPS), long-term listing agreements that entrap consumers. In this business practice, real estate brokerage firms offer homeowners a small upfront payment in exchange for the exclusive right to list and sell the property in the future. These complex contracts make selling, refinancing or transferring real estate difficult for homeowners. 

These companies know how to make their agreements sound good. The one-time cash reward provided by NTRAPS — which are sometimes as little as $300 — are enticing to homeowners in need of immediate financial assistance. These homeowners, who are not real estate professionals and don’t have the benefit of counsel, often do not fully understand the long-term implications of what they are agreeing to. 

After signing one of these listing agreements, homeowners are stuck in a contract that can be binding for up to 40 years. They risk facing a penalty of 3% of their property value if the property is transferred, or if they use another brokerage firm in the sale of the home.

The American Land Title Association (ALTA) is committed to protecting homeowners and their investments in all circumstances. When we first learned about NTRAPS last summer, we immediately began developing strategies on how to stop these exploitative and predatory business practices.

We soon realized that prohibiting these unfair agreements altogether is the best course of action to protect consumers, and we quickly sprang into action. Alongside industry partners, ALTA developed a model bill for state legislatures that would prevent the enforcement of NTRAPS, prohibit the recording of these agreements in property records and enable the removal of NTRAPS from property records and recovery of damages.

Now, states are taking action. At the beginning of the year, Utah became the first state to ban NTRAPS with the passage of H.B. 211. The success in Utah created a domino effect for other states’ regulatory and legislative victories. To date, six state attorneys general have filed complaints against these agreements. 21 states have introduced legislation and 11 states have passed legislation that bans or severely limits the parameters of these agreements.

But while we have seen great progress in our advocacy against NTRAPS already, more still needs to be done to best protect homeowners and their investments. We encourage our industry partners to join us in our advocacy efforts with state legislators and regulators and help us educate homeowners about the financial consequences of these agreements. Together, we can end this predatory business practice once and for all.

Elizabeth Blosser is the vice president of government affairs at ALTA, the national trade association representing the land title insurance and settlement services industry, which employs more than 120,000 people working in every county in the United States.



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It’s fair to say that almost everyone living in a home today worked with a real estate professional to purchase or mortgage their home. Historically, though, professionals let their clients go after the transaction is complete rather than building a moat around the client that assures future transactions. The newest prop tech applications to moat the client relationship are home management tools. 

According to the latest data from Altos Research, the real estate market is experiencing unusual patterns in pricing, inventory and demand. The data shows that home prices have held steady even in an environment with higher mortgage rates, in large part because inventory continues to be at near record low levels. This has created a competitive market where buyers are struggling to find suitable properties, leading to increased competition and few bargains.

In such a market, homeowners are more likely to stay in their homes for longer periods, unless compelled to move due to life-related reasons. This trend has important implications for real estate and mortgage professionals, who need to adapt their customer experience strategies accordingly. It is crucial to focus on capturing the business that exists in this market in the near term while also planting seeds with clients that will yield long-term rewards. Helping homeowners monitor the value of their home, access maintenance and remodel services, monitor mortgage rates, and other tools deepen the relationship between the homeowner and real estate professional.

Milestones CEO Dustin Gray emphasizes the importance of investing in relationships and playing the long game in this market. Whether you’re on the brokerage or lending side, offering clients something that aligns with today’s narrative is key. This involves helping homeowners maximize the value of their current homes while being readily available to assist with borrowing money or facilitating a move when the need arises.

Strategies for Success

Embracing the homeowner opportunity is crucial for real estate professionals in the current market. Over the past decade, the industry has primarily focused on optimizing and monetizing transactions. While this approach has no doubt generated considerable revenue, it has often led to a lack of repeat business, with the typical Realtor earning only 16% of their income from repeat clients.

Dustin Gray believes that the future of real estate and mortgage lies with the homeowner and the home itself. Research indicates that 90% of homeowners underestimate the costs of homeownership. In a transaction-focused industry, this data may seem insignificant, but in a homeowner-focused industry, it represents a substantial opportunity.

To stay ahead of the competition and capitalize on the homeowner opportunity, real estate professionals can adopt the following strategies:

  1. Meet customers where they are: living in their home. Focus on providing value to homeowners by helping them make ROI-positive remodeling choices for equity growth, assisting younger family members with building credit and saving for future homeownership, or connecting them with trusted home service providers. Building trust and solving problems between transactions demonstrates a commitment to the long game, and shows you’re not just a transaction agent.
  1. Offer bundled services options. National portals and direct-to-consumer lenders are increasingly bundling services to create a seamless digital experience for customers. While many real estate businesses already offer ancillary services (e.g. mortgage, title, insurance, warranty) they are typically siloed and rely heavily on agents to promote them. Milestones brings all of these services under one roof and keeps them front and center for consumers and homeowners. By doing so, companies can increase their capture rate and prevent clients from being lured away by competitors.
  1. Give customers one place to manage their home. Milestones is an experience that homeowners want to continually visit because it provides value and educates them. By offering homeowners a centralized platform to manage their home and home-related wealth, real estate professionals can create a valuable touchpoint for regular interactions and foster customer loyalty.
  1. Redefine your value proposition as a trusted advisor. Instead of solely focusing on transactions, real estate professionals should position themselves as trusted advisors who assist homeowners in making informed decisions and building wealth from their homes. This long-term approach goes beyond the closing table and establishes a strong database of homeowners for repeat business and referrals.
  1. Evolve the technology stack. Traditional real estate technology stacks have primarily focused on transaction outcomes. However, with homeowner management technology, businesses can shift their focus to homeowner outcomes. By leveraging data and AI, real estate professionals can gain insights into the true value of their past client portfolio, forecast future buyers and sellers, and create revenue opportunities for core services in between transactions.

The current housing market presents a unique opportunity for real estate and mortgage professionals to invest in relationships, play the long game and provide homeowners with an exceptional experience. Milestones provides a solution that enables companies to scale their ability to build trust, solve problems, bundle services and deliver value to homeowners beyond the transaction. This reduces customer acquisition costs and the need for constant top-of-funnel marketing strategies, while capturing more near-term revenue and planting seeds for growth. Moating the customers that you already have is the strongest opportunity for growth in today’s competitive market.



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Workers were adding the finishing touches to a Ranch-style home just when an all-black Tesla Model 3 pulled up to the job site. As the door opened, an investor stepped out into the Dallas, Texas, heat. Enthusiasm emanated from this seasoned flipper as he encouraged his team and lent a hand. This is Don’nell Greer.

With over 200 flipped houses under his belt, Greer is a real estate pro who has managed to build an impressive real estate machine. He started in Dallas and has since expanded his operations to include the entire Dallas-Fort Worth metro area, as well as parts of St. Louis, North Carolina, and Tennessee.

Despite his ever-growing success, this Lone Star State flipper remains eternally grateful for his situation and wants to help others find financial freedom. In this article, Don’nell shares how he got started, tips for investors, and other key takeaways from his storied career in real estate. Whether you’re a veteran investor or a newbie, there’s plenty to learn from his story. 

Becoming a Real Estate Agent

Greer’s journey began in a marketing class at the University of Texas – Arlington. In class, he was tasked with selling a software product to a CEO in his area. Imagine Shark Tank but for college students trying to land jobs or internships.

After hearing Don’nell’s presentation, the CEO was blown away and offered him a sales position at his IT company. Excitement over his first job out of college quickly turned into sadness as he envisioned a life making an average salary. 

Anyone who knows Don’nell would tell you that average isn’t in his vocabulary. He began searching for ways to make a better living and stumbled across real estate. One of his friends was a real estate agent and explained that commissions from selling houses were making him $30,000 per month. 

A lightbulb went off. Don’nell signed up for a virtual real estate agent training the same night. He saw the potential and became a licensed real estate agent shortly thereafter. 

It wasn’t long before he was a top-producing agent at Century 21. However, it was clear to him that there were only so many hours in a day that he could work. He wanted to start finding ways to make money work for him.

His First Foray Into Real Estate Investing

Don’nell started to Google things like “how to grow a business” and “how to get rich.” Naturally, he discovered real estate investing, which combined his existing skill set as an agent with a proven way to build wealth.

That’s when he stumbled upon articles written by Brandon Turner and David Greene’s BRRRR.” 

To Greer, it “felt like it would take too long to save up for properties. I was still a newer agent and wanted to find a way to stretch my cash. At first, I thought the BRRRR method was a scam because it was too good to be true.” 

After doing research, connecting with people on the BiggerPockets forums, and trying it himself, he realized that the BRRRR really was an amazing way to recycle money. 

On his first deal, he was able to successfully execute the BRRRR method. He bought a house for $80,000, did a $15,000 rehab, and the property was appraised for $165,000. This success was the catalyst that propelled his career forward.

Success is More Than Just the Tip of the Iceberg

Hearing about Greer’s early success may be inspiring to some, yet feel like a fairy tale to those who have struggled to break into this industry. From the surface level, it may seem like he got lucky, but any successful investor will tell you there’s far more to it than meets the eye. 

It took countless hours, hard work, and faith in himself to get to where he is now. These are some of the lessons he learned along the way.

Create win-win situations

Once, while door knocking, Greer asked a gentleman who opened their door, “Have you ever thought about selling your home?” The man who answered said that he’d always wanted to move back into his childhood home, but another family had owned it.

Later that day, Greer plucked through county records and got ahold of the other family. It just so happened that they were interested in selling. To make things short, Greer was able to broker a sale between both parties, leaving everyone happy.

But the story didn’t end there.

The man who bought his childhood home invited Don’nell over to show him the renovations he’d done since closing. It had been completely transformed from a gut job into something straight out of HGTV. Seeing the potential for something bigger, the man became Don’nell’s go-to contractor. They proceeded to flip several houses together.

Sometimes people are so hyper-focused on getting the best deal for themselves that they forget about the other people in the transaction. In reality, the best investors find ways to create win-win scenarios. 

Learn the power of leverage

It takes money to make money in real estate. “The money doesn’t need to be yours, though,” says Greer. 

Don’nell got the capital for his first deal from a family he was very close with. He joked that the 10% return he gave them was way more than they could get in a savings account. For him, the money borrowed equaled way more than anything he had in his bank account. After successfully completing a rehab, he was able to pay his lenders back and used his profits as part of the downpayment for his next deal. Yet another win-win!

What he learned was that he could spread the capital he was borrowing across multiple properties instead of one at a time. He went from a few flips each year to double-digits per month.

Greer suggests that you start by leveraging a small amount of money and let it snowball as your skills improve.

Stay consistent and take action

 

How many times have you heard experienced investors say to analyze multiple deals per day? And yet, how many of us follow through with it? Greer says that we’re so focused on instant gratification that it’s easy to forget that “the mundane work you do day in and day out feels boring but pays dividends.”

Looking back on his career, he said, “I can’t tell you how many hours a day I spent messing around with the BiggerPockets [calculators].” It may seem like nothing is changing as you slog through one property at a time. In reality, you’re learning your market inside and out while refining your buy-box. When that one great deal eventually does come along, you’ll be ready for it.

Clearly outline roles before entering partnerships

When you decide to team up with a friend or relative, it can be hard to imagine anything ever going wrong. Hopefully, it doesn’t, but Don’nell reminds us that it could, and as such, you should be prepared.

In his own business, there was some turmoil with a partner. The initial agreement was that the work would be evenly divided based on their skill sets. Reality played out quite differently, and Don’nell ended up doing significantly more than his partner while splitting profits evenly. 

They have since parted ways amicably, but Don’nell cautions anyone entering into a partnership to treat it like a marriage. That means properly outlining roles and responsibilities in an operating agreement. It can then serve as a point of reference to guide your business. Starting with an operating agreement as your foundation mitigates the risk of things going sour.

Conclusion

Today Don’nell has a flexible schedule that allows him to pick his kids up from school, work when he wants to, and help others in his spare time. All of this was made possible by applying the lessons he learned. You can do the same!

Find an Agent in Minutes

Match with an investor-friendly agent who can help you find, analyze, and close your next deal.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



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Owning a starter home is now $1,000+ per month more expensive than renting one. While the metric has decelerated from a $1,188 peak in October 2022, it remains far above historic levels, according to John Burns Research & Consulting.

Factors such as high mortgage rates — currently hovering around the 7% mark — and elevated resale prices continue to challenge for-sale housing affordability. This results in a higher-than-usual number of home renters staying in place as they can’t make the numbers work in such a challenging housing market.

The monthly premium to own versus rent in April hit $1,030 per month, compared to $884 per month at the time last year, a 15% increase, the housing research consultancy found.

Premiums vary greatly by market, but the cheaper markets in the Midwest are more obtainable.

The homeownership premium is cheapest in Indianapolis (7% – $117), Cincinnati (11% – $181), Columbus (24% – $413), Tampa (21% – $467) and Atlanta (24% – $486). Meanwhile, the homeownership premium is highest in Austin (77% – $1,664), Denver (56% – $1,410), Riverside-San Bernardino (46% – $1,109), Miami (39% – $1,095) and Dallas (45% – $1,057), the research shows.

homeownership-more-expensive-graphs-02-min

Interestingly, the homeownership premium is below the national average of $1,030 in 15 of the 20 most popular markets for single-family rental investment, according to JBREC. This can be explained by the fact that “homes in these markets can be purchased at prices where the rents achieve a good yield for the landlord,” the report says. 

(Most single-family rental investors target the $300,000 to $500,000 range, and many have targeted the Southeast, Midwest and Southwest in recent years.)



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Mortgage rates were near 7% last week but purchase applications were still able to pull out an 8% week-to-week gain. That was surprisingly strong, but as I have always stressed, context is critical. Purchase apps were coming off a four-week losing streak and even though those were mild week-to-week declines, it was still four weeks of weakness. The recent growth broke that streak, but demand is still low.

Active housing inventory grew while new listing data fell. Mortgage rates hardly budged last week, even with the Federal Reserve‘s announcement it was pausing rate hikes and CPI inflation reports.

Here’s a quick rundown of the last week:

  • Active inventory grew 8,041 weekly. I am still hoping for some weeks that show inventory growth between 11,000-16,000
  • Mortgage rates stayed in a tight range between 6.94%-6.98% 
  • Purchase application data showed an 8% growth week to week 

Purchase application data

Last week’s 8% week-to-week growth with rates near 7% was stronger than expected. But, last year we had the biggest waterfall collapse in purchase application data ever for a single year, and since Nov. 9, 2022, this data has been forming a bottom-end range.

This dynamic changed the housing market from one where home sales were crashing to one that is now stabilized. I explain how this happened in this recent podcast. As you can see in the chart below, the collapse of the purchase application data has stalled out, and if this didn’t happen, we would be having a different conversation about the housing market today.

Nov. 9 is a critical date because that’s when the housing market turned. Since that date, the purchase application data, after making some holiday adjustments, has had 18 positive and 11 negative prints. Year to date, we have had 11 positive and 11 negative prints. 

The growth we saw from Nov. 9 to February was long enough to give us the only big existing home sales print we’ve had this year. In fact, after that, not much has been happening, so the sale ranges should stay between 4 million and 4.6 million this year. However, if we get more weakness in purchase apps, there is a chance that this data line goes below 4 million.

Existing home sales are coming up, but I don’t expect any big surprises in this week’s report. We cannot break over 4.6 million this year unless we get a long string of positive purchase application data, which would require lower mortgage rates. Last year, when mortgage rates fell from 7.37% to 5.99% for a few months, we had a string of positive purchase application data that facilitated that big home sales print. Imagine what the housing market would look like if rates stayed between 5.5%-6% for a year.

Weekly housing inventory

This year’s housing inventory theme has been a walking dead musical chorus of a zombie trying to escape a grave. Slow and steady and late! It took the longest time ever recorded in U.S. history to find the seasonal inventory bottom, which occurred on April 14, and it’s been a slow rise since then. 

But, it’s still a rise! A normal housing market always has a spring inventory increase and then inventory fades in the fall and winter. While I wanted to see more inventory growth this year, I will take what I can.

  • Weekly inventory change (June 9-16): Inventory rose from 443,006 to 451,047
  • Same week last year (June 10-17): Inventory rose from 392,792 to 415,582
  • The inventory bottom for 2022 was 240,194
  • The peak for 2023 so far is 472,680
  • For context, active listings for this week in 2015 were 1,173,793


As you can see in the chart below, the inventory growth has been so slow that we are on the verge of showing some negative year-over-year inventory data. This happens with purchase application data being flat year to date. Of course, if we get some weakness in demand, then days on the market can grow and allow inventory to accumulate.


New listings data is another big story with housing inventory. Since the second half of 2022, it has been trending at all-time lows This trend has continued all year long, so we have limited new housing to work with.

Below are some numbers to compare the new listings data in recent years. As you can see, last year we were showing some year-over-year growth, but that’s not the case this year.

  • 2023: 63,293
  • 2022: 89,166
  • 2021: 82,815


We only have a few weeks left before we will see the traditional new listings data decline and only a few months left before we see the traditional active listing supply decline. This week we will get the NAR existing home sales report, which will update that inventory data line, but total inventory levels are still historically low

NAR total Inventory levels:

  • Historically inventory is between 2-2.5 million
  • The peak in 2007 was a bit over 4 million
  • Currently we’re at 1.04 million


The 10-year yield and mortgage rates

We just had a surprisingly boring week with mortgage rates, considering we also had the CPI report and the Fed meeting. Not much happened last week with mortgage rates, as they stayed in a very tight range between 6.94%-6.98%.

However, the bond market had some exciting action that I should explain. First, the bond market didn’t react much to the CPI report; I wrote about the report itself here, which still shows the downtrend in the growth rate of inflation.

However, as I have noted in previous weekly tracker articles, we are having some tricky bond auction events since the debt ceiling action, which moved the markets last week. The market didn’t react too much to the Fed meeting, something I talked about on this podcast. With all those events happening last week, the chart below showed how the 10-year yield acted.

In my 2023 forecast, I wrote that if the economy stays firm, the 10-year yield range should be between 3.21% and 4.25%, equating to mortgage rates between 5.75% and 7.25%. As long as jobless claims trend below 323,000 on the four-week moving average., the labor market is staying firm, which means the economy is staying firm.

I have also stressed that the 10-year level between 3.37% and 3.42% would be hard to break lower. I call it the Gandalf line in the sand: You shall not pass.” Yes, it might be corny, but I believed this level would be difficult to break under, and Gandalf had the right line for this bond market call.

So far in 2023, that line has held up, as the red line in the chart below shows. Mortgage rates have been in the range of 5.99%-7.14%. However, we do have some issues in the mortgage market.

Since the banking crisis started, the spreads between the 10-year yield and 30-year fixed mortgage rates have gotten worse, keeping mortgage rates higher than usual. As shown below, spreads made a noticeable turn when the banking crisis drama started and haven’t returned to the pre-drama trend. It will be a big positive for the housing market when this data line gets back to normal. However, until then, this has been a negative for the U.S. economy.


Another aspect of my 2023 forecast is that if jobless claims break over 323,000 on the four-week moving average, the 10-year yield could break under 3.21% and head toward 2.73%. Last week we didn’t have much movement here. However, as we can see below, the labor market, while still very healthy right now, isn’t as tight as it used to be.

From the St. Louis Fed: Initial claims for unemployment insurance benefits were little changed in the week ended June 10, at 262,000. The four-week moving average increased to 246,750

The week ahead: More housing data coming!

This week we have a series of housing data being released: Builder’s confidence, housing starts and the existing home sales report. Federal Reserve Chairmen Powell will also testify to Congress this week, which may produce fireworks. Of course, I am always mindful of the jobless claims data to see if we can spot more cracks in the labor market.

For housing starts, we want to see more completion of apartments because the best way to deal with inflation is always adding more supply, and we have a lot of 5 units under construction soon This is very key because without rent inflation taking off again, it’s impossible ever to have a repeat of the 1970s-style  inflation.

So, let’s hope for some better housing completion data this week! The best news for mortgage rates is less inflation and the best way to deal with that is more supply.   



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Let’s face it—property management fees aren’t cheap. While you may need to hire a property manager if you’re investing out of state or are unable to self-manage your property, these costs can quickly eat into your profits if you’re not careful. How can you ensure that you’re getting high-quality services for a fair price and keep your overhead under control?

Welcome back to another Rookie Reply! If you’re struggling to pull the trigger on hiring a property management company, we understand why you might be hesitant. Fortunately, Ashley and Tony are here to shed some light on the topic and share their own experiences with property management companies. They also talk about insuring properties during the rehab phase, as well as buying pre-foreclosed properties. Finally, they discuss balloon payments—what they are, how to use them to your advantage, and when it may be risky to get a loan that has them!

Ashley:
This is Real Estate Rookie, episode 296.

Tony:
The property management company owned their maintenance company. You don’t want to spend time trying to call four different plumbers to get a quote on how to replace a wax seal. But when we did search for other prices, the property manager’s rates were typically more expensive because you got to think too if they’re only charging you $100 per unit, that’s not a significant amount of money.

Ashley:
That’s because you’re so used to the short-term rental. [inaudible 00:00:28] the 30%.

Tony:
Yeah.

Ashley:
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’ll bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And we are back today with another Rookie Reply episode where we’re going to be answering four questions from folks that are part of our Rookie audience. And look, guys, if you want to get one of your questions answered, head over to biggerpockets.com/reply, and us and our team will see those questions there and we’ll pick out the good ones to share on the show here.

Ashley:
And I go on to a tangent about property management fees and things you need to know about how much you could actually end up paying for property management. Just because the fee is 8%, 10%, that usually does not mean that that’s what you’re going to be paying in property management, so very important when you’re doing that deal analysis that you’re actually reporting more than whatever the percentage is because there’s always going to be these other fees that are baked in.

Tony:
Yeah. We also go on talk about what a balloon payment is and how you can strategically use that within your real estate investing strategy. We talk about how to ensure property when it’s in the rehab phase, and then we talk a little bit about buying pre-foreclosures, which honestly, some people make their entire real estate portfolio based strictly on that strategy of buying pre-foreclosure. Lots of really good information into today’s episode.
But before we get into the questions, I just want to give a shout-out to someone that left us a five star review on Apple Podcast. And listen guys, it’s literally two minutes of your life, if you haven’t taken that time yet, please do leave us a review on Apple Podcast or Spotify. The more reviews we get, the more folks we can reach. And the more folks we can reach, the more lives we can change, which is what we love doing here at the Rookie Podcast.
But today’s review comes from someone by the username of We Are Notes. Not sure what that means. No, but this person says… The title of the review says you’re saturating my sponge. That’s got to be one of the funniest titles I’ve seen. But this person says, “I’m new to real estate investing. Haven’t secured my first deal yet, but hopefully will this year and have learned so,” in capital letters, “so much from your podcast. The information is concise and relevant, easy to listen to and understand. Thanks so much. Keep up the great work.” Ash, how does it feel to know that we’re out there saturating sponges?

Ashley:
I’m going to start using that all the time now. Well, thank you guys so much. We really appreciate the reviews. And it makes our days. And Tony’s happy because then I don’t get crabby on the podcast and we can have a great show reading your wonderful reviews. Thank you guys so much.

Tony:
All right, so our first question today comes from Blake Echobarger. And Blake’s question is, “How do you go about ensuring your newly acquired properties while in the rehab phase of the BRRRR process? I’m about to purchase my first BRRRR and my State Farm agent says they can’t insure a property that is not inhabited. It will only ensure it when the rehab is done and a tenant is in place. Is that normal or is that just a State Farm thing? Are there insurance companies that specialize in some sort of interim property insurance coverage? Thanks for any ideas.” Ash, I know we definitely get insurance on our rental properties even during the rehab phase, but what is it like for you? I know you BRRRR’ed a lot of properties out in New York.

Ashley:
Yeah, we do get insurance on them during that rehab phase that the… A contractor could slip and fall, so you want some liability insurance on it there. The place could start on fire while it’s being rehabbed; so many scenarios to happen. And you do want that property insured, especially if you are using a hard money lender. You have to pay back if you are doing any financing, they’re going to require you to have insurance on the property.
As far as your State Farm agent, I highly recommend going to an insurance broker who actually works with a whole bunch of different companies. If you go to a State Farm agent, they can only quote you insurance for State Farm, but if you go to… Maybe it’s their last name agency, they’re usually a broker if they’re not affiliated with a brand name of insurance, and they’ll be able to take and they’ll be able to quote out to you.
The insurance company that I usually use here in New York is Dryden Mutual for rehab. They’ll go through and they will put insurance on it. And then as soon as the rehab is done, my insurance broker will go out and actually re-quote the insurance to Dryden and to other companies when it’s ready to be rented and the tenant is in place. We’ll do that second piece of insurance. And usually it becomes cheaper once the rehab is actually done on the property. Tony, what about you? Do you find that it’s usually more expensive to have insurance on it during the rehab process?

Tony:
Yeah, the rehab insurance policy is definitely more expensive because there’s more risk to the insurance company. But much like you, Ashley, we go with a broker here locally and she usually shops it around for us. And honestly, we usually get our policies back within a day. We’ll send her, “Hey, we just got this flip in our contract. Can you let us know what the cost will be?” And before the day is over, she has a few options for us and says, “Hey, I think this option is the best for you guys.”
And then once we sell, for us, it’s usually our flips, once we sell the flips, we will pay for that year policy upfront. And then say we only end up using four or five months of it, we’ll get a refund for whatever that balance is when we sell that property. Yeah, Blake, I’d say lots of insurance companies out there will lend… Or not lend, but we’ll ensure properties that are in the rehab phase, I think it’s just a matter of getting a wider, I don’t know, I guess a wider range of options than just that one State Farm office.

Ashley:
Yeah. And you want an agent, like Tony said, who is going to get you a quote on a pretty quick turnaround where you can just email them the information on the property. But you also want an agent that’s knowledgeable in what you’re doing too, so asking them, “How many other investors do you insurance for?” Making sure that they are asking you questions about the property. You don’t want an agent where you’re just sending the address, and they’re like, “Okay, here’s a quote.” Well, did they ask you what’s the heat source? Is there a wood burning stove? Because that could also increase your insurance policy. But if the insurance company doesn’t know that there’s a wood burning stove in it and then the wood burning stove causes the fire, they could say, “No, you never notified us there was a wood burning stove. We’re not insuring the property,” and now you’re out of luck.
Find an agent, vet them as to someone who is going to ask you those kinds of questions as to what are different things about the property? Because I’ve run into the scenario too where I’ve went and I’ve put an offer on a property, I got my insurance quote, everything is great, and then after you close on the property, the insurance company would send out an inspector to do an exterior inspection of the property. And sometimes they would bring back things and say, “Actually, we’re not going to insure this property because it’s too close to the house next to it. And our insurance company doesn’t do houses that are similar to row houses,” in a sense. You’re frantic; they’re canceling your insurance. You have to go and find another insurance policy, and then maybe it’s way higher than what you actually put into your numbers. Be very cautious of that. Make sure you are giving your broker, the agent, the insurance company, all of the information that you can so there are no surprises like that.

Tony:
And, Ash, you bring up a really good point. And this is probably the topic of an entire episode, we should probably get an insurance broker on an episode and just break down, hey, what are some of the mistakes that you see rookie investors making? Because I was at a conference this past a couple months ago and there was a guy on stage who was talking about liability as it relates to short-term rentals. And he said most people in the short-term rental industry are underinsured. And he was like, “They don’t take the time to read through their insurance policy and recognize all of the risks that they’re actually exposed to just by all the things that could naturally happen at a short term rental.”
I think one piece of advice to all of our rookies that are listening is take the time to read through your insurance policy and really understand what’s included, what’s not included so you can understand where you might want to try and mitigate your risk. For example, this guy that was on stage says that he doesn’t like having any type of large rugs inside of short-term rentals because he’s seen so many policies get called when a guest trips over a rug, their toe catches the edge of a rug and they trip and fall, and that’s not usually covered under your insurance policy. There was just so many weird stories like that where he’s like, “These are things that have happened at a property, but they’re not covered under most traditional insurance policies.” Just something for people to think about and understand, it’s like what is actually included in their policies.

Ashley:
That just reminded me of not only insurance but also when I went furniture shopping, we were telling the salesman it’s for a short term rental and things like that. And when we’re cashing out, he’s like, “We can’t provide you with the warranty coverage because this is for a short term rental.” And we’re like, “What?” And he’s like, “Yeah, we don’t provide warranty for that unless it’s for your own personal use in your home.” From then on, we learned to keep our mouth shut. But it’s just some of those things you don’t really think about that happen.
Let’s go onto our next question from Ari Hader. “What is a balloon loan? Do I pay only interest every month and pay off the entire principle after an agreed amount of time, like after five years? What’s so good in it?” Tony, have you ever done a balloon loan?

Tony:
Yeah, we definitely have. Ari, it’s really, it’s a balloon payment. The loan is a typical loan like anything else, but you have what’s called the balloon payment. And I can give you a few different examples. When I bought my very first real estate investment, I had an 18 month… Or I think, actually, it was a 12-month loan from a bank to fund the purchase and the construction, and then I had a balloon payment at the 13th month that was the principle plus any interest it had accrued during that timeframe.
The way that a balloon payment works is during the life of the loan… And you can set it up in multiple ways, but the way that this specific loan was set up was that I was making interest only payments on the balance during that 12-month period. In a usual loan, like when you have a car payment or a mortgage, your payment goes both towards your principal and your interest payments. As you make payments on a car payment or a mortgage, a percentage of it goes towards your interest, which is paying back the bank, but then another percentage grows towards paying down your principal balance. Over time, if you look at month one versus month 12, after a year you’ve paid down some portion of your principal balance. And a lot of these loans that have loan payments or that have these interest only structures, during those 12 months, you’re paying interest so your principal never gets decreased. Month one, month 12, your principal balance is the exact same thing.
And then at the end of that 12 months, you have to repay the principal balance. And you have two ways of doing that. Either you can come out of pocket, so you for whatever reason have the cash that’s needed to pay back that loan in its entirety, or what most people do is they refinance and get a long, long-term fixed debt to pay off that short-term note. That’s what we did.
The benefit that we saw, Ari, was that it was significantly less expensive. It was an inexpensive loan during those 12 months because you were only paying on the interest, whereas most payments are mortgage and interest, so you’re paying less during that time and it gives you enough time to set up your refinance, like your long-term debt and get that refinance in place. That’s how it’s worked for us. Ash, how how’s it been for you and your business?

Ashley:
Yeah, it’s great for the holding cost. During that rehab period or you’re fixing up the property before you actually go and refinance, just paying that interest only payment is lower because you’re just paying the interest and not interest and principle. You’re not paying down any of the principle at the time so you’re not really building any more equity into it by principle pay down.
One example of the first time I ever did a balloon payment was a six unit I was purchasing. It was my first time doing seller financing. We set it up for one year and we did interest only payments at 7% and then the balloon payment at the year. It kept my payments really low during that year while I did some updates to the property, and then I went and refinanced with another bank and I paid off the principal to the seller at the end of the year.
I think it’s a really great tactic for negotiating a deal, getting creative when you’re offering that seller financing as to, okay, you want seller financing, but this person doesn’t want to hold it for a long time. What you can do is even if you’re not doing just insurance, only if you’re doing principal and interest payments, you could still amortize it over 30 years so that you’re still getting a really low payment, and then just have the balloon payment maybe set for year two or year three.
I did put together this deal once for this guy where it was a balloon payment in year five and a balloon payment in year seven, and then the total amount due in year 10, I think it was. I think it was $800,000, $200,000 down upfront. And then in year five, it was another $50,000, year seven, another $50,000. And obviously the amount you’re paying on the interest, once that is paid down, is going to change when you’re making these big payments to pay off part of the principle.
That’s something else you can get creative with is maybe it’s somebody who wants to retire, they don’t want to take the lump sum now, but they do need more than what the principal and interest payments would be. Maybe you can set it up that the deal still works where in two years, you’d be able to give a little bit of a big lump sum and then later on another big lump sum. So many different ways to get creative with doing balloon payments in a loan.

Tony:
And, Ash, you should bring up such a good point that there really is no right or wrong way to set them up. I’d say the majority of balloon payment type situation that you see, especially in the residential space, it’s usually using some kind of interest only type setup, but you can really do it however you want. And you see in the commercial space when you’re looking at multifamily or whatever it is, a lot of those, they’ll go out and get bridge debt, but it’ll be for three years. And they’ll have three years of interest only, and then they’ve got this big balloon payment there. The terms can vary. Like how Ashley, said she had multiple balloon payments throughout the life of her loan, so there really is no right or wrong way to do that.
But as we were talking about this and how the balloon payments can come into play, you also want to make sure that you don’t put yourself into a, I guess, a tricky situation. Part of what caused the financial crisis of 2008 was that you had all these people on these adjustable rate mortgages that had these big balloon payments. And most people, what they were doing was they were just refinancing because property values were continuing to go up. But when you saw these property values start to reverse, people didn’t have the equity to refinance, and then their payments skyrocketed and they couldn’t afford their loans anymore. You just want to make sure that you’re still being conservative, I guess, when you’re getting into these balloon payments because you could get into a situation where you might end up holding the bag and not being able to afford it.
And I literally just read something, I think it was yesterday morning, about office space and how office space is going to get hit super hard over the next couple of years because you have all of these office spaces that were on these short term notes where they had maybe 24, 36, 5 years, and now those notes are coming due. And because the valuation of office spaces based on occupancy to a large extent, and occupancies are down across the board for office, you’re seeing valuations go down. Now people in these office buildings that have these notes are going to be in a really tough situation where they can’t necessarily refinance because the value of the property today is significantly lower than it was before. You still just want to be conservative even as you’re moving into these balloon short-term debt type situations.

Ashley:
That’s a great point because a lot of… We talk a ton on here about residential loans, but commercial loans, a lot of them do have a balloon payment. You may be amortizing the life of the loan over 15, 20 years, but the loan is only fixed for five years, and it could actually be a balloon payment. Another investor that I help out, I’m helping him refinance two properties right now where it was a five year fixed, and he has to refinance out of that loan after the five years; it doesn’t even transfer into a variable rate. He’s doing that right now. But if you were to go and you’re like, “I’m going to buy as much as I can right now,” and you’re putting all of these properties that you’re purchasing on these five year loans, in five years, all those loans are going to be due at the exact same time and you’re going to have to go and refinance all of them. And then what if rates have skyrocketed? And now every property you have, these payments are going to be huge.
I saw a lot of banks this past year offering on the commercial side five year, seven year and even 10 years sometimes. I think, as an investor, you have to be strategic as to when these loans are coming due because there’s all these different things that could come into play and you don’t want to be stuck with all of these loans that you have to pay off with not a lot of options to refinance, whether it’s because your debt to income is too high, whether you lost your W2 job and it’s hard for you to go and refinance, whether interest rates have gone up so high or lending requirements have gotten a lot stricter or you’re going through vacancies at one of your properties where nobody wants to lend on it or different things like that. Be cautious on the commercial side.
It did make me think of one benefit of a balloon payment, though, where I had worked with this investor on this deal where the guy didn’t have enough money for the down payment to purchase the property so how he set it up was he went to the bank, he did his loan, but then he did a second loan on the property that was seller financing. It ended up being about $80,000, and then I think maybe he brought $50,000 of his own for the down payment. And he did interest only payments for, I think it was seven years, maybe. And then there was going to be the balloon payment at the end of the seven years to the seller. The benefit of this, this was getting the deal done for the seller, so then moving forward he was still getting a big chunk of change from the mortgage the person was getting and then also that $50,000 that they were bringing themselves. And then he was seller financing that $80,000 and getting monthly payments over the course of seven years, and then the balloon payment was made at the end of seven years.
The bank that had the first loan on it allowed this to happen, for him to have a second lien on the property because the numbers made sense and the monthly payment was so low that the cash flow of the property could easily cover the mortgage payment to the bank and the payment to the seller financing. This is something you don’t usually see on the residential side where the bank will let you go and get a second lien or seller finance the down payment or borrow money for the down payment even unless it’s a gift from a family member or somebody else going onto the deed. That is definitely one tool, if you are going onto the commercial side of lending, is using that seller financing, doing a balloon payment so you’re able to stabilize that property, have enough time, and you’ll be able to pay back the seller financing whenever the bloom payment term is.

Tony:
That’s part of what makes real estate investing so cool is that it allows for endless creativity in terms of how to get a deal done. And the more conversations we have with other investors, the more structures and levers and creativity that we see. And as long as you and that other person on the other end of that that deal are happy and you’re not breaking any laws, obviously, then it works.
Just one last thing, Ash, that came to mind as you were mentioning about not having all of your debt come due with the same exact time and you’re on these short term notes, the same holds true if you’re a long-term rental landlord. If you can try and stagger your vacancies so that they’re not all happening at the same time, you’re also going to make your life easier on yourself.
When I worked this leasing company here locally for a brief time after college and I would see… They would give us sheets for each unit that was vacant and said, “If the tenant signs a six-month lease, here’s what the rates are per month. If they signed a seven-month lease, here’s what it is. Here’s an eight-month lease and here’s what it is.” And you would think that a 10-month lease would be cheaper than a six-month lease because the landlord is keeping you in the unit for four months longer, but you would see is that sometimes a six-month lease on that unit would be $400 or $500 more than the 10-month lease. And when I asked why, I said, “Why are we charging more on this longer term lease than we are on the shorter term lease?” And their reasoning was, “We have too many units that are coming due in that sixth month timeframe so we want to try and reduce the number of people that choose that option and push them out three or four months so that we can stagger our vacancies.” I just thought it was a really interesting thing and it just came to mind when you mentioned the whole staggering your balloon payments also.

Ashley:
Yeah, that is interesting because here in Buffalo, everybody tries to make the leases end in the spring because nobody moves in the winter. That happens where we’ll offer you instead of a 12 lease, a 15-month lease and give you a little bit of a discount if you sign so that it ends up your lease ends in spring or early summer because that’s when most people tend to move is in the spring. And nobody wants to have their lease end in the winter because if somebody does move out, it’s a lot harder to fill in the winter.

Tony:
Right. Just something that came to mind. Interesting thoughts. All right, so this question comes from Bill Hall. And Bill says, “I have a house I may be putting an offer in on. It’s a pre-foreclosure. The homeowner is $19,000 behind. My question is when calculating this bid, do I put this number in with the rest of my expenses?” I’ve never purchased a pre-foreclosure, but let me just explain, and then, Ash, I’ll kick it over to you.
When a home buyer purchases a home and they get a mortgage from a bank, they’re entering into a contract with that bank to say, “I’m going to pay you X dollars per month for the next 15, 20, 25, 30 years.” And when a home buyer defaults or stops making payments, the bank then starts the foreclosure process, and eventually, the bank might end up kicking that person out of the home, retaking possession of the property, and then they’ll sell that property on the market typically for a loss.
But there are multiple steps before the homeowner actually gets kicked out. And pre-foreclosure is the step right before the bank starts to start all the legal process of getting you kicked out of the home where sometimes people try and sell to avoid that foreclosure hitting their record. And it’s a win for the bank because if they can avoid a short sale situation where they’re selling their property at a loss, then the bank obviously gets to preserve themselves in that situation as well. That’s just what the pre-foreclosure process is. But Ash, I know you said you purchased at least one property that was in the pre-foreclosure process, so I guess give us that story. And then did you have to bring that person’s payments due, current before you were able to purchase the property?

Ashley:
Yeah, so we actually ended up doing a subject to deal on this property. If you guys go back and listen to Pace Morebe’s episode that we had him on, we talked about this a little bit. And then he goes obviously advanced into subject to, what that is. But that’s basically when you’re going to take over the person’s loan payments. The loan will stay in their name, the property will be deeded into your name, and now you own the house and you’re going to be paying their mortgage on their behalf. But you can still buy a pre-foreclosure without doing subject to deals where they’re taking over their mortgage.
In this scenario, the homeowner is $19,000 behind. And the question is, “When calculating this bid, do I put this number in with the rest of my expenses?” If you are going to purchase this property in cash, no matter what, you will have to pay that $19,000, but you’ll also have to pay the balance of whatever is due on the loan too. Just if you were purchasing from somebody who was all caught up on their mortgage, didn’t have any back payments and they owed $100,000 on their house when you bought their house from them, that $100,000 would have to be paid off. In this scenario, it’s just they are $19,000 behind. Maybe they owe another $50,000. You would have to pay that full $79,000. It wouldn’t matter if it was past due or if it’s due in the future, that whole lien, that whole mortgage would have to be paid off no matter what.
The first question would be is how are you purchasing this property? Are you purchasing in cash? Are you using a hard money lender? Are you getting bank financing? Whatever that may be, you got to make sure that you’re accounting that you are going to have to put an offer in that covers that $19,000 and then whatever the remainder balance is on the loan.
You can do what is called a short sale where you actually negotiate with the bank as to what a purchase price could be so that the bank doesn’t have to do the full foreclosure; they can recoup some of their costs. We actually tried to do this first with the bank that we ended up getting the subject to deal on and paying the back mortgage on it. We tried to do this with the bank, but they weren’t very willing to negotiate much. And then it ended up just being doing the subject to and just taking over the mortgage payments was a lot better deal for us. And we ended up paying in cash the money that was owed and got the person current on the mortgage. And then every month, we continued to make the mortgage payment on their behalf. This person also had back taxes due too, so we had to pay the back taxes. If you’re going and you’re getting financing on a pre-foreclosure and they have $19,000 that’s that’s past due, if you’re putting 20% down and then getting a loan, part of that 20%, part of the loan would be towards that purchase price.
When you’re making your offer, that $19,000 would be included. You’re not making your offer and then they accept it and you go to close and you’re paying the purchase price plus the $19,000 they owe, you want that $19,000 would be wrapped into whatever you are offering to purchase the property for. That could be part of the loan if you’re going to purchase the property with a loan.
But yes, you’re definitely going to calculate this. Most of the time, if you’re not doing a short sale where you’re negotiating with the bank, if you can go on the county records or PropStream or any other paid software that gives you property records, you can get an idea of what the mortgage balance is, if there is anything past due, what the… Usually you can’t get a very super accurate amount, it’s more of an estimate. Based on the term of the loans they got, what their interest rate was, this is what we think is owed on the loan currently. But you can gauge and see, okay, I’m interested in this property; I know it’s going into pre foreclosure. But then you look and see, okay, this property is only worth $200,000, but yet they owe $250,000 on it and they’re behind another $10,000 on it, or something like that. That can gauge, okay, I’m going to have to do a short sale because it’s not worth paying that much more for the property because they have these liens that need to be paid off. But if the numbers work and you’re still getting a great deal, then yeah, go ahead, run the numbers and make sure you’re calculating any other costs.
And if it is going into pre-foreclosure, make sure you’re looking to see if there’s other liens or judgements on the property too like the back taxes. They can’t afford their mortgage payment. Are they staying up on their taxes too? Very important to look at.

Tony:
Great breakdown, Ashley. And again, there’s so many nuances to real estate investing. I feel like that’s the theme of today’s show and knowing, okay, should I try and just do this subject to? Should I let it go in a foreclosure and then try and pick it up on the backend?
The second deal that I ever bought was a short sale. And just one caution for folks that are listening is be prepared for a short sale to take a long time. My deal, that second deal that I bought it, I think it was months and months and months in between when I submitted the offer and when they actually came back and said yes and even more months after that when we actually closed because there was an initial buyer that was lined up, that buyer backed out. Then the bank came to me and said, “Hey, you were our second offer in line. Do you want to take it?” And then the negotiation process took forever because just because the seller agrees to an amount during a short sale, the bank still then has to go back and approve that amount as well, and that can take forever. You can get a really fantastic deal when you buy as a short sale, but just be prepared that it could be a lot of song and dance before you actually get to the finish line on that one.

Ashley:
Okay, so our next question is from Kyle Consider. “For those of you who own out of town rentals, what do you typically pay for management of the property?” Tony, you had your Louisiana properties. What was the property management fee you paid for those? Because those were out of state for you.

Tony:
It was honestly pretty expensive. I think they had it at 10% of rents but with a cap of $100. All the units that I had out there, I was only paying $100 per unit. And the way that I found my short-term rental company was I literally just went on Google and I typed in property management companies, Shreveport, Louisiana; a bunch popped up. I called a bunch, and I had a list of questions that I wanted to ask every single person. I’m pretty sure those questions came from just the BiggerPockets forums. I just searched the forms to find what questions to ask a property manager. And some just never got back to me, so that’s obviously a sign. There were a couple that did get back to me that I had phone conversations with.
And then when I went to go close on the property when I flew out to Louisiana to actually close, the one that I liked the most, I just asked him for a cup of coffee. And he sent someone from his team to meet with me, and they gave me a lot of insights about the local economy, about the local city, about what works well when you’re rehabbing a property to get the best rent values. And I was very open and honest with them that I was a new investor but I was looking for someone to grow with. And they were also new and growing at the time so they were happy with that. But yeah, it was a really cool process, but it was just leveraging BiggerPockets and then going out there and meeting people in person that helped me find the right one.

Ashley:
Yeah. I always self-manage my properties. And then I did hire a property management company three years ago, and that was my first experience with a property management company. And their fee, because it was me and another investor, and between the two of us bringing our properties to them, we got a bulk discount. I believe it was 5.5% For the first year. We just did a one-year contract with them.

Tony:
That’s pretty good. 5.5%?

Ashley:
Yeah. And then it was $25 per a building a month. And that covered emergency services. If there was a plumbing issue on the weekend, they didn’t charge an overtime rate or anything like that, just every month, every building. The one 40 unit apartment complex has five buildings, so we got charged $25 per unit every month for that property, then a duplex was $25 extra.
Then there was a leasing fee of one month’s rent. And then the maintenance fee, I can’t remember what it was when we first started out, but I believe it was $40 or maybe $45 an hour for any maintenance performed. And then there was a couple other… The onboarding fees can actually add up to a lot too, so make sure that you are asking what every single fee is from the day you start to the day you’re offboarding, that you leave the property management company.
I recently decided to leave my property management company and do everything in-house. I hired my own maintenance people, I hired my own property manager. But I did talk with this other property management company. And so I just pulled up their email, and I’ll use them as an examples, go through some of their rates too, but with that first property management company I used after the first year, the second year, they did increase it to 6.5%, I believe, the management fee. And then I think the maintenance increased to $50 an hour maybe for maintenance. And then I don’t think there was any other changes in any other fees.
But this other property management, just to compare for the Buffalo area, what they had offered me was that their property management fee is 10%, which is the same if you don’t have… If you don’t have a lot of properties, if you’re not getting the bulk rate, the previous property management company charged 10% to other people. The loading fee is $895 per a unit. That includes advertising, showings, tenant screenings, and lease document generation. And then maintenance services are billed at $52.50 per an hour with a one hour minimum and billed in 15 minute increments after the first hour. That was just the basics of their fee there.
I think it definitely varies from market to market. And I 100% think that the cheapest way is not always the best way to go. Just like using contractors, the cheapest is not always the best. I often wonder, okay, so for my properties, I was paying this very discounted percentage where other investors were paying a lot higher percentage, that 10% to 12%, obviously their units were worth more to the company because they were getting paid so much more for that, so I wonder if that does reflect on some kind of service. But maybe not at all, but just some of those things to think about.
And then also the maintenance services as to what maintenance do they actually do in-house? One thing that I typically saw a lot was a maintenance tech going out, charging for the hour or whatever to assess a situation, and then it would be sent to an actual plumber or things like that. I’m getting charged just for somebody to look at it and then getting charged for the actual person to come and fix it. For what I do now, doing everything in-house is we have metrics set. If a maintenance request comes in and it is a plumbing issue that is not a toilet running or a faucet leaking but it’s anything other than very simple plumbing task, the work order gets emailed directly to our plumbing vendor, and they schedule, they set it up, and then they go. I think it’s very important to understand how their systems and processes work in all aspects too, not even just maintenance, so that you’re not getting billed for all these little things because they have this whole process.
Another thing too that came up was before we left the property management company, we started hiring our own people to do turnovers in-house because they’re just getting so costly with the property management company, with them doing it. And after we did a turnover in-house, they sent a maintenance tech to inspect the property. And we were billed for him to come and inspect it and make sure it’s rent ready, but we had already hired our own contractors to make it rent ready. And it was just another fee that they were charging us to make money. But so just know every little fee that can come out of it too. And sorry, I know I keep going on and on.

Tony:
No, no, keep going.

Ashley:
Another thing to is any reoccurring inspections. I think maybe year two into the property management company, they sent out a notice to all owners that we are now requiring everyone to have their property inspected, I think it was semi-annually. And we’ll send a tech out. It’s going to cost $70 for the inspection. We’ll write up preventative maintenance things, which in general sounds like a great idea. For the 40 unit apartment complexes, really wasn’t a great idea. They went through, and these apartments are pretty well done, everything like that, and would go through and then give us… We’d be charged $70 per unit, which ended up being a lot when you have a whole bunch of units. And then also, they were saying, “Okay, these smoke detectors need to be placed, this GFI needs to be placed,” all things that are safety issues. But the problem was they were charging us rates of… We could go to Lowe’s and buy that. When you’re replacing 20 smoke detectors, you go to the Lowe’s, the Home Depot bid room and you bid out those 20 smoke detectors get way it cheaper.
Understanding the material costs of when you are being charged materials from your property management company, do they get discounts on that? Different things like that. Really, there’s a lot I could keep going on and on about that I’ve learned over the years about the billing and the fees and the costs that all add up and are associated with property management companies. And if they do a good job, it is 100% worth it.

Tony:
Yeah, Ash, you bring up so many good points. But that’s honestly one of the reasons why long-term rentals at times can be difficult to be profitable is because of the fees that rack up from your property managers. I actually pulled up one of my PM agreements. I was right, it was $100 per month to manage the property. The lease up fee was cheaper than what you said. Ours was only $350. And if I remember correctly, this unit was renting out for $1,200 or $1,300 per month, so a little more than 1/3rd of one month’s rent.
But one of the other things that happened was the property management company owned their maintenance company as well. And they always gave us the option of, “Hey, here’s a quote from us. If you want to get outside quotes, you’re more than welcome to. But you’re busy working, you don’t want to spend time trying to call four different plumbers to get a quote on how to replace a wax seal so just say, “Hey, you take care of it yourself.”” But what we found was that when we did try and search for other prices, the property manager’s rates were typically more expensive, but it was the convenience that allowed them to scale that up. Because you got to think too, if they’re only charging you $100 per unit, that’s not a significant amount of money.

Ashley:
That’s because you’re so used to the short term [inaudible 00:42:21] the 30%.

Tony:
Yeah, 30%. But just think, if you’re trying to build a business and each property that you bring on is only $100 per unit, you need a lot for that to be a successful business that’s actually going to pay the bills so they do have to find ways to make that work for them financially. And the other thing that came to mind, I’ve looked it up in here as well, my property manager made us have what they called an owner’s account, which was basically a holdback or a reserve account of $500. And that $500 was to cover any expenses, just to make sure there was always money in the account to cover any expenses that came up. If they had to, whatever, replace a smoke detector or whatever maintenance repairs came up, they didn’t want to have to front that money. And their solution for that was making sure that there was always at least $500 in this owner’s account.
And we had two options to put that money in there. We could either just write a check, $500, put in there at once, or they would deduct $50 per month until they got to that $500. Think about if you go that route, now, not only are you paying $100 per month for your property management fee, but now you’re also tacking on an additional $50 per month for 10 months, so now you’re really paying $150 per month for your property management. And say you were only netting or say you only have a couple hundred dollars per month in profits anyway, and that $50 makes a big difference over the course of a year. Definitely read through your PM agreements and get a really solid understanding of what the different costs are.

Ashley:
And you eventually get that $500 back. When you leave the property management company, they give you those reserve funds back. You got to think of it as a savings account that’s not generating any interest for you.

Tony:
Yeah.

Ashley:
But that’s interesting that they let you pay it over a period of time because when we did it, everything had to be paid… That was part of the onboarding fee was that had to be paid upfront. And that is a great thing to bring up, Tony, is to think about that. Okay, you’re purchasing this property, you’ve dumped your money into the down payment maybe to pay your rehab to be done, and maybe you’re strapped on cash. Did you make sure that you’re going to have that reserves for them?
Well, thank you guys so much for some submitting great questions today. As always, you can go to biggerpockets.com/reply, and you can leave us a question. Or you can slide into mine and Tony’s DMs at Wealth from Rentals or at Tony J. Robinson. We will see you guys on Wednesday with a guest.

 

 

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SimpleNexus, a homeownership platform developer for loan officers, borrowers, real estate agents, and settlement agents, announced this week a new integration with Empower, the loan origination system (LOS) from Black Knight.

This bidirectional integration, available to financial institutions, including independent mortgage banks nationwide, enables real-time sharing of loan application data, milestone updates, and documents.

“We are excited about the opportunity this integration creates for us to help even more financial institutions and independent mortgage banks to work more efficiently and deliver seamless customer experiences,” Ben Miller, CEO of SimpleNexus, said. “Our integrations with best-in-class LOS providers like Black Knight make it easy for financial institutions to automate processes that enhance the experience for loan officers, the back office, and borrowers alike.”

Through the integration, loan file data and milestone status updates can be synchronized in both directions. This connection offers borrowers a seamless home buying experience, allowing them to securely capture and upload documents from their Android or iOS phones.

This integration also aims to saves time for loan originators and back office staff by eliminating the need for manual file import into other record-keeping systems.

“Black Knight is continuing to help transform the mortgage industry by providing lenders with advanced technology capabilities to help streamline their operations and enhance the borrower experience,” said Rich Gagliano, president of origination technologies at Black Knight. “We look forward to continuing our collaboration with the SimpleNexus team and supporting their continued growth and success in the industry.”

SimpleNexus, an nCino company, is a developer of mobile-first technology for mortgage lenders. The company’s homeownership platform merges the people, systems, and stages of the mortgage process into an end-to-end solution covering engagement, origination, closing, and business intelligence.

SimpleNexus also assists lenders in managing their teams, staying connected with borrowers and real estate professionals, and delivering returns on investment, including reduced turn times, increased loan application submissions, and more referral business.

This content was generated using AI, and was edited and fact-checked by HousingWire’s editors.



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After a slight decline this week, mortgage rates are expected to stay at their current elevated levels for a while in reaction to the Federal Reserve‘s (Fed) decision to pause its tightening monetary policy in June. In turn, mortgage origination volumes will remain under pressure for the remainder of the year.

The Freddie Mac’s Primary Mortgage Market Survey, which focuses on conventional and conforming loans with a 20% down payment, shows the 30-year fixed rate averaged 6.69% as of June 15, down from last week’s 6.71%. The 30-year was at 5.78% a year ago at this time. 

Other indexes also show rates trading on the sidelines. The 30-year fixed rate for conventional loans was 6.97% at Mortgage News Daily on Thursday morning, down one basis point from the previous day. HousingWire’s Mortgage Rates Center showed Optimal Blue’s 30-year fixed rate for conventional loans at 6.71% on Wednesday, compared to 6.70% the previous day.

“Mortgage rates decreased slightly this week in anticipation of the pause in rate hikes by the Federal Reserve,” Sam Khater, Freddie Mac’s chief economist, said in a statement.  

Officials at the Fed decided in their June’s meeting to maintain rates in the 5% to 5.25% range, following 10 consecutive hikes. Policymakers want to assess how much banks reduced lending levels due to the recent tumult in the sector and evaluate the impact of their rate hikes so far – including in the housing sector. 

Fed Chairman Jerome Powell told journalists that housing, a very interest-sensitive sector, it’s the first place that’s “either held by low rates or is held back by higher rates.”

“We now see housing putting in a bottom and maybe even moving up a little bit. You know, we are watching that situation carefully. I do think we will see rents and house prices filtering into housing services inflation. And I don’t see them coming up quickly. I do see them coming kind of wandering around at a relatively low level now.” 

The Fed indicated the federal funds rate will end the year at the 5.6% level, which opens the door for two rate hikes in 2023. The reason for more rate increases is the disappointingly slow decline in core inflation so far this year. 

According to Powell, “Not a single person on the Committee wrote down a rate cut this year, nor do I think it’s at all likely to be appropriate.” 

Analysts at Goldman Sachs said they had not changed their forecast of one additional hike in July to a peak rate of 5.25-5.5%. 

“The combination of the hawkish surprise in the dots and the hint at an every-other-meeting pace strengthens our confidence that the FOMC will hike in July and makes a possible second hike more likely in November than September, though neither is in our baseline forecast,” the analysts wrote. 

Higher borrowing costs – for a while 

In the housing market, the Fed’s actions mean borrowing is likely to remain expensive for the remainder of the year, according to the Realtor.com economic data analyst Hannah Jones. 

“Both housing supply and demand remain stifled by affordability constraints. Mortgage rates have been on the high end of the 6-7% range since the beginning of June and home prices have made their typical seasonal ascent, though less aggressively than in summers past,” Jones said in a statement. 

According to Jones, the national median listing price fell year-over-year for the first time in the data’s history last week as sellers adjusted their asking prices to attract buyer demand. 

“Despite this annual price decline, homes in many areas are out of the feasible price range for many buyers and still-high interest rates are discouraging homeowners from giving up their current mortgage rate and listing their homes for sale.” 

Industry experts believe mortgage rates will trend down only at the end of the year. 

“As inflation continues to decelerate, economic growth is slowing and the tightening cycle of monetary policy is reaching its apex, which means mortgage rates are expected to decrease later this year and into next,” Khater said. 

Higher rates are impacting mortgage lenders’ production. Analysts at Keefe, Bruyette & Woods wrote in a report, “Mortgage volumes are likely to remain under pressure throughout the rest of 2023, given rates remain in the neighborhood of 7%.” 

“Additionally, it is unclear how much more capacity needs to be removed from the system, although the exit of Wells Fargo from the correspondent channel has been a meaningful positive,” the analyst wrote. “So, while we remain somewhat cautious on the originators, we would acknowledge that the backdrop has improved.”



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​​The Federal Reserve‘s (Fed) interest rate hike pause will give the housing industry a cautious sigh of relief, but observers are already nervous that the rate-induced pain train won’t come to a complete stop for a while longer and volatility will remain.

The Fed’s updated economic projections showed that central bankers forecast that inflation could finish 2023 at 3.2% up from March’s projection at 3.3%; core PCE inflation at 3.9% after stripping out food and fuel prices, an increase from March’s projection of 3.6%; the unemployment rate to rise to 4.1% by the year-end, a drop from the projected 4.5% in March; and real GDP has been revised higher to 1% from March’s projection of 0.4%

Bond yields and inflation moved more from the debt ceiling impasse than normal economic data channels, Logan Mohtashami, lead analyst at HousingWire, said.

“Bond yields and rates started to rise as the debt ceiling was getting closer and closer, and we have had such big bond market auctions to deal with that pushed yields higher, even after a tame inflation report,” Mohtashami said.

Once the bond auctions are done with, the economic data should be impacting the 10-yield Treasury yields, he added.

The 30-year fixed-rate mortgage rates don’t move in tandem with the Fed’s benchmark rate, but instead generally track with the yield on 10-year Treasury bonds. 

Where mortgage rates will go will depend on how the markets react to new economic data, Melissa Cohn, regional vice president of Wlliam Raveis, said.

For instance, the retail sales report and jobless claims this week will be an indication as to which direction the bond market and mortgage rates will move, Cohn noted.

“If those reports continue to show the economy running too hot, the Fed may take action at its next meeting. If the numbers remain too strong, don’t be surprised to see the Fed hike rates again next month,” Cohn said. 

Housing industry wants more than just a pause from Fed 

The housing industry — struggling with low inventory due in large part to homeowners not wanting to give up their low mortgage rates — wants the Fed to not just pump the brakes on raising interest rates. The industry wants a complete stop. There is a possibility that happens, but the “hawkish pause” and plans for two more 25 bps rate hikes isn’t great news for the industry.

Inflation has been moderating but it’s still well above the Fed’s comfort level – increasing the likelihood of the central bank going ahead with further rate hikes. 

The possibility of another hike or two has also increased given the lack of credit crunch the Fed was expecting from the banking sector, Selma Hepp, chief economist at CoreLogic, noted.

Fed officials expect the federal funds rate to be at 5.6% by the year-end, an increase of 50 basis points from March’s projection of 5.1%.

As a result, mortgage rates, while still on a gradual decline, are likely to remain higher through the remainder of the year, Hepp added.

The 30-year fixed mortgage rate rose to 6.97% on Wednesday on Mortgage News Daily, a drop from above 7% in late October but still higher than early January when rates were in the low 6% levels. Rates on the Optimal Blue platform at HousingWire’s Mortgage Rates Center, which covers about 42% of the market, were at 6.71% on Wednesday.

“Mortgage rates have generally increased in the past month, and this has slowed the pace of housing market activity, as potential homebuyers have been very sensitive to any changes in rates this year,” Mortgage Bankers Association’s (MBA’s) SVP and chief economist Mike Fratantoni said. 

The National Association of Realtors (NAR) argues that the Fed shouldn’t consider raising interest rates again given that inflation has decelerated to 4%, and the CPI inflation metric relies heavily on rent data from a year prior. 

“A monetary policy lag time exists between decision and inflation. The rate hikes from earlier months have yet to exert their force at a time when inflation has already decelerated to 4%. There is no need to consider raising interest rates,” Lawrence Yun, NAR’s chief economist, said. 

If the Fed raises interest rates further, buyers’ affordability will be significantly impacted in some markets, Marty Green, principal at mortgage law firm Polunsky Beitel Green, noted.

Affordability has emerged as a challenge for first-time home buyers as home prices remain elevated, mortgage rates more than doubled from 2020 and bidding wars have become prevalent in most markets. 

While the spread between mortgage rates and Treasury rates has been abnormally large as the Fed began tightening its cycle (north of 300 bps), that spread should start to narrow and mortgage rates will trend lower if the Fed continues the pause for more than one meeting, Green said.

Realtor.com‘s chief economist Danielle Hale also expected that the Fed’s revised projections could put some upward pressure on interest rates in the near term. 

In the long term, however, the return of inflation to the 2% target should lead to a gradual decline in interest rates, including mortgage rates.

“[It’ll be] welcome news for home shoppers, many of whom have expressed concern in a recent survey about the impact of high mortgage rates and home prices on their ability to afford to make a home purchase,” Hale said.



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