We only have 2.6 months’ worth of housing inventory in the U.S. after coming off the single biggest home-sales crash year in history. That is where we are today in America. As expected, existing home sales fell from February to March since the previous month’s report was intense.

We have a workable range for 2023 sales in the existing home sales market between 4 million and 4.6 million. If we are trending below 4 million — a possibility with new listing data trending at all-time lows — then we have much weaker demand than people think. Now if we get a few sales prints above 4.6 million, then demand is better than the initial bounce we had earlier in the year.

To get back to the pre-COVID-19 sales range, we need to see existing home sales trend between 4.72 – 5.31 million for at least 12 months. That isn’t happening. We are working from a low bar, and as I have stressed over the years, it’s sporadic post-1996 to have a monthly sales trend below 4 million. In the chart below, with the red lines drawn, you can see how different the sales crash in 2022 was compared to the last two times rates rose and sales fell.

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From NARTotal existing-home sales – completed transactions that include single-family homes, townhomes, condominiums, and co-ops – fell 2.4% from February to a seasonally adjusted annual rate of 4.44 million in March. Year-over-year, sales waned 22.0% (down from 5.69 million in March 2022).

Last year we had a significant sales decline for the existing home sales market, which got worse as the year progressed. When looking at year-over-year data for the rest of the year, we have to remember that the year-over-year sales declines will improve just because the comps will get easier. That will pick up speed toward the second half of 2023 and we could see some positive year-over-year data toward the end of the year. 

NAR: Year-over-year, sales waned 22.0% (down from 5.69 million in March 2022).

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One aspect I didn’t like to see in this report is that the days on market fell and are back to under 30 days. This is the reality of our world: total active listings are still near all-time lows and demand so far has been stable since Nov. 9, 2022.

As we can see in the data below, the days on the market fell back down to 29 days. I am hoping that it doesn’t go lower than this. For some historical context, back in 2011, this data line was 101 days.

NAR: First-time buyers were responsible for 28% of sales in March; Individual investors purchased 17% of homes; All-cash sales accounted for 27% of transactions; Distressed sales represented 1% of sales; Properties typically remained on the market for 29 days.

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When I talk about stabilization in demand since Nov. 9, I am looking at purchase application data since that date, and — excluding some holiday weeks that I don’t put any weight on —we have had 15 positive prints versus six negative prints in that time. So, while the chart below doesn’t look like what we saw in the COVID-19 recovery, it has stabilized.

I put the most weight on this data line from the second week of January to the first week of May. After May, traditionally speaking, total volumes usually fall. Now, post-2020, we have had three straight years of late-in-the-year runs in this data line to mess everything up. However, sticking to my past work, I have seen eight positive prints versus six negative prints this year. So, I wouldn’t call this a booming demand push higher, just a stabilization period using a low bar.

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NAR: Total housing inventory registered at the end of March was 980,000 units, up 1.0% from February and 5.4% from one year ago (930,000). Unsold inventory sits at a 2.6-month supply at the current sales pace, unchanged from February but up from 2.0 months in March 2022.

Total housing inventory, while up year over year, is still near all-time lows, and monthly supply is also up year over year. However, as we all know, housing inventory reached an all-time low in 2022, so you need context when talking about the year-over-year data. As we can see below, from 2000, total active housing inventory rose from 2 million to 2.5 million before we saw the massive stress spike in supply from 2005 to 2007.

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The NAR data looks a bit backward, so if you want more fresh weekly data, I write the Housing Market Tracker every week on Sunday night to give you that information.

One thing higher mortgage rates have done for sure is that home-price growth is cooling down noticeably since the big spike in rates. That growth isn’t cooling as much as I would like, tied to my years 2020-2024 price-growth model for a stable housing market. However, I will take what I can get at this point.

NAR: The median existing-home price for all housing types in March was $375,700, a decline of 0.9% from March 2022 ($379,300). Price climbed slightly in three regions but dropped in the West.

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The most shocking data we have seen in the housing market since the big crash in home sales is how low inventory still is in the U.S. — except for those reading HousingWire or listening to the HousingWire Daily podcast.

Remember, inventory channels are different now because credit channels in the U.S. are different post-2010. Also, demand has stabilized since Nov. 9, so when we talk about housing in the U.S., let’s use the data that makes sense.

Stable demand, low housing inventory, and no forced sellers are why we created the weekly Tracker, to focus on accurate data and what matters most to housing economics and the U.S. economy.



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Accessory dwelling units, or ADUs, saw a surge in popularity during the pandemic, when rock-bottom interest rates stoked the skyrocketing interest in adding elbow room for everything from home offices to fully appointed living spaces.

But the pandemic is now over and interest rates are way up. So, what’s happening with ADUs now? The short answer: a lot. But the landscape is changing, and ADU buyers (and ADU builders and makers) are adapting to it. Here are a few of the key trends we’ve been watching.

Customers are interested in going bigger

ADUs still max out at about 1,000 square feet, so “big” is, as always, a relative term. The interest in the smaller structures that were hot sellers during the pandemic has ceded ground to a surge in inquiries about ADUs with bathrooms, kitchenettes and the full suite of HVAC, plumbing, and electrical service.

Increasing costs associated with higher interest rates are, however, tapping the brakes on conversions to sales of these full-featured ADUs, and that’s understandable. In early 2022, people were locking into 3% and 4% interest rates. Now those numbers are more like 8% or 9%.

For a fully appointed, $240,000 ADU, a 30-year loan with an 8% interest rate costs over $600 more per month compared to the same loan with a 4% rate. The sharper focus on cost is now boosting interest in modular factory-built ADUs, which tend to be less expensive and faster to build than custom onsite construction.

Still, an ADU is a big investment, and potential customers are thinking harder before pulling the trigger. All that said, ADUs still pay off for many homeowners – it just depends on the ROI of a specific project. 

ROIs are tough to calculate, but there are rules of thumb

Look around the web and you’ll find that ROI estimates (and rules of thumb to help estimate ROI) for ADUs are all over the place.

A Porch.com study found that homes with ADUs are, on average, priced about 35% higher than those without ADUs. Homelight surveyed real estate agents who found ADU ROIs to be neutral to negative, depending on the location. Assuming the ADU is a full-time rental, Symbium estimates that the ADU owner’s property value will increase by 100 times the monthly rent on the ADU.

While many customers are interested in adding an ADU for full-time rental, most seem keen on developing a flexible space for personal use as private, detached quarters for visitors and a short-term rental when it’s convenient for them.

The majority don’t plan to rent out their ADUs full-time, so let’s use the ADU cost as a foundation for estimating return.

All-in, ADUs typically cost about $400 per square foot – and that includes site work, the foundation, utility hookups, and so on, according to our estimates. We’ve also found that, in the eyes of real estate markets, a detached ADU’s floor space adds to the total square footage of the main dwelling. We’re also seeing the greatest interest in ADUs in neighborhoods with real estate values in the $600 to $800 per square foot range.

So from the narrow perspective of short-term real estate valuation (that is, excluding potential rental income), you’re looking at 1.5x or better ROI in those markets. Conversely, if you live where real estate goes for less than $400 a square foot, you may see a flat to negative ROI.

Permitting is getting easier, but there’s progress to be made

City leaders are now familiar with ADUs’ potential to address a longstanding, stubborn nationwide urban housing shortage – particularly when it comes to affordable housing. The list of urban centers that have embraced or are in the process of embracing ADUs is long and growing (see DenverAustinLos Angeles, and Seattle as examples).

In broad geographic terms, ADU hotbeds, such as California and the Pacific Northwest, are being joined Colorado, the metropolitan Washington, D.C. area, North Carolina, and Georgia. More liberal ADU zoning is playing a role in all of these places.

Zoning is, as a national trend, liberalizing, with housing-starved cities leading the way. But cities consist of neighborhoods, and the acceptance of ADUs can boil down to a neighborhood’s or homeowners association’s delineation of parking, setbacks, and other requirements.

The often hyperlocal nature of ADU permitting can act as a deterrent to potential ADU buyers, who lack the expertise (or the time and energy) to navigate the regulatory maze. ADU builders are stepping into the void as part of another trend.

ADU builders are working toward a turnkey vision.

To build an ADU is to build a small house. That involves permitting, financing, and managing all the details related to the physical infrastructure: surveying, grading, foundation work, tying in electrical and plumbing lines, and so on. There are many moving parts.

Most people interested in building ADUs have jobs to be able to afford them. However, they’ve got limited time to digest and work the details.

Leading ADU builders are establishing in-house teams and networks of external partners to help customers get ADUs built with minimal time and effort. That includes offering competitive financing, tracking the vagaries of local permitting and then helping customers through the permitting process. And, in the case of manufactured ADUs, the teams are vetting local contractors and packaging third-party bids for onsite work. The vision is to offer customers a hassle-free (or at least minimal-hassle), turnkey ADU-construction process. 

That vision is still under construction, so to speak. But for homeowners and the cities and towns they live in to reap the many rewards that ADUs promise, it’s one well worth pursuing. 

Jeremy Nova is the founder of Studio Shed.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the editor: sarah@hwmedia.com



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As the banking crisis stabilized last week, mortgage rates increased, reducing borrower demand for home loans. However, with limited for-sale housing inventory, these higher rates are primarily challenging for potential first-time homebuyers.

Overall, mortgage applications fell last week by 8.8% from one week earlier on a seasonally adjusted basis, per the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. 

This was a reversal of the previous week’s trend, when homebuyers’ loan demand increased by 5.3%. The MBA survey, which has been conducted weekly since 1990, covers over 75% of all U.S. retail residential mortgage applications. 

“Last week’s increase in mortgage rates prompted a pullback in application activity. With more first-time homebuyers in the market, we continue to see increased sensitivity to rate changes,” Joel Kan, MBA’s vice president and chief economist, said in a statement.

The MBA survey shows the average interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) increased to 6.43% from 6.3% last week. Rates on jumbo loans (greater than $726,200) rose to 6.28% from 6.26% on a weekly basis.

Regarding the jumbo space, the spread between the jumbo and conforming 30-year fixed rates widened slightly last week to 15 basis points, tighter when compared to the past year, according to the MBA data.

“As banks reduce their willingness to hold jumbo loans, we expect this narrowing trend to continue,” Kan said. 

At HousingWire’s Mortgage Rates Center, the Optimal Blue data shows rates at 6.50% on Tuesday for conforming loans, up from 6.39% the previous Tuesday. Rates for jumbo loans increased to 6.62% from 6.48% in the same period. 

“Banking stress in the markets have gone away, so the bond market just bounced higher from a key technical point,” Logan Mohtashami, HousingWire’s lead analyst, said. “As long as the economy stays firm, we will bounce back and forth on rates.” 

Loan types 

The MBA data shows that purchase apps declined by 10% from one week earlier on a seasonally adjusted basis, and refinancings were down 5.8% in the same period. Refis comprised 27.6% of the total applications last week, up from 27% the previous week.

Meanwhile, mortgage apps declined by 6.9% in the conventional market, but decreased by 14% in the government space. 

The Federal Housing Administration (FHA) share of total applications increased to 12.7% last week from 12.3% the week prior. The U.S. Department of Veterans Affairs (VA) share fell to 11.7% from 12.8% in the same period. The U.S. Department of Agriculture (USDA) share remained unchanged at 0.5%. 

“Affordability challenges persist and there is limited for-sale inventory in many markets across the country, so buyers remain selective on when they act,” Kan said. “The 10% drop in FHA purchase applications, and the increase in the average purchase loan size to its highest level in a month, are other indications that first-time buyers have pulled back.”



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In a cyclical mortgage industry, hedging is key to maintaining a buffer against losses. For New American Funding (NAF), the country’s 33rd-largest mortgage lender, hedging is how the company was able to manage through the troughs of the mortgage business cycle, Rick Arvielo, co-founder and CEO of NAF, said in an interview with HousingWire

“We’re always looking for hedges,” Arvielo said. “The outside distributor retail is a hedge against the call center in the different environments. Servicing is a hedge against origination.”

Since launching as a call center in 2003, the California lender has expanded into the outside distributed retail model with a target on the purchase mortgage market, serviced its own loans and developed its tech stack in-house.

But there have been rough points for the lender recently, too. As rates increased in 2022, the California lender laid off nearly 1,000 staff to cut costs and meet shrinking demand in the industry.

However, NAF said it is done with rightsizing and has been adding more employees this year. When rates start to trend down, the company expects to add more loan officers, call center staff and operation staff.

With increased M&A activity in the industry, NAF hasn’t ruled out the possibility of acquiring a regional lender with an established customer base, either.

“Yes, I’d love to acquire a smaller, independent regional player (…) Anything in the Northeast, kind of above the Carolinas, we really don’t have anything. The northern part of the United States – you get above the Arizona, Colorado market – we don’t really have much there,” Arvielo said.

Read on to learn more about New American Funding’s business model of outside distributed retail, their in-house tech stack rebuild, its expansions plans and prospects in 2023. 

This interview has been condensed and lightly edited for clarity.

Connie Kim: NAF’s business model of a call center and the outside distributed retail business seems like a hedge against when the rates are low and when the market pivots to purchase mortgages. Now that the market has turned, do you see any challenges for your purchase call center agents? Because there are retail LOs building that in-person relationship with their real estate agents and financial advisors.

Rick: The way people purchase homes is going to be different tomorrow than today (…), so we developed a network. When we get a borrower that comes in online, we do our good work to get them qualified to buy a home – these are mostly early stage buyers. 

That referral process is an age old, where the real estate community will give up a third of their commission for being delivered a qualified, pre-approved borrower that came out of the relocation world. The borrowers became more sticky with us, (and) then we were able to accomplish profitability to originating the purchase business through the call center.

That journey took about two years. We dabbled under the hood from mid-2016 to about mid-2018, and then really started to perfect it. And that’s why that business is bigger today than the refi call center, because rates are higher, so you don’t have a lot of refi opportunities.

Kim: So the model focuses on connecting the retail LOs and the call center agents together to bring up that efficiency to target the purchase market. It’s a different audience that NAF is targeting via the outside distributed retail channel and the purchase call centers.

Rick: Yes. If I could just add one little bit, we took it a step further. We realized through our analysis that a lot of these borrowers, even though they started the journey online, they really want to work with an in-market agent. The call center is going to be the in-market agent’s best friend. 

We set up a program called LBC – which is local buyer connect, where an in-market agent can choose to join the purchase call center for a percentage of their business. 

Kim: NAF bought Marketplace Home Loans in 2018. Are there plans to acquire a regional purchase lender?

Rick: I would love to take looks. It’s not something that we’ve really done. We’re in the process of talking to some of the business brokers out there to get some looks. 

Anything in the Northeast, kind of above the Carolinas, we really don’t have anything. The northern part of the United States – you get above the Arizona, Colorado market – we don’t really have much there. 

Texas is a big one for us. We do a good job in El Paso, Texas. But outside of that, we really don’t have much in Texas.

Florida, we’re okay, but I can see us filling in some geographies there. Nebraska and Louisiana. I could go on with a lot of these states that we just don’t really have a presence in at all. We have almost nothing in Illinois. 

So the short answer is yes, I’d love to acquire a smaller, independent regional player, so long as it’s not in a region that I already have well covered with leadership. 

Kim: One of NAF’s priorities is on lending to the Hispanic community. While Hispanic homeownership continues to grow, high DTI ratios is a main stumbling block to getting mortgages. What are some of the ways NAF is assessing credit risk for potential Hispanic homebuyers?

Patty: I’ve been underwriting the creditworthiness of Hispanic homebuyers the exact same way since 1994. We pretty much just adhere to Fannie Mae, Freddie Mac and the Department of Housing and Urban Development’s guidelines. You know, we’ve had to argue some points with every agency at some point. We still do a large percentage of manual underwrites. 

Part of the process of the way we credit underwriting is that if we do hit a stumbling block, it’s not an automatic denial [for us]. We go back to the borrower and ask if they have a cosigner, if they can source the downpayment or if they can get additional funds. So it’s really just a slow play to close. A lot of lenders don’t want to do that.

Rick: It does deserve noting that Patty started the initiative for Latino lending back in 2013. But in 2016, Patty was challenged when was speaking one time from a Black gentleman who said, “What are you doing for African Americans?”

We’re basically replicating what we did in the Latino communities that got us a little bit of notoriety. 

Kim: NAF has been building its in-house tech stack since its inception. Can you share some of the features that paid off? What are some of the features that NAF is building?

Rick: We built our system out, called Bank Review, but it’s 20 years old. It’s a flat system. Architecturally, we needed to essentially start over, and we couldn’t really do it with the resources onshore. 

We decided to bite the bullet and actually form our own business in India. We literally did it from scratch [in March, April 2022]. We got an office and we currently have about 100 technicians in India.

They’re a lower-cost provider and we still have our onshore teams, because that’s absolutely vital to success. Now we’re going back through our tech stack, and we’re literally rebuilding it from the ground up, to be able to take us for the next 20 years. 

Kim: It was a hard year for the production side, but what really kept a lot of lenders stay afloat was the servicing sector. NAF has been servicing its own loans. How did that help your firm’s business? Are there any plans to sell some of that? 

Rick: We’re always looking for hedges, so it was very intentional to build this asset. When you start bringing a lot of African American and Latino borrowers into your servicing, we started with subservicers like everybody else. But they’re not equipped to deliver the level of service that those borrowers need.

We would have endured losses like everyone else had we not had the servicing business, because it’s a $65 billion servicing portfolio at this point. So it does throw an awful lot of cash. And the last thing in the world I want to do is to spend all the money I’m earning in servicing, but that’s why we did it. We did it to give ourselves that hedge. 

We’ve been servicing our loan for maybe six years now, and we have sold servicing just to raise cash. We sold a grand total of about $3 billion out of $65 billion, and that’s a cumulative of what we sold going back years.

Kim: I believe it was in November 2022 when NAF said it laid off more than 900 employees. Were there additional layoffs in 2023? Is NAF done rightsizing? 

Rick: I think we’re probably done rightsizing. You lose people through attrition, too. That’s very common, especially in a call center. 

We haven’t had layoffs for this year. We were knocking on the door of 5,000 employees, and I think we’re probably at about 3,600 or so.

Patty: We’re actually up this year in employee headcount. We’re growing quite a bit. There are support staff that come along with them (loan officers). So bigger teams or a team will bring their operations people.

I would say that out of the last 11 years we’ve been doing distributed retail, outside of just initially growing and how crazy it was, this is the busiest I’ve been in recruiting since then. 

Kim: I often hear that mortgage volume will be similar to last year, but more back-end loaded. What are your thoughts on this for NAF’s origination volume?

Rick:  I wouldn’t say it’s going to be anything like last year. I think what you’re going to see in 2023 is a gradual rise; I don’t think it’s going to be big pops. My biggest concern, to be honest, is inventory. 

Inventory is lighter now than I think it’s been in decades. Part of that is because of the government not letting foreclosures happen. There’s a foreclosure process for a reason. It feeds inventory to the market that benefits the new first-time homebuyers. If you don’t let that dam kind of break, all you’re doing is hurting the new family formation and the new homeowners of tomorrow.

The minute rates drop into the fives, you’re going to see real estate activity heat up, and you’re going to see house prices just start to pop again.



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MISMO, the real estate finance industry’s standards organization and a subsidiary of the Mortgage Bankers Association, plans to launch a working group that will create standards for Electronic Home Equity Lines of Credit (eHELOC).

The launch of the working group comes at a time when HELOCs are an increasingly popular choice for homeowners who want to tap into their home’s rising equity while protecting their existing low mortgage rates.

Given that HELOC organizations are more streamlined than closed-end lending, there is greater importance for the adoption of electronic closing documents, MISMO said last week, calling for participants to join a new development workgroup (DWG).

“The new eHELOC DWG will collaborate with industry participants, government agencies, and other stakeholders to complete the analysis to determine eHELOC standard feasibility and prepare a roadmap of artifacts that would be needed to standardize this across the Digital Mortgage ecosystem,” David Coleman, president of MISMO, said in a statement.

The working group will consider high inflation and elevated rates in the development of the product, MISMO said. Meetings will be conducted regularly via conference call.

Unlike closed-end eNotes, which have limitations on the substance of the note, eHELOCs are not “negotiable instruments,” so they contain more, and greater variation of, substantive terms, according to MISMO. 

Standardizing these electronic closing documents, as a result, would allow for increased interoperability of HELOCs – easing the onboarding process as the assets are sold or transferred between parties.

While HELOCs continue to set the stage as flexible products that provide quick access to financing for a multitude of uses, including home renovations, debt consolidations or emergency purchases, severe contraction across the lending industry in the fourth quarter of 2022 affected HELOCs in terms of origination volume. 

The volume of HELOC loans declined by 17% to $60.1 billion in the fourth quarter of 2022 from the previous quarter’s $72.3 billion, ATTOM, a real estate data provider, reported. However, fourth-quarter origination volume was still up by 27.4% from $47.2 billion in Q4 2021.

Overall, HELOCS accounted for 20.7% of all loans in the fourth quarter of 2022, nearly five times the 4.6% level from the first quarter of 2021, ATTOM reported. 

Depository banks have dominated home equity lending for years, but nonbank lenders seeking volume are increasingly targeting HELOCs. Among the nonbanks that either have or plan to introduce HELOC loan products are United Wholesale Mortgage, Rocket Mortgage, Guaranteed Rate, loanDepot and New Residential Investment Corp. (rebranded as Rithm Capital).



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While a mortgage business’ battle against margin compression is seemingly endless, that fight is less noticeable in times of surging revenue. This year, thus far, has been anything but that. The decline in mortgage volume, along with increasing rates and uncertainty about the months ahead, have amounted to a scramble for revenue and a continual push to reduce expenses.

For most businesses, the focus on cutting costs has centered around a few main areas. Staffing and service levels have been the most obvious casualty, as layoffs and job cuts have become prevalent. Mortgage firms have also focused on becoming more efficient and reducing other types of overhead, including fixed costs, like office space, and travel budgets or similar items.

Automation is not the only answer

In a break with traditional behaviors during down cycles, many mortgage businesses have continued their drive toward automation, albeit selectively, and perhaps slowly. However, it still appears that lenders are focusing their technology investments on the point of sale.

This comes as no surprise. There is ample data to suggest that consumers want speed and convenience in the origination process. A 2020 ICE Mortgage Technology survey confirmed this, reporting that 58% of borrowers were affected in their decision making by the presence (or lack thereof) of an online application.

In addition, 55% of homeowners reported that a “simpler application” process was greatly appreciated. That same survey found that 99% of lenders believe technology can improve the application process, and 74% believe tech could simplify the entire mortgage process.

Lenders are increasingly seeing a transformed “big picture.” But it still appears that the emphasis is on the big systems — with the focus on Point-of-Sale (POS) and Loan Origination System (LOS) technology especially. And yet, there are numerous smaller things in the established mortgage production process that add up to a huge opportunity to speed the transaction and reduce costs. 

The refinance wave of 2020 and 2021 made clear that the various leaks and clogs in the operational process can grease the skids toward leaving money on the table. This happens by and large when multiple 3rd party vendors become involved or when the process is managed (or handed off) manually.

In slow or even healthy purchase markets, these points can put a lender at a competitive disadvantage and constrict margins unnecessarily.

The little things that can mean a lot

In the typical mortgage workflow, there are multiple points where more lenders could redirect their focus for greater efficiency — and that efficiency need not come from technology investment alone. In fact, if a system doesn’t fit a workflow properly or delivers redundant or unnecessary features, technology can even further burden the operation.

However, whether it be through improved QC; a reshuffling of staffing; use of a more efficient third party provider; better operating policies or training; or, yes, the use of proper technology, too many lenders and mortgage-related businesses have yet to address and receive the full benefit of improving a number of “little things” in their operations.

These points of focus include data collection and entry at any stage of the process. They could also include improving the post-closing process. Customer service and communications between partners, vendors and clients could also be brought forward light years through any number of means.

Vendor management, be it in the valuation, title insurance or closing process, offers a number of opportunities for increased efficiency and decreased cost. And don’t forget TRID-related procedures — many of which were cobbled together on the fly during the chaos following a short implementation period mandated by regulation.

By the numbers: How much the little things can cost

A case study of TRID-related processes can demonstrate how much fat remains to be cut in the name of improved margins and increased efficiencies. And, in particular, closing fees.

Many lenders and originators spend little, if any, time thinking about how they gather accurate closing fee data, such as transfer taxes or recording fees, even though these vary from state to state, county to county and even city to city. And yet, numbers quoted inaccurately on the LE could lead to curative penalties.

These can, and do, add up.

While this industry has a significant dearth of accurate and deep data — at least at the public level — the Federal Reserve’s Consumer Compliance Outlook found in 2020 that inaccurate closing cost details and cash to close calculations were one of most common lender TRID violations.

Even the Consumer Finance Protection Bureau (CFPB) has acknowledged that TRID adversely impacts the operational costs of lenders.

While the TRID data available to the public is almost non-existent, some estimates suggest that as much as 90% of the mortgage loans produced have some form of TRID violation. And let’s not forget that TRID violations — apart from curative fees for mistakes or inaccuracy — can range from fines of $5,000 to $1,000,000 per day in extreme cases.

Setting those penalties aside, we wanted to know how much lenders paid in curative fees as a cost for their operational inaccuracy or inefficiency. To find out, we polled dozens of mortgage lenders in 2022 and compiled the results.

We were surprised to learn that the average cures per file for those who manually researched and updated their fee data was $40 to $80 per file.  After installing improved processes to address their closing cost quotes, the same lenders reported improvement, with the averages dropping to $20–$40 per file.

We also determined that lenders using effective closing fee technology averaged one inaccuracy requiring a cure out of every 22,000 fee estimates or quotes.

Finally, we know that the average time to close remains above 50 days. This also represents costs ripe for improvement across the board. Much of that delay starts with the little things: the time between voicemails between a loan processor and title agent; the time it takes for an appraisal report to be produced; the time (and possibility of error or inaccuracy) it takes to find an order that’s been emailed and type it into the production system. And yes, the time and cost associated with manually determined closing fees.

Now, more than ever, the little things are adding up for lenders. But they also provide an incredible opportunity to improve the way the industry does business going forward.

Jim Paolino is the CEO & Co-Founder of LodeStar Software Solutions, HousingWire Tech 100 company.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the author of this story: Jim Paolino at jpaolino@lssoftwaresolutions.com

To contact the editor of this story: Sarah Wheeler at sarah@hwmedia.com



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Ready to buy your first rental property in 2023? If you’re going to reach financial independence, retire early, and own your time, you better get started. But you can’t build a rental property portfolio without buying your first, second, or third deal. So, how do you go from real estate zero to rental property hero without having any experience? Take some notes from rental property investing expert David Greene, who built his financial freedom-producing portfolio in under ten years!

David walks step-by-step through everything you must do to buy your first rental property in 2023. From finding the deals, getting your financing and loans set up, analyzing a property, and repeating the system. If you listen fully through this episode, you’ll have everything you need to find and buy your first (or next) rental property. So what are you waiting for? Grab a notepad and a pen, and don’t get distracted by David’s beautiful bald head. Now is the time to start building your life of financial freedom!

Want to take your real estate investing to the NEXT LEVEL? Reach financial freedom faster and sign up for BiggerPockets Pro with code “RENTAL20” for a special discount!

Click here to listen on Apple Podcasts.

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In This Episode We Cover:

  • Why your first few real estate deals DON’T MATTER (as much as you’d think)
  • The “stack” real estate method to build an EXPLOSIVE real estate portfolio 
  • The “3 D’s” of real estate investing and where to find dollars, deals, and investing direction
  • The BEST way to find real estate deals (even in a tough market like 2023)
  • How to analyze a rental property (LIVE!) using the BiggerPockets rental property calculator
  • The one tool top investors use to get deals done even faster
  • And So Much More!

Links from the Show

Books Mentioned in the Show:

Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email [email protected].

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



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Elevated mortgage rates are continuing to give homeowners a reason to stay at their current homes, according to the 2023 Borrower Insights Survey conducted by ICE Mortgage Technology. But while the inventory-lacking market has caused issues for buyers, one bright spot is that about half of the current homeowners say they plan to sell their homes in the next two years, according to survey data.

Of those who plan to remain in their homes, about one-third (36%) specifically cite high interest rates as the reason for staying put.

The survey polled 2,010 individuals age 18 and older in the U.S. in January and February. Of the total surveyed, 1,005 owned their current residence and had taken out a mortgage loan within the last five years. The rest of the participants were currently renting.  

Borrowers were asked about the factors and the elements of the experience that are most important to them during the loan process. Renters were asked about their perceptions of the home buying experience and their expectations about the requirements of homebuying. The survey was fielded using the Qualtrics Insight Platform and the panel was sourced from Lucid

What are borrowers looking for?

Nearly two-thirds of recent borrowers (63%) say they plan to seek new financing in the form of home equity loans, reverse mortgages, refinancing, or investment property loans.

About 34% of current homeowners who have taken out a mortgage in the last five years plan on taking out a home equity loan in the next year and 29% say they have considered refinancing. About 24% have considered a reverse mortgage, and 31% have considered investment property loans – an indication that there is still some degree of confidence in rising home values. 

Current homeowners who were recently involved in the mortgage process cited “more space” and” finding a good deal on a house” as the main reasons for buying a home, according to the survey.

But while recent borrowers cite more space and good deals as the reason for buying, fewer respondents say they are trying to transition from renting to buying – which may signal that this type of transition is difficult in the current environment. 

That result is a departure from last year, when “not wanting to rent anymore” (38%) was cited more often than finding a good deal (36%) or needing more space (36%). 

“The year-over-year change may indicate that it is more difficult in the current environment to transition from renting to home ownership,” the survey said.

Active home buying market coming?

Still, it seems likely that the home buying market will stay active or become more so in the relatively near future. Nearly half of current homeowners, as well as many younger homeowners, say they are planning to sell their home in the next two years. 

About 46% of respondents plan to sell their home in two years or less, according to the survey results. The reasons cited most were to cash in on increased home equity/value (39%), to change scenery (38%), or to downsize or upsize (36%).

Of the renters who are motivated to buy, Generation Z leads the sentiment. 

About 37% of Gen Z say they believe that owning a home is within their reach, compared to 27% overall. About 67% of Gen Z and Millennial renters say they are open to relocation as a path to homeownership, compared to just 448% of those Gen X and older. 

Homeowner, renter concerns

Saving money is a top concern for homeowners and renters, according to the survey. About 67% of people surveyed reported that when financing a mortgage, saving money overall is their biggest concern, followed by low lender fees at 56%.

When choosing a lender, Baby Boomers want low interest rates. Younger generations are more focused on finding a variety of loan terms and product options, study results show.

In addition, the survey showed borrowers tend to have different kinds of outreach preferences based on their experiences.

Experienced borrowers – defined in the survey as those who have taken out five or more mortgages in their lifetime – say they favor digital offerings. Borrowers, especially those who are least experienced, say they rely on referrals from family, friends or realtors to choose lenders.

“In other words, relationships mattered to high-interest rate borrowers. These borrowers are therefore likely to consider more than one lending institution when going through the mortgage process,” the survey report states.



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Multi-channel mortgage lender New American Funding (NAF) is entering the joint ventures arena, offering multiple JV models in a margin-compressed and highly regulated industry.

Under the JV model, partners will have access to NAF’s infrastructure and mortgage originating process. It will allow the company to mitigate the risk associated with being in the mortgage business and minimize the capital-intensive nature of the business, the company said. 

NAF is looking for a 50/50 joint venture between the California-headquartered lender for virtually any size real estate brokerage, a larger agent team, a new home builder and a wholly-owned mortgage business.

“With the refinance boom gone, fierce competition for the purchase business is causing significant margin compression,” Al Miller, national director of strategic relationship at NAF, said in the announcement.

For a standalone model, NAF and the partner company will form a mortgage banking company that can support funding loans of at least $150 million annually. The two lenders will each own 50% stake in the JV.

In a consortium model, currently popular in the title business, NAF will create a standalone mortgage banking company that will sell shares equal to 50% of the company. With this model, shares are intended to be for individual companies that have the scale for loan funding a minimum of $50 million annually and aggregate fundings for the combined owners of $300 million annually. 

NAF will consider a mortgage brokerage model if it is done based on using it for speed to market and as a strategy to evolve into the full mortgage banking model in the near future, the company said. The third model has a low barrier to entry, in which capitalization and licensing complexities are much less than the standalone model. 

With various services plus capital in place, a joint venture ramps up faster than a traditional mortgage company. At a mortgage brokerage joint venture, loan officers generally get paid a lower base salary than counterparts at traditional lenders and may get a smaller commission because the LO is doing less work finding customers since there are greater real estate agent referrals. 

While a mortgage brokerage JV model was popular during the pandemic years, a new federal regulatory regime could put the model at risk of expenses from the lack of regulatory enforcement information as well as lesser margins, as the industry’s volume is tied to housing cycle shifts. 

The partial acquisition model would be used when a company that owns and operates an independent mortgage business is looking to reduce its current capital investment and risk by selling a 50% portion of that business to NAF. After the sale, the partner would enter a standalone JV. 

This fourth model could also be used if the partner is already in a JV with a lender and that lender is willing to sell NAF their ownership. 

Founded in 2003 by Rick Arvielo and his wife, Patty Arvielo, New American Funding offers a variety of conventional, government, adjustable-rate and non-qualified mortgages. The California lender originated $15.12 billion in volume in 2022, down about half from the previous year’s $30.44 billion, data from Modex showed. 

Licensed in 50 states and Washington, D.C., the lender has 168 active branches nationwide with 1,615 sponsored MLOs, according to the NMLS.  



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A FSBO (For Sale By Owner) seller wants to move forward with your offer—that’s great news! But first, they have asked you to pull comps (comparable sales). Believe it or not, this is something you can use to your advantage. Of course, you’ll need to know where to find comps and how to estimate rehab costs so that you can defend your offer. Thankfully, Ashley and Tony are back with some of their best tips yet.

Welcome back to another Rookie Reply! Negotiating a FSBO sale can be a little intimidating, but our hosts are here to help you navigate the entire process. In this episode, we also discuss and compare real estate financing options, from conventional mortgages to portfolio loans. We even weigh the pros and cons of personal debt versus commercial debt. Struggling to find a tenant for your rental? You’ll want to hear what we have to say about lowering rent prices, as well as other steps you can take to fill your vacancy and improve your cash flow immediately!

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 278.

Tony:
You should also look at the numbers and use that to help you kind of make a determination because, say that we look over the next year, over the next 12 months, and say that you’re trying to get 1,000 bucks for your place right now, but because you tried to get a $1,000, your place sits vacant for the next two months. Right? Over the course of that year, you have two months that are empty, so you’re going to make $1,000 over 10 months, which is $10,000. Say that you dropped the price from 1,000 to 950, and you rent it out this month, now you have a full 12 months. You’re actually going to make more. You’ll make $11,400 at 950 if it’s rinsed out for the entire year.

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 bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey.
And I want to start today’s episode by shouting out someone by the username of RSGreen2. They left us a five-star review on Apple Podcast that says, “I tell everyone and anyone I can to listen to this podcast, especially when people ask me about where they can start. Tony and Ashley have great energy, and they keep things very tangible for listeners. Keep up the great work, Ashley, and keep laughing. Don’t let anyone tell you different. Life is too short.”
And, so, RSGreen, we appreciate you. And Ash, I got to say, I love your laugh as well. Don’t listen to the haters. Keep doing your thing. Keep living your life.

Ashley:
Well, thank you so much because it is physically impossible to stop laughing, so, here to stay. So, Tony, what’s new with you?

Tony:
We got this campground that we’re working on in West Virginia, so I’m super excited about that. And, honestly, by the time this episodes airs, I think we should hopefully have closed on it by now. But it was a deal that came to me actually on Instagram. One of my Instagram followers reached out to me. And most deals that get sent to me on Instagram are not all that good, but this one actually ended up checking out, so we’re super excited for it.
Right now, it’s got a single-family house plus a little … There’s a church on the grounds, and there’s a few RV pads, but we’re going to build out some really cool dome campsites there. So, we’re excited. It’ll be our first true commercial project and hopefully the first of many. So, just trying to do our due diligence right now and get the money lined up and take this thing down.
So, we had a failed attempt last year at our first commercial deal, so I’m hoping this one … hoping we actually make this one happen.

Ashley:
Yeah, I’m so excited for you. I got your newsletter that talked about the property the other day, and Daryl and I were reading through it. It looks so exciting and such a great opportunity.

Tony:
Yeah.

Ashley:
Okay, well, this week, we have, I think, five questions we actually go through today, five or six. And we talk about financing, getting bank financing, the differences between doing an adjustable-rate mortgage, a conventional mortgage, a second-home mortgage, lots of different things we talk about, and what are the pros and cons and what may be the best route for you, depending on your situation.
And then we go into estimating a rehab and some of the ways you can do that as a rookie investor.

Tony:
Yeah, we also talk about analyzing deals, and we talk about FSBOs and how to kind of negotiate with sellers, without your agent being present. And we also talk about renting your property out and how to not get screwed when you’re searching for tenants and make sure you’re getting the place filled. So, lots of good conversation for today.

Ashley:
We will also tell you what a FSBO is, for those of you that don’t know. So, listen for that, the [inaudible 00:03:33]-

Tony:
That don’t know.

Ashley:
Okay, so our first question today is from Ernesto, and this is in the Real Estate Rookie Facebook group. Guys, don’t forget, if you want to ask questions that we may answer on the show, you can go ahead and join the Real Estate Rookie Facebook group. Ask a question in there. Most likely, you are going to get a whole bunch of people, rookie investors and experienced investors, to answer your question before we get to it.
But to Ernesto’s question today is, “Is it possible to get a new mortgage in an LLC with 20 to 25% down? Also, what are the documents and requirements needed?”
And the answer to that is, yes, you can. That is actually typically what a commercial lender is looking for, is that 20 to 25% down. Sometimes, they may require 30% down or more. So, since this is going to be in an LLC, you are going to have to go to the commercial side of lending.
I have found one small, local bank that did allow you to get a loan on the residential side in an LLC but, most of the time, you’re going to have to go to a commercial lender, and you can do the 20 to 25% down. There are lots of different options for the commercial lending. For example, how long you’re going to amortize the loan. That will also affect your interest rate. If you’re going to do an ARM, an adjustable-rate mortgage, lots of different options on the commercial lending side.
I have not seen, on the commercial lending side, where they will let you put less than 20% down. I have seen on the residential side, where a small bank that’s going to hold the loan in-house will allow that, just because you’re buying below market value. But banks are really flexible, especially the small, local banks, where maybe that does happen where you can put less than 20% down.
Tony, have you ever seen that, where a commercial lender will put less than 20% down?

Tony:
No. Yeah, most of our debt, honestly, isn’t carried by our LLC. And the debt we do have in our LLC is from private money lenders. We’re usually going 0% down on those ones.
But I think my question to Ernesto would be, “What is your motivation, Ernesto, for getting the LLC and going after commercial debt?”
I think there’s a common misconception that you need an LLC to buy investment property or to get all the tax benefits to come along with being a real estate investor. And that’s not true. You can still claim all the deductions, even if the property’s in your personal name and even if the debt is in your personal name.
The LLC really comes if you’re worried about liability, right? Asset protection. And even still, there are ways to protect yourself from a liability perspective, without even creating the LLC.
So, I think that would be my first question, Ernesto. Because, a lot of times, you can get better debt if you’re able to get that debt in your own name.
Now, obviously, if you do go that route, a lot of times, banks are going to want to make sure you have the DTI to cover that. So, maybe if you’re going after commercial property, where they’re kind of looking at your … Gosh, why can’t I think of the name of the statement? Your personal financial statement, and they’re looking at the NOI of the property, that could be one reason.
But Ernesto, if you have the debt-to-income ratio, you have the credit scores to go out and get that debt by yourself, I might even say, it might be more beneficial to get something in your personal name.

Ashley:
And then, the second part of that question, was the documents required, and Tony touched on one of them, providing your personal financial statement, which lists your assets minus your liabilities.
So, if you own a primary residence, that would be your asset. If you have cash savings, that’d be an asset. Your liabilities would be the mortgage that’s on your primary residence, or if you have a car loan, things like that.
The next thing that you may need to supply, and these are especially if you’re going to be a personal guarantor on the loan. So, even though your LLC is getting the loan, the bank may require you, or ask of you, to be a personal guarantor, where you are signing, saying that if the LLC defaults on the loan, you are now personally liable to pay that loan. You do get a better interest rate if you do sign for that, and you may get better terms if you are a personal guarantor.
So, they may want two years of your personal tax return, if applicable, two years of your LLC tax return if it’s been open for two years, a profit and loss of the property you’re purchasing, also the rent roll of the property that you are purchasing. And then, they’ll probably run your credit too, as a personal guarantor.
They also will most likely require any partner that has more than … or has 20% or more ownership in the property too, to supply all of these things as well, such as their tax return, and to also be a personal guarantor.
I’ve never seen it, where, if somebody owns less than 20%, they require them to sign on the loan or to provide their information, but that could also possibly happen.
Okay, so let’s move on to our next question. This question is from Denise Biddinger, and this is also from the Real Estate Rookie Facebook group. “What’s the best way to structure a first-time partnership? Should we look for someone to split the cost of a mortgage, and each get a loan for the applicable half? Is that even an option? So, here’s some background on it. It’s a buy-and-hold. The property is listed at 265,000, the down payment only 20%, which is around 50,000, which, hopefully, would be funded by a partner. What other factors should I be considering? Thank you.”
So, this is something Tony and I talk about a lot. There is no right way to structure your first partnership. That is completely negotiable. You just want to make sure that it’s legal and that it’s all in writing.
So, I think Tony will be able to talk to this better on this one because, Tony, you do partner with people who bring the capital to deals and how you do your joint venture agreements.
For myself, personally, my first partnership, we did a 50-50 ownership. My partner brought the capital, but he also was the lien holder on the property. He held the mortgage, so the money we used to purchase the property, we were paying him back that money over a 15-year amortization, at 5.5% interest.
So, he was getting a monthly payment every month of principle and interest. He was also 50% owner of the property, so any equity by mortgage paid on, he was getting that advantage. He was also any appreciation into the property that was building equity. So, when we eventually sold, he got 50% of the profit. He also was getting 50% of the cash flow through the lifetime of that property that we had it.
So, Tony, do you want to go ahead and touch on the joint venture side of doing a partnership for your first deal?

Tony:
Yeah, so there’s a couple things you should look at, Denise. So, the first thing you said is, “Should we look for someone to split the cost of a mortgage, and then each get a loan for the applicable half?”
I’ve actually never seen that happen before, where you have two different partners, and each of them gets their own mortgage for their part of the property. Usually, if you’re going to do it that route, both of you would just be applying for the same mortgage.
But here’s the thing. I think, if you’re in a partnership, typically, you want the smallest amount of people on the mortgage as possible, because if one person can qualify for that loan by themselves, then it allows the next person in that partnership to get the subsequent loan. But if both of you are in that loan, now both of your DTIs are impacted. So, usually, you want the smallest number of people possible on the mortgages as you can.
But anyway, to kind of answer your question about how to structure it, there’s a few things to look at, Denise. You can look at mortgage. So, who’s going to carry the mortgage? The down payments of the capital, who’s going to bring that capital? And then, on the actual ownership of the property, you look at equity. How are we going to split ownership of this property? And then you look at profits. How will we split the actual profits of this property?
And you can tie in other things like, “Hey, is someone going to get a management fee for doing the day-to-day management of the property?” Or if someone does maintenance on the property, do you get an hourly fee for the maintenance piece? But I think those are the different levers you want to look at.
And it sounds like Denise, you’re looking for someone to bring the down payment, but it also seems like, if I’m reading this the right way, that you feel you have the ability to get approved for the loan. So, one easy way to do it would be to say, “Okay, look. I’m going to carry the mortgage. You’re going to bring the down payment capital.”
And you have to make sure that that money gets seasoned or that your lender’s okay with that person gifting that money to you. But say, you carry the mortgage. That person brings the down payment. And then you guys can say, “Hey, we’re going to split the profits down the middle 50/50. We’re going to split equity down the middle of 50/50.”
Or your partner could say, “Hey, since I brought the 50K, I want to make sure that whenever we sell the property, I get my 50K back first, and then we split whatever’s left over.”
So, there are a million different ways to kind of skin the cat here, Denise, but I think those are the things you want to look at, is your mortgage, your down payment, your equity, and your profits.

Ashley:
Okay, our next question is from Trevor Manning. He says, “Hi, Rookies. I’m going to start analyzing deals. I was wondering if there is a rough rule of thumb for estimating rehab costs, like an estimate per square foot, moderate, heavy rehab. It doesn’t have to be super accurate. I just want to get my hands dirty with practicing my analyzing. Have a great weekend.”
Okay, so this is such a hard thing, as a rookie starting out, is estimating the rehab. And even still, I struggle with it, as to there’s so many variables that come into play to get the perfect budget, the perfect estimate.
When I first started out doing full, heavy rehabs, I took on a partner who knew how to do construction, and that’s how I learned to do my estimates.
The first thing I would do is to look into the book Estimating Rehab Costs by J. Scott. It’s available on the BiggerPockets bookstore. And it’s not going to be able to tell you, “Okay, in your market, in your area, a painter is going to charge you $2.50 per square foot,” but it’s going to lay out everything. You should be getting quotes for, everything you should be estimating that you might be missing.
Another way to kind of look at it is, and this is very time-consuming, but once you do it one time, you can constantly reuse it for other properties, is build out your own kind of template, so you can at least get a very good idea of what the material cost will be.
So, you’re looking at a property. You’re looking at the listing online, or maybe you go to do an actual showing. Take tons of photos and videos of the property. Then, sit down and go, room by room.
Okay, so I always use the bathroom as an example. You’re looking at the bathroom. You want to rip the bathroom out and redo it. Okay. For the shower, maybe you know want to put in tile. You want to tile the whole shower. Okay, will they make a Schluter tile system. Okay? You can go and look at the price at Lowe’s, Home Depot, or whatever hardware store you use. Pull up the cost of that. You are going to link that to your spreadsheet.
Then, you are going to find a YouTube video that talks about what it takes to build out a tile shower. And you are going to say, “Okay, I need the grout. I need the tile. I need the thinset. I’ll need these other things. I’ll need the faucet. I’ll need the handle. I’ll need whatever else is in that video.” Make a list and build out that kind of worksheet, that template, and then go online to the hardware store and pull those things.
Okay, so a toilet, you’re going to need a wax seal to go with the toilet. You can google all this on YouTube. Put those things in there. Even if you don’t use that exact same toilet that you linked, it’s still going to give you a pretty good estimate of what your budget is going to need to be.
If you don’t know what toilet to pick, go ahead and pick one on the higher end, and if you end up getting one that’s cheaper, and it’s going to work just as well, then great. You just saved yourself 25, $30 right there. So, always overestimate. Go for the higher-priced item. You don’t want to blow your budget way out of the water by picking $10 per-square-foot tile if you’re just doing a rental property, where you could get away with $2 or $3 per-square-foot tile. It’s time-consuming, but I think that is a great way to kind of get an understanding of what materials cost.
And then, for as far as labor, call around and ask contractors, “What do you charge to install a toilet?” Ask other investors. James Dainard, we had him on. I’m sure Tony already has his episode numbers teed up, as to what episode that was. But he did this heavy, deep dive. And he has a template, where he knows that his painter charges X amount per square foot. So, when he’s estimating a rehab, he already knows, “Okay, this is a 2100 square-foot property. I’m going to times that by the $2.50 cents my painter, and that’s how much I should be charged for … That’s my estimate for the painting on the property.”
And the same for installing tile and all these different things, or even drywall. So, calling and kind of getting an idea. Of course, no contractor’s going to be able to tell you over the phone, “This is how much it would cost just for this,” but just an idea or a range can really help you kind of figure out.
And then, for kitchens too, call kitchen cabinet places that do the design and ask if they can give you a low-end model or low-end cabinetry, what the price point runs on that. If it’s 500 square-foot kitchen, things like that.
This is going to be time-consuming, but going around and visiting those different places, making the phone calls, looking things up online, it’s going to be worth it, if you really do want to have a more accurate estimate. And if that’s the one thing that’s holding you back from getting started, then it’s definitely worth the time doing this kind of research.

Tony:
Yeah, it’s a great breakdown, Ash. And, of course, I’ve got James’s episode teed up, so that was Episode 165 for Part One, and I think Part Two is 167, if I’m not mistaken, or 166, one of those ones.
So, Trevor, in addition to everything that Ashley said, I’ll just kind of share what my journey was when I was first starting out and what I did to try and estimate my rehab costs. And once I found my subject property, a property that I was looking at purchasing, I looked for other comps in that area that had recently sold, and I identified the comps that I liked, the ones that I was trying to emulate.
And I did two things, really. First, I went out, and I found another contractor and said, “Hey, here’s what I’m looking to turn this house into. Here’s what I’m looking to transform it into. Can you give me an example of projects you’ve recently done that looked like this?”
And this contractor said, “Yeah, here’s one or two properties that I did, that are similar to what you’re trying to do.”
And I said, “Okay, what was the cost for that property?”
And he told me, “Hey, it was, whatever, $70,000 to do that rehab.”
And then, that kind of gave me a ballpark, if I want to do a level of rehab, it’s going to cost me around 60 to $70,000 to do that.
And the other thing I did was I gave him photos of what the property looks like today, the current state of that property, and I showed him those comps that I was looking at, and said, “Hey, to get a property like this, to look like this, what do you think it would cost me?”
And he said, “Okay, it’s going to cost you around this much.”
So, now, I’ve got these concrete numbers of what he charged his previous clients to do these rehabs, and I’ve now got this ballpark of what he’s going to charge me to take this property that I’m looking at and turn it into something new. And with those, it gave me a pretty decent ballpark on what I would be spending to kind of get the level of rehab that I was looking for.
So, I think, Trevor, talking to other investors in your market and asking them what they’re spending on a price per-square-foot is super important. And then, also, just going to the folks that are going to be doing the work and getting their opinion.
It is incredibly difficult, Trevor, for me or Ashley to say, “Hey, use this price per-square-foot in your market,” because it’s what Ashley spends in Buffalo is going to be very different than what I spend in Southern California, and it’s going to be very different than what you spend in whatever city or state you’re in. So, you do have to kind of get localized information to make your best guess.

Ashley:
Yeah, the last thing I would add on to that too is, even when you’re just in Lowe’s, if you keep an eye out, they usually have signs saying like, “We will install your flooring. We’ll install your bathtub.” Find out what their pricing is on that. And a lot of times, they actually do provide free quotes too, where they will send someone out. But sometimes, they will say, “We have a special going on. Our rate is usually $5 per square foot to install flooring, the luxury vinyl plank, but for this week only, we’re doing it for X amount.”
But you can at least see how their pricing kind of varies, and you can use that, too as kind of a starting point as to what the prices are.

Tony:
Ash, I’m just curious, have you ever not used LVP in your properties? Have you ever done, I don’t know, tile, actual tile, in your properties or, I don’t know, what’s the old linoleum type, or do you always go LVP?

Ashley:
Recently, always LVP. I’ve done tile showers and tile in bathrooms. I don’t think ever tile in a kitchen before for a rental property, but I’ve definitely done the tile shower, the tile in the bathroom floor, and then luxury vinyl plank throughout. I, actually, in one unit right now, that I just did a big turnover, and when we ripped up the carpets from when I bought it, we were going to put the LVP down, but it actually had hardwood floors. And it was cheaper to refinish the hardwoods, than it was to rip the carpet out or to put LVP into that unit.
And then, the A-Frame, the short-term rental, we did do tile in that bathroom and the shower too, but that was the rest was all LVP in there. Yeah.
And then, in the apartment complexes that I asset-manage for, we do linoleum in the kitchen, in the bathroom, but we’re slowly changing that into LVP, as people move out and just keeping it consistent the whole way through.

Tony:
Yeah, same for us. We tile all of our bathrooms, the bathroom floors, the shower floor, the shower walls, we always tile those. We have patios in most of our backyards. We will tile the outside with some nice tile as well. And then, everything else is a really nice LVP also. I’m just curious because one of my friends, this is in primary residence, and instead of doing LVP, he just tiled the entire inside of his house. And it almost looked like LVP, but it was tile. And he told me that they were thinking about doing LVP, but it ended up being cheaper to do that tile. So, I was just curious if you ever tried anything like that before.

Ashley:
Yeah, actually, in this property that I’m in right now, I wish … There’s the whole stacking. You can kind of see it, the whole pallet of flooring right there, and it’s LVP, but I wish that I would’ve done tile in this one throughout.
My aunt and uncle did that. They actually ripped up all of their hardwoods in their house and put tile that looks like wood on it, just because of the durability. Their dogs were scratching up the hardwoods.
My house that I built, we did tile in the kitchen and the bathrooms and the laundry room, but the rest … in the mudroom, but then the rest is all the hardwoods. I hate it so much. The first couple years living in that house, I would cringe every time a toy dropped onto the floor or whatever. Now, there’s dings and scratches and everything throughout it, but it’s also LVP, I think, is a lot easier to keep clean too, but also a lot more durable than the hardwoods too. So, I just don’t care for hardwoods anymore.

Tony:
Yeah.

Ashley:
Okay. So, our next question is from Jordan Alexander, and it is, “Would you go with a conventional second home mortgage at 10% down, with long-term fixed, or start an in-house portfolio relationship with a lender at 15% down, 5% interest, and a 20-year amortization?”
Okay, so, my opinion on that is, what is your why, first of all? Are you going for cash flow? Are you going for appreciation? Are you going to build this huge portfolio, where you think that doing this one loan differently with the lender is going to give you years of great business with them?
I think run the numbers and what’s going to give you the better cash flow. If you can get both of those, look at five years down the road, where you’re getting the better return on those things.
Doing the in-house portfolio loan, if you work with that lender to do the portfolio loan, or you work with them to do the second home mortgage, you’re still going to be establishing a relationship by working with that loan officer, no matter what type of loan product you are doing.
So, in my opinion, I would recommend doing the 10% down and getting that 30-year fixed mortgage on that, with a lower interest rate. The 5% interest for the second one that you mentioned with the 20-year amortization and putting a little bit more down, maybe that is a lower interest rate right now. I’m not sure when this post was done or what it would be for the second home mortgage, but 5% interest doesn’t sound that bad for me now.
I’m doing … helping my business partner. He’s doing a loan right now on a primary residence. And when I was filling out some of his paperwork, it was 5.125% that he was getting, but it’s a 7/1 ARM, so it’s only fixed for seven years, and then he’ll go and refinance it, depending when … what rates are, or probably just pay it off.
But Tony, what do you think about that? And also, Tony, I have another question for you too, are you … And I heard this. This was a rumor that was swirling around, and I keep forgetting to ask you if it’s true, are banks getting more strict on lending the second home mortgage, that the 10% down is going away?

Tony:
Yeah, it’s a great call-out, Ash. What I was going to mention is, as I talked about Jordan’s question here, is that banks aren’t necessarily getting away from the second home mortgage, but they are becoming more expensive. So, they’re still 10% down, but a lot of banks are now adding additional points, on top of the 10% down payment, that almost makes it less desirable for people.
So, we haven’t closed on a 10% down second home loan in a while, and we’ve been going with 15% down investor loans because, when we add up the total cost of the debt, it’s actually been cheaper to go with a 15% down loan with no points, versus a 10% down with all the added points and fees.
So, I think I would answer Jordan’s question in a very similar way, Ashley, where it’s like, “Jordan, you got to look at the total cost of the debt and understand, between the second home mortgage and that portfolio loan, which one’s going to allow you to achieve better returns and better cash flow long-term?”
Like Ash said, I mean, 5%, if that’s today’s rates, that’s pretty good. So, I might be interested in doing that. You didn’t mention what the term was for that, so I don’t know if that’s a three-year term, a five-year term, but 5% does seem pretty solid. But yeah, I would definitely just run the numbers and try and figure out which one makes the most sense.
So, just before we close this one out, I just want to talk about what points are and how it adds to your closing costs. So, one point is essentially 1% of your mortgage amount. So, if I had $100 of mortgage, one point would be 1%, which is $1.
So, as you add these additional points, it really can start to add up, especially if you’re buying a house for 300,000, 400,000, 500,000, $800,000, one point can make a pretty big difference in what your down payment cost is.
So, you want to make sure that you understand, not just the down payment percentage, but also the additional points and fees that are being added onto that, because when you close on that property, it’s the down payment, plus all the closing costs, which includes those fees and points.

Ashley:
I’ve seen banks doing a lot of options for people, is that they’ll offer, if you pay points, you get an interest rate buydown. So, say, for example, your interest rate is 6%, if you pay one point, they’ll knock it down to 5.8% or something like that.
So, what you have to do in those scenarios, is you have to look at, “Okay, how much more money am I going to have to put down?” So, one point, say it’s a $300,000 property, that’s $3,000 added to your closing cost, but let’s look at over how much interest are you saving by having that interest rate knocked down a little bit and is it worth it?
Also, look at your monthly payment too. How much extra cash flow will you actually have and how long until you can get that $3,000 back, that you put up, up front? Or is it worth it taking higher interest rate and not having to put more money into the deal upfront too?
So, just a couple things to think about, as lenders are trying to get creative to attract people when those interest rates are higher by offering those point paydowns. So, just make sure you’re understanding if it really is a better option for you or not. And I’ve seen it up to three points, where you can pay 3%, to get your interest rate knocked down a little bit.

Tony:
Yeah, just really quick, Ash, before we go to the next one. I know we’ve talked about NACA before. And I recently had a guest on that used NACA as well. And NACA’s like a loan program, that helps people buy properties. And they’re really good at allowing you to buy down your interest rate as well. And when interest rates were super low, I know some people that were getting NACA loans below 1%, which is crazy to think about. That’s literally almost free money.
So, yeah, if you are able to buydown your rates, it can be beneficial in the right environment.

Ashley:
Okay, our next question is from Preston Wallace. “Listed my first rental about two weeks ago. I have had a few people reach out about applying, but never complete the process. I am using a property manager, as I have moved a little over an hour away. At what point do you all consider reducing the ask on the monthly rent? I did a fair amount of research in the area and even priced rent about $50 lower than a few comparables in the neighborhood that rents it out in January. I can afford to pay the mortgage without the rent, but at the same time, I don’t want to have it vacant for much longer.”
So, the first thing I would look at is to the property management company or your property manager. What are the things that they are doing to market your property? If you search your property, or you search, say, the properties in Buffalo. Apartments for rent, Buffalo, New York. Two-bedroom apartment in Buffalo, New York, or whatever the city is that your property is in.
Where do you see the listing? Is it in multiple places? Is it being blasted out to 10 different places? Is there a sign in the front of the yard? So, that’s the first piece I would look at, is the actual marketing of the unit.
And then, I would take your property manager’s advice. They’re the expert, supposed to be the expert, in that market, and get their opinion as to, “Okay, this is listed, what I thought was below $50 before comparables in the area. In your experience, what do you think is the difference between my unit and these other units?” So, maybe these other units have a washer and dryer, and yours doesn’t. And that’s actually becoming more of a big deal than it isn’t. And then, see if there’s an opportunity, for whatever you are missing, to add that into it.
So, maybe these other properties allow pets, and you don’t allow pets. Okay, maybe do reconsider and allow a pet and charge a pet fee upon move-in? Things like that.
So, that’s what I would kind of do some research, before you actually go in and decrease the rent any further than what you have.

Tony:
Yeah, I think the only other thing I’d ask that, Preston, is that you should also look at the numbers and use that to help you kind of make a determination because, say that we look over the next year, over the next 12 months, and say that you’re trying to get a 1,000 bucks for your place right now, but because you tried to get $1,000, your place sits vacant for the next two months. Right? Over the course of that year, you have two months that are empty. So, you’re going to make $1,000 over 10 months, which is $10,000. Say that you dropped the price from 1,000 to 950, and you rent it out this month, now you have a full 12 months, you’re actually going to make more. You’ll make $11,400 at 950 if it’s rented out for the entire year.
And, so, I didn’t even include the fact that you have to pay the mortgage yourself for those two months of the property sitting vacant. So, sometimes, you can make more money by reducing your rent. So, I think just take that into consideration as well, where sometimes real estate investors get so fixated on the monthly amount, they don’t realize the impact that it’s having on vacancy, which is the biggest expense for us, as real estate investors.

Ashley:
And the last thing to add onto that, that’s great advice, Tony, the one thing to be careful with that is don’t … You want to fill that unit. Don’t just take on the first person that applies for your unit and risk getting a bad tenant in. The one time it is good to wait and have that little bit longer vacancy is waiting for a good tenant, and not just settling because you want to get it rented super quick. And then, the people end up trashing the house, and you saw all the red flags, but you just wanted to get it rented. So, that would be my one cautionary tale.
Okay, our last question today on Rookie Reply is from Samuel Hall. “A FSBO, which is For Sale By Owner, has agreed to move forward with my offer. However, they want me to provide comps, comparables, to them. How would you handle this?”
Well, I think this is a great situation for you to control, Samuel. They want you to provide the comps, instead of them going out and finding their own comps. So, I think you can definitely use this to your advantage. So, go onto the MLS, Zillow, realtor.com or whatever, and I would look at comparable properties that have sold in that area, not what things are listed at, because just because they’re listed at something, does not mean they’re actually going to sell for that.
I would also go to propstream.com. They have a free seven-day trial, so just use it for the seven days, and you can cancel it or you can keep it if you love it. But you’ll also be able to pull comparables from there too, by putting in the address, and there’s a little button you push to look at comps in the area.
So, you’re going to compare bedroom count, bathroom count, but also square footage, and then finishes of the property. If you find a property that’s $400,000, but it fits every check box, but it has all these high-end finishes, where yours is still designed in the ’60s, that’s not going to be a good comparable, or you’re going to have to adjust your comparable by showing this house has an extra $100,000 of upgrades in it that this person’s house doesn’t have.
The place that I would be cautious about that is this person probably has this sentimental value to their property, so try not to bash their property by saying, “Oh, these comparables are way better than yours. That’s why I am looking at something different.”
So, even look at, see if you can find a property that is worse than theirs, or level as there’s, and it sold for actually what you are going to pay for it. But I think you do have an advantage by picking and choosing what comps you use, to make your offer look more favorable.

Tony:
Yeah, I think the only thing I’d add to that is, also include, Samuel, and I’m making an assumption here that there’s some work to be done, but I would also include what you predict your rehab budget to be. So, you can go to the seller and say, “Look, I’m buying this property from you for X, but I also need to invest another 10, 20, 50, $100,000 to make this property even livable for the next person. So, I’m taking on all of the work that you don’t want to do.”
And the last thing you can tell the seller is like, “Look, Mr. And Mrs. Seller, I’m going to buy the property completely as is. You literally don’t have to lift a finger. If you want to just leave all the trash here, leave the trash air. If you want to do … Don’t touch anything, I’ll take care of everything. But just know I also have to put a little bit of work into it myself.”
We’ve used that tactic a couple times with some off-market deals we’ve purchased, and it’s been helpful to say, “Look, we get that you have the sentimental value, but for us, it also is a business for us as well, and here’s what we’re going to have to spend to make this worthwhile.”
So, I found that to be helpful when you’re negotiating with folks also.

Ashley:
Yeah, that’s really good advice. So, the more information you can provide as to … that’s going to be to your benefit, the better.
Well, thank you, guys, so much for joining us for this week’s Rookie Reply. If you guys are watching this on YouTube, make sure you are subscribed to the channel, and you like this video for us, and leave a comment below, as to what question and answer you found the most valuable this week. And don’t forget to leave us a review if you are listening on your favorite podcast platform.
Thank you, guys so much. I’m Ashley @wealthfromrentals, and he is Tony @tonyjrobinson, and we’ll be back on Wednesday with a guest.
(singing)

 

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