Think-Realty-Magazine-May-2018

3 THINGS THINGS TO KNOW BEFORE YOU BUILD-TO-RENT

3 TIPS FOR WINNING IN HOT MARKETS

RENOVATION ROCKSTARS

7 INDUSTRY LEADERS EXPLAIN STRATEGY ONE-ON-ONE SPECIAL SUPPLEMENT HISTORIC HOME YIELDS HIDDEN TREASURE A FIRST DEAL FENDS OFF BURGLARY, FLOODING & MORE

INVESTABILITY SOLUTIONS' DENNIS CISTERNA IS REDEFINING THE SINGLE-FAMILY RENTAL SECTOR PAGE 20 Perfect Balance

5 LANDSCAPING DECISIONS TO ADD VALUE NUTS & BOLTS

NOMINATIONS OPEN

$5.95U.S. ::$6.95CAN MAY2018

Partner Up with a Leader Kinloch Partners, LLC Leading the Way to Better Homes

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- New York Times

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Kinloch Partners, LLC is a leader within both the Fix & Flip, and Build-to-Rent single family housing markets, averaging a 97.5% occupancy rate for homes in Atlanta and Nashville. We are engaged with private equity funds, hedge funds, & real estate investment trusts (REITs) with an interest in buying brand new homes. Discover the opportunities of partnering with Kinloch Partners and Kinloch Homes. Contact us today! Visit KinlochPartners.net.

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TABLE OF CONTENTS

INSIDE THIS ISSUE

THINK REALTY 8 News & Events 10 Credit Bureaus Decide to Remove Tax Liens from Credit Reporting

SPECIAL FEATURE 62 Building Community in Real Estate

Real estate, community, and tangible and intangible returns. by Carole VanSickle Ellis

The move could make a risky borrower or tenant look like a better bet. Reporting & commentary courtesy of ApplyConnect DESIGN POINT 12 Renovation Rockstar: New Orleans Edition

INDUSTRYVOICES 88 How to Effectively Leverage Diversity in Your Real Estate Business

Make the most of your innovators, trailblazers, and industry disrupters. by Rosalind Booker

A top-to-bottom makeover in The Big Easy. Featured investors: Braden Smith and Chris Leniek

16 Renovation Rockstar: First-Time Townhouse Success Two new investors find big returns in a burglarized, flooded townhome. Featured investor: SouthHill Homes LLC 2018 TRENDS 42 The Future is Now for Artificial Intelligence in Real Estate Controlling the evolution of A.I. in your investing business. by Linda Liberatore 44 Why We Will Live with Labor Shortages in 2018 & Beyond Housing’s inventory problem is three- pronged and likely permanent. by Bruce McNeilage

90 Discovery of a Parasite in Life and Business Unidentified drains on your resources could be stealing your success. by Gary Harper COACHES CORNER 102 Introducing Kevin Ortner Mission: real estate-based financial security for all 105 Investor Insight from Eddie Wilson Why we strive to influence the real estate conversation. by Eddie Wilson

COVER FEATURE

Investability Solutions' DENNIS CISTERNA is redefining the single-family rental sector.

PERFECT BALANCE

106 Panel in Print: The Rewards of Wealth Building

46 An Effective, Often-Overlooked Strategy for “Recession-Proof” Investing Even when markets are up, protect your portfolio with resilient investments. by Andrew Lanoie 50 4 Noteworthy Changes in Mortgage Finance Recent trends in the private note sector represent opportunity for investors. by Bill Griesmer

by Carole VanSickle Ellis :: photos by Christina Kiffney

Think Realty coaches discuss the many facets of wealth creation in real estate.

108 Investor Insight from Abhi Golhar Think Realty coach and radio host talks practice, perfection, and performance. by Abhi Golhar

MARKETING

NUTS & BOLTS

BIG PICTURE

MARKET BREAKDOWN

56 Doctors Could be the Key to Your Next Commercial Investment Medical spas’ growing popularity is a trend worth watching. by Pamela J. Goodwin

INVESTOR REVIEW 67 Experts Edition Top industry leaders expose insights, strategies & opportunity.

CREATING YOUR CONTENT MARKETING PLAN A multi-platform plan creates leverage for your business.

LANDSCAPINGTRENDSTO INCREASERESALEVALUE Leafy, green decisions canmake the difference when selling for top dollar.

INVESTING STRATEGIES IN A WIDENING MARKET 3 steps for making the right choices for your capital.

REGIONAL SPOTLIGHT: NEW ORLEANS There’s magic in The Big Easy, if you know where to look.

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FROM THE EDI TOR- IN-CHI EF

PUBLISHER R. Michael Wrenn

PRESIDENT, AFFINITY WORLDWIDE Eddie Wilson | EWilson@AffinityWorldwide.com

Trend Tracking: Eyes on Evolution in Real Estate

EDITOR-IN-CHIEF Carole VanSickle Ellis CEllis@ThinkRealty.com

VICE PRESIDENT OF MEDIA SALES Rodney Halford RHalford@ThinkRealty.com 816-398-4111 x86122 NATIONAL SALES MANAGER Teresa Stanton TStanton@ThinkRealty.com 816-398-4111 x86224

our industry, the responsibility for self-education lies more heavily on the investor than ever. To meet this need, in our May 2018 Developing Trends issue, we’ve brought you: • Diverse viewpoints from across the in- dustry on the best sectors and markets in which to invest • Insight customized for individual investors from one of the traditionally “closed” sectors in the industry, institutional investing • Late-breaking analysis of 2018 trends as they have emerged, both with and against expectations and professional predictions, over the first four months of the year At Think Realty, we consider it our responsi- bility as real estate investors to create and sustain an investing community that is self-regulating, self-educating, and constantly evolving to better serve its own needs and those of the broader housing community. To that end, we bring you the latest in practice, strategy, and purpose in real estate. Our commitment to you, in this and every issue, is to continue to “think realty” with your real estate investing success in mind at all times. •

eal estate investors today exist at a critical junction of

extreme automation, profoundly powerful and diverse economic forces, mass communication at near-instantaneous speeds, and completely unprecedented societal and cultural norms and changes.

CONTENT STRATEGY CariAnn Steward

DESIGN CONSULTANTS Rivet | www.WeAreRivet.com

DESIGNER Emily Bowers

Here we sit, more complicated as a society and as an industry than ever before in history, placing our confidence in a foundation com- prised of one of the most solid, unchanging, scarce resources in the world: physical real estate. Thanks to this unique set of circumstances, the real estate investing space is in a state of evolution, even revolution, never previously seen in history. • Never before have there been as many ef- fective, profitable strategies available to real estate investors. • Never before has the financial barrier to entry into this sector been as low across the board. • Never before have we, as investors, had such comprehensive access to information, edu- cation, and strategic development. With such evolution playing out daily in

CONTRIBUTING WRITERS Rosalind Booker, Becky Bower,

Christy Murdock Edgar, Abhi Golhar, Pamela J. Goodwin, William Griesmer, Gary Harper, Jenna Heneghan, Andrew Lanoie,

Linda Liberatore, Bruce McNeilage, Julie Ziglar Norman, Aaron Norris,

Kristina Phelan, CariAnn StewardJames Wachob, Kristin Weekley, Eddie Wilson, and Ingo Winzer.

WHAT'S NEW AT THINKREALTY.COM

COVER PHOTOGRAPHY Christina Kiffney

FOR ARTICLE REPRINTS :: Contact Jeremy Ellis at Reprint Pros, 949-702-5390. www.reprintpros.com. SUBSCRIPTIONS :: The annual subscription for Think Realty Magazine is $28.95 in the U.S. Order online at www.ThinkRealty.com or call 816-398-4085. Provide your full name, address and telephone number. DISCLAIMER :: Think Realty Magazine , its owners, contractors, distributors and their respective representatives do not provide tax, accounting, investment or legal advice and make no guarantee as to the effectiveness or success of any investment or tax strategies discussed herein. Please consult your own independent adviser as to any questions you have or decision you are contemplating. ABOUT THIS MAGAZINE :: ThinkRealtyMagazine isapublicationof AffinityRealEstateMediaLLC.Reproductionoruseofanyeditorial orgraphic,withoutpermission, isprohibited.Wearenotresponsible for thecontentofanypaidadvertisements.Forreprintrights; toob- tainadetailedstatementofourprivacypolicy;and forallsingle-copy requests,addresschangesandothersubscription inquiries:

Free E-Books Just a Click Away!

Increasing personal wealth involves a dedication to continuing education. Simply put, it’s a vital part of reaching a lasting level of prosperity in the REI business. Think Realty is on a mission to deliver investors—like you—a vast wealth of knowledge, always at their fingertips. That’s why we’ve made numerous educational E-books available to you absolutely free when you invest in a Think Realty Membership at ThinkRealty.com!

Never stop learning, never stop earning. Sign up at ThinkRealty.com and discover our library of E-books in the Downloadables section.

CAROLE J. VANSICKLE ELLIS, EDITOR-IN-CHIEF

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THINK REALTY

NEWS & EVENTS

NOMINATIONS NOW OPEN!

The 2018 Think Realty Honors nominations are open, and the submissions are pouring in. Don’t miss the opportunity to recognize the best in the industry, no matter how big or small the real estate business. Our honors recipients are nominated by their peers (that's you!) and evaluated by an independent panel of former winners and industry leaders. Finalists and winners receive recognition in Think Realty Magazine , on the Think Realty website, and at the Think Realty Honors banquet in Atlanta, Georgia, in the fall of this year.

2017 winner, Tammy Phelps with Affinity Worldwide CEO Eddie Wilson

Take 30 seconds to nominate deserving real estate investors and industry professionals at ThinkRealtyHonors.com.

Crowds "Think Wealth" at April Conference & Expo AFTER SUCCESSFUL BALTIMORE EVENT, THINK REALTY MEMBERS "THINK RESOURCES" IN JULY.

Don't miss future events in your area. Learn more at ThinkRealty.com/TR-Events

hink Realty members spent an incredible weekend in Baltimore, Maryland, working closely with indus- try leaders to really focus on the theme of the event, Think Wealth . Attendees at the Think Realty Conference & Expo Baltimore on April 14 and 15, 2018, learned about every as- pect of wealth creation, from doing that first deal to building a lasting legacy for their family and heirs. Think Realty’s next conference and expo will take place in Irvine, California, on July 14 and 15, 2018. The theme of the event, Think Resources , is ideal for the physical location, which offers exciting access to industry leaders developing the best tools and technology for real estate investors. Kathy Fettke, co-founder of Real Wealth Network, will emcee the event. Bruce Norris, president of The Norris Group and famed author of “The California Comeback” in 1997 and “The California Crash” in 2006, will take main stage during lunch on Saturday. Norris is renowned for his ability to fore- cast long-term real estate market trends and timing, so his presence at this event is an unusual and significant oppor- tunity for attendees to hear directly from one of the most far-sighted analysts and investors in the industry. Become a Think Realty member and qualify for exclusive trainings, supplier discounts, and other exciting opportunities by visiting ThinkRealty.com/Join.

IRVINE

July 14-15, 2018 | The Marriott Irvine Spectrum THINK RESOURCES : Tech & Innovation

ATLANTA

September 22-23, 2018 | The Westin Buckhead Atlanta THINK PURPOSE : Investing with Impact

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THINKREALTY MEMBER BENEFITS

APPLY CONNECT

Alert: Credit Bureaus Decide to Remove Tax Liens from Credit Reporting THE MOVE COULD MAKE A RISKY BORROWER OR TENANT LOOK LIKE A BETTER BET.

Reporting & commentary courtesy of Think Realty supplier ApplyConnect

hen Transunion, Equifax, and Experian PLC sent out information on credit scores in April, some risky credit applicants may have appeared more creditworthy than they really are. Thanks to a decision to remove tax liens from credit reports, potentially risky borrowers will have a better chance at getting approved for loans and other credit-based requests, including tenant applications. The move is intended to prevent a single negative event (failure to pay certain taxes) from preventing borrowers from accessing much-needed credit, and stems from ongoing legal struggles and class-action lawsuits between consumers and the three credit scoring firms. While real estate investors (other than private and hard-mon- ey lenders, of course) may not be particularly concerned about whether individuals delinquent on their taxes can borrow W

Sabrina Bower, president of consumer-initiated tenant screening provider and court data abstractor ApplyConnect. “Alternate data, such as unlawful detainer records derived directly from court documents, provide a clearer picture of the ap- plicant’s ability to pay their rent or mortgage payment,” she added. LexisNexis Risk Solutions estimates that the removals will affect more than 5.5 million liens, and roughly as many borrowers. The three credit bureaus began removing public information about civil judgments and some tax liens last July as part of the National Consumer Assistance Program (NCAP). The bureaus first targeted reported judgments and liens on which the companies could not be entirely certain they were matching events to the correct people. This often happens when an event is reported but there is not enough personal information to determine if the event has been matched with the correct individual. The issue for landlords and rental property investors lies in the creation of a “blind spot” with the removal of those delinquencies, Bower noted. Since the information still exists in the public record, it will still be available, she said. “Moving forward, it will be the responsibility of requesting agents to use sources of information that include an eviction report, separate from the credit check, with unlawful detainer records.” • ApplyConnect is a Think Realty supplier offering consumer-initiated tenant screening to landlords and turnkey operators. Learn more about the benefits available from ApplyConnect to Think Realty members at ThinkRealty.com/Supplier-Discounts.

money, anyone invest- ing in rental properties certainly should be. “The removal of monetary civil judgments and tax liens from consumer credit reports by the three credit bureaus due to the NCAP agree- ment underscores why it is critical landlords and property manag- ers request a separate, nationwide eviction records search,” said

“The recently removed information from credit reports will affect various industries in different ways. For rental housing, it means a supplemental nationwide eviction report should be added to all credit reports when reviewing applicants.”

SABRINA BOWER President, ApplyConnect

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DESIGN POINT

RENOVATION ROCKSTAR

THE NUMBERS:

PURCHASE PRICE................................................................ TOTAL RENOVATION BUDGET............................................... TIMELINE............................................................... SALES PRICE......................................................................... ESTIMATED PROFIT................................................................. PROJECT NOTES: • The investors used a private lender for this deal, putting 10 percent down and paying 10 percent interest and two points on the back end. • Smith had to fire a contractor early in the process, which extended the duration of the project. Leniek “saved the day,” Smith said, “which led to our very good working relationship as well as a fruitful partnership.” • Smith recommended investors considering fix-and-flips in the New Orleans market should look for projects that will take no more than three or four months and that can be priced to sell within the first month on market while still yielding a good return. ~$150,000 ~$100,000 ALMOST ONE YEAR $330,000 $80,000 • Since its sale in late 2017, this property has gained roughly $16,000 in value according to Redfin. Mortgage points, also known as "discount points," are paid directly to the lender in exchange for a reduced interest rate. One mortgage point costs one percent of your mortgage amount.

Renovation Rockstar: NewOrleans Edition A TOP-TO-BOTTOM MAKEOVER IN THE BIG EASY.

Featured investors: Braden Smith and Chris Leniek

Solutions, and Leniek, owner of St. Croix Construction, are both licensed realtors in addition to real estate investors. Smith noted that they both view the license as an advantage when putting their projects on market. “We price these homes right to get them sold within the first month on market,” he observed. In the case of this off-market property, however, the timeline was a little different than Smith had originally planned. “I

ew Orleans-area investors Braden Smith and Chris Leniek are not

got this property off-market from a local wholesaler, and we knew we were going to have to make big changes,” he recalled. The team added a bathroom, created a master suite, put in new wood floors throughout, repainted the exterior of the home and added a front porch, sidewalk, and sod. “We also redid the roof, the HVAC, the electrical and the plumbing,” Smith said. “It was pretty extensive, but most of our renovations are.”

afraid of much of anything in their unique real estate market, so taking on a two-bed- room/one-bath home in need of a near-to- tal remodel was pretty much par for the course. “We buy run-down properties, fix them up, then sell them,” Smith explained. “My business partner (Leniek) is a contrac- tor, so we’ll do just about anything.” Smith, owner of REvitalize Property

BATHROOM BEFORE

BATHROOM AFTER

Because the home’s original Spanish-style architecture is attractive to many buyers, Smith and Leniek remodeled and updated while keeping the historic attraction of the neighborhood in mind. “We used tile in the bathrooms with an old look and feel appropriate for the neighborhood and worked with the

old-school molding and trim already existing in the home to keep that historic look,” Smith said. During the rehab process, the investors opted to add a second bathroom with a style similar, but not identical to, the first.

BEFORE

BATHROOM AFTER

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As part of the property’s makeover, the investors opened up the floor plan by removing a wall, closing off a side door that led outside from the kitchen (visible half-covered in before images of the kitchen), and creating a walk-in pantry with a fashionable barn door closure. They also installed new wood floors throughout the house.

BONUS ROOM BEFORE

KITCHEN BEFORE

KITCHEN AND LIVING AREA (OPEN CONCEPT) AFTER

MUDROOM AFTER

The home originally had only one bathroom, so the investors used space taken from a “bonus” room that had been added off the back to create a master suite that included a second bathroom. “The bonus room had no closet, so it was not considered a bedroom,” noted Smith. “We added a second full bath and a walk-in closet using some of that space, then used the remainder to create a mudroom with a built-in at the rear door of the house.”

LESSONS LEARNED:

“We learned a couple of important lessons with this deal, such as the fact that stucco houses can be a pain to deal with in our climate and tend to have more termite damage than others. “We will also never leave any of the old plaster walls in place again. In this property, we replaced the plaster in some areas, but not all. It would have been much easier to just get it all out of there and go back in with new drywall.” – Braden Smith

BACKYARD AFTER

LIVING/DINING AREA BEFORE

Brand new flooring, bright colors, and clean lines completely changed the look of the living area (below). The investors kept the focal feature in the room, the fireplace, intact, as an attractive, unique nod to the home’s historic location.

BATHROOM AFTER

LIVING AREA WITH FIREPLACE AFTER

BEDROOM AFTER

DEALINGWITHTHE FLOOD FACTOR:

This property is located in flood zone X, which might sound a little intimidating to non-natives. However, Smith noted, zone X was an advantage for this deal. “In New Orleans, everything is below sea level. That means everything is in a flood zone. The X flood zone is a more favorable flood zone, so, in turn, there will be a lower cost on flood insurance. That helps when selling the property!”

LIVING AREA WITH FIREPLACE BEFORE

Braden Smith is the owner of REvitalize Property Solutions, and Chris Leniek is the owner of St. Croix Construction. Learn more at www.revitalizepropertysolutions.com and www.stcroixla.com.

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DESIGN POINT

RENOVATION ROCKSTAR

THE NUMBERS:

PURCHASE PRICE...................................................... REHAB AND HOLDING COSTS................................... TIMELINE............................................................... ESTIMATED ARV......................................................... SALES PRICE........................................................... TOTAL PROFIT..............................................................

~$91,500 ~$104,000 10 MONTHS $240,000 ~$250,000 $53,750

BEFORE

AFTER

STAIRCASE BEFORE

3 bedrooms

3.5 bathrooms

2.5 bathrooms

Open concept main level, fully finished basement, master suite with walk-in closet and bath

Very few walls, fixtures, or interior architecture

AFTER

Renovation Rockstar: First-TimeTownhouse Success TWO NEW INVESTORS FIND BIG RETURNS IN A BURGLARIZED, FLOODED TOWNHOME. The exterior of the townhome did not need a great deal of work, but the inside was another story. The investors added fresh paint and minor landscaping when they put the property on the market.

by Carole VanSickle Ellis

shape even though it was built in 2004.” Although the townhome did not require any structural work, the two investors had a big job cut out for them. “The previous owner had combined two upstairs bath- rooms into one big master bath. At some point after the bank took the house back, the copper was stolen. The house had been completely stripped of sheet rock in the basement and elsewhere prior to purchase. Somewhere along the line, the house also flooded,” recalled Lipsitz.

hen Jason Lipsitz and his business partner, Lee Fondiller,

Nevertheless, the partners got to work repairing the property. “We knew we needed to work fast because the Mary- land market is extremely hot,” observed Lipsitz. “When we put the home on the market, we had an offer almost immedi- ately, although that offer was rescinded when the buyer learned the neighbor had several cats. We put the house back on the market and received multiple above- list-price offers in the next 48 hours, so it was a good experience for our first deal!”

co-owners of South Hill Homes, got a first glance at their very first fix-and- flip deal, they realized that they were in for some serious work. Fortunately, that work came with some pretty serious returns, as well. “We got the lead from our mentor, Craig Fuhr of FLIPClub,” said Lipsitz. “The house was an REO that had been purchased at a foreclo- sure auction, and it was in pretty rough

BASEMENT LIVING AREA BEFORE

The interior of the house had been burglarized, flooded, and scavenged. In addition to the previous owner’s unusual renovations to the third-floor bathrooms (see pg. 19 for details), the investors had to deal with stolen copper, completely demolished sheetrock, and water damage. The entire interior of the home had to be redone.

NEARLY EVERYTHING IN THE PROPERTY HAD TO BE REPLACED AFTER VANDALS TORE THROUGH THE PROPERTY.

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Due to vandalism, vacancy, and the former owner’s decision to consolidate both upstairs bathrooms into one master bath, the entire third floor of the townhome required extensive renovations (see below). When the job was completed, the third floor once again had two bathrooms (one attached to the master bedroom and

The addition of dark hardwoods throughout the main floor and stainless-steel appliances, a custom glass tile backsplash, and granite countertops in the kitchen made the home very attractive in the hot Maryland market. The team also re-stained the deck and painted the main floor in trendy but neutral colors and carried the glass tile theme into some of the bathrooms as well.

LIVING ROOM AFTER

one hall bath) and boasted beautiful vaulted ceilings.

MASTER BEDROOM AFTER

UPSTAIRS BEFORE

KITCHEN AFTER

DECK AFTER

Both investors noted that they were particularly pleased with their results in the master bathroom, which they described as “really modern and fresh.” However, Lipsitz observed, “For future projects we would not choose black grout.” Dark grout colors are popular because they are easier to keep clean, but they can cause issues during installation because they tend to create more of a mess. Some installers add several days’ worth of work onto price estimates when installing tile using black grout to deal with the additional work associated with cleaning up afterward. •

BASEMENT LIVING AREA AFTER

MASTER BATHROOM AFTER

The finished basement is bright and airy with a full bath and spacious bedroom and living area. All water damage was fully remediated.

BASEMENT BATHROOM AFTER

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COVER STORY

DENNIS CISTERNA

PERFECT BALANCE

Investability Solutions' Dennis Cisterna is redefining the single-family rental sector.

THERE ISAPLACE INEVERYASSET CLASS FORSMALL INVESTORSAND BIG INVESTORS.

BY CAROLE VANSICKLE ELLIS PHOTOS BY CHRISTINA KIFFNEY

SMALL INVESTORS OWNMOREOFTHE MARKET, BUTLARGER INSTITUTIONS DRIVE CHANGE.”

DENNIS CISTERNA CEO OF INVESTABILITY SOLUTIONS

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COVER STORY

DENNIS CISTERNA

With a degree in political science and a deep and multifaceted background in development, market analysis, and finance, Cisterna decided his way forward from Toll Brothers would be unconventional. “I got laid off on Friday and started my consulting firm, American Pacific, on a Monday,” he said. Over the next few years, American Pacific consulted with dozens of the biggest financial industry players, including several of the largest banks in the country, about how to manage their swelling book of foreclosed homes, commercial properties, and large tracts of land. On the other side of the coin,

Cisterna also advised large private equity firms and hedge funds how to capitalize on the distress in the market. After nearly five years, he was recruited to run the west coast office of the Carlton Group, a well-known New York-based real estate investment banking firm with a penchant for mega-deals. “I had companies coming to me to determine the feasibility of buying thousands of houses at a time. They also needed to raise equity or debt to execute that strategy, and in the SFR investment space alone I facilitated and consulted on the deployment of about $250 million in the span of about nine

months,” he recalled. Total institutional investment in SFR homes is estimated today at about $33 billion, but at the time, $250 million was unprecedented. “I thought to myself, ‘Wow, this is really about to take off,’” Cisterna said. “People were buying properties below replacement cost and the big investment firms were figuring out how to operate these investments. It was going to turn into something more like multifamily than we had seen on the SFR side of things previously. I knew I had to be a part of that transition or I was going to end up a well-educated advisor that was not necessarily special or unique in what I was offering the real estate sector. I

SINGLE-FAMILY RESIDENTIAL (SFR): A designation used to describe real estate used for living space by a single household. TERM FINANCING: A loan with a specific repayment schedule and a fixed or floating interest rate. INSTITUTIONAL REAL ESTATE INVESTOR: A large organization that makes substantial investments in real estate- based assets.

WHEN DENNIS CISTERNA, CEO of Investability Solutions, joined the Altisource Portfolio Solutions offshoot's “one-stop shop” for single-family residential (SFR) investors, he did so with a clear mission in mind. “It should not be difficult to acquire, finance, manage, and structure partnerships in real estate,” Cisterna said. “There is a place in every asset class for small investors and big investors, and it is the responsibility of the industry giants to be a catalyst for positive change.” Cisterna's mission aligns perfectly with the Altisource family of companies stated goal of “providing services and technology for the mortgage and

real estate industries” while keeping “innovation as a guiding principle. The move also suited Cisterna perfectly, since he had maintained a bead on the single- family residential (SFR) rental industry since shortly after the housing crash. “Before the crash, I was running acquisitions for Toll Brothers in Southern California,” he recalled, adding that his division went from 160 employees to 16 during the foreclosure crisis. Cisterna knew it was only a matter of time before his position was eliminated as well. “Homebuilding and land acquisitions were the last things on anyone’s mind when defaults were occurring everywhere,” he said.

Cisterna's attraction to the SFR space stems, in part, from the positive feeling he associates with creating "good homes" for families. "You don't get that same kind of feeling if you finance an office building," he said.

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COVER STORY

DENNIS CISTERNA

In 2000, one of Cisterna’s first on-the-road assignments was a market evaluation for a master-planned community in Denver called Stapleton. “It was an old airport that was being redeveloped, and I remember thinking how cool it was that there were going to be 20,000 houses in that development,” he said. “A few years later, I drove through Stapleton on another assignment, and it was just awesome to see the neighborhoods I had been consulting on were built and had families living in them. It was just a neat, fulfilling experience that created a passion that never really left me.” Today, Cisterna lives in that Stapleton community. for cutting-edge tools and advances in sector-related services and technology.” Cisterna cited the evolution of private capital as an example of big business benefitting smaller investors. “There used to be few or no options outside of Fannie and Freddie or hard-money lenders if you wanted to finance an SFR rental property. Now, the industry has billions of dollars available for that purpose, and markets all over the country and investors at all levels have benefited from that shift,” he said. Another example: property management services, Cisterna said. “There are so many different types of technology today that enable smaller investors to grow and leverage their

“EVEN IF I’MMAKING DECISIONSTOBUY ORRENOVATE HUNDREDSOR THOUSANDS OFHOUSES, IN THEBACKOFMY MIND I KNOW THE FINISHED PRODUCT, REGARDLESSOF WHATSERVICE I’MPROVIDING, ISAPLACE FORAHAPPY HOMEOWNEROR AHAPPYRENTER TOHAVE SAFETY, SECURITY, AND PEACEOFMIND.”

advantage of everything they can “from the top down” in the real estate industry. Likewise, he said, it is the responsibility of the industry giants to drive evolution, progress, services, and technology. “There is a place in every asset class for small investors and big investors. Small investors own more of the market, but larger institutions drive change,” he explained. “Smaller investors should not be threatened by the presence of true institutional investors (companies, by Cisterna’s definition, that have hundreds of millions in assets under management) in the market. Those are the companies that you can look to for unique insights and innovations. They are the catalysts for development,

closely with Blackstone Group to create B2R Finance in 2013 to serve that underserved population of investors.

jumped in with both feet.”

how it’s shaped going forward,” Cisterna said. “I’m fully vested into this sector for the remainder of my career.”

A PASSION FOR EVOLUTION Cisterna’s version of “jumping in with both feet” involved a transition to Johnson Capital in early 2013 to run their Opportunistic Finance Group and expand capital-raising opportunities within the residential investment space. Within a few months he had teamed up with Blackstone Group, the largest alternative investment firm in the world, to co-create B2R Finance. “That was a huge evolutionary piece of the puzzle for the SFR industry,” he observed. “No one else at the time was offering term financing for single-family rental portfolios on a national basis, and we developed a process to offer them five- and 10-year fixed-rate loans.” B2R Finance was one of the first private lenders focused on providing term financing for single-family residential (SFR) rental property investors. Dennis Cisterna (at Johnson Capital at the time) worked

Today, B2R is part of Finance Company of America.

A PLACE FOR EVERY INVESTOR ON THE CUTTING EDGE OF INDUSTRY For someone with a background in “big finance” and institutional investing, Cisterna’s interest in the SFR space is surprisingly oriented on the individual household and the individual investor. “Making money is great, but there is also something inherently attractive about residential investments in general. Investors should feel really good when they see the fruits of their labor resulting in people having the ability to own or rent a good home that they want to live in. You don’t get that same kind of feeling if you finance an office building,” he said honestly. Because of his background working with hedge funds and huge investment firms, Cisterna believes the best way for real estate investors running relatively small real estate businesses to thrive is to take

From there, Cisterna moved to FirstKey Lending, a subsidiary of Cerberus Capital Management, and one of the leading private investment firms in the nation. “We completed the first multi-borrower SFR rental securitization in the market and set a precedent for that type of private lending for the future at the same time,” he said. In 2016, he moved to Investability as the company’s chief revenue officer and was selected to serve as the CEO of the company in mid-2017. “I feel like this company and my position is the natural continuation of fulfilling that prophecy of taking the single-family investment sector to the next level. My background really fits well into where this industry is headed and, as a thought leader in the space, I want to make sure I can continue to be an architect for

Investability Solutions offers an extensive set of services to the institutional SFR investment community in a single, seamless platform including renovation services, property management, acquisitions, data analytics and brokerage services. Investability Solutions is part of the Altisource Portfolio Solutions S.A. (NASDAQ: ASPS) family of businesses. For more information visit investability.com

DENNIS CISTERNA

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COVER STORY

DENNIS CISTERNA

DENNIS CISTERNA EXPLAINS THE INSTITUTIONAL BUYING PROCESS IN THE SINGLE-FAMILY MARKET " Hedge funds and private equity groups buy to a certain return is practically no foreclosure volume. People are moving out of their homes at a much slower clip than they have

discipline. Hedge funds are more likely to have it than individual investors.”

LOOKING FORWARD: MARKETS, DISRUPTION, AND THE BEST INVESTMENTS THIS YEAR Cisterna is not shy about commenting on market conditions around the country, and he often cites Investability data as a key component in his analyses. “One of the main reasons we have so much data to discuss is thanks to the Altisource purchase of RentRange a few years ago,” he observed. “Between Altisource data and RentRange data, we are now one of the largest data providers in the single-family investment sector.” Cisterna emphasized real estate markets are inherently logical, which means there is opportunity in every market if an investor leverages the right system for that market and the right strategy for their own business. “Generally speaking, however, there are certainly some markets that might offer more opportunity than others right now,” he admitted. “I see the most opportunity in the Midwest and the Rust Belt along the Northeast, as well as a couple of markets in the South.” Cisterna also recommended investors not become too narrowly focused on major metro areas. “There are a lot of good-sized, solid secondary and tertiary metro areas that are experiencing either continued expansion or a resurgence of their local economy,” he said, making particular note of these markets in the South and parts of the Rust Belt. These markets may appeal to individual investors in part because they are less likely to have high volumes of institutional investor activity. “Typically, if you’re investing in Dallas or Houston, Texas; Orlando, Florida; or

METROPOLITAN STATISTICALAREA (MSA): A geographical region with relatively high population density at its core and close economic ties throughout the area. PRIMARYMARKET: Any metro with a population of 2.5 million or more. There are 20 primary markets in the U.S. at present. SECONDARYMARKET: Any metro market with a population of 1 million to 2.5 million. There are 31 secondary markets in the U.S. at present. TERTIARYMARKET: Any metro with a population of less than 1 million. There are 61 tertiary markets in the U.S. at present. RUST BELT: The region of the United States beginning in western New York, passing through Pennsylvania, West Virginia, Ohio, Indiana, Michigan, Illinois, Iowa, and Wisconsin. The term is often used to describe any area of the northeastern U.S. or midwestern U.S. that has experienced deindustrialization and subsequent urban decay. Some investors conflate the Rust Belt with the Midwest, but this is inaccurate. Market definitions courtesy of ATTOM Data Solutions.

threshold, so there is no arbitrary purchasing by them in any market. An exception to that could be when homes are trading below replacement cost, as they were in the wake of the foreclosure crisis. At that point in time, all sorts of institutional inves- tors were purchasing opportunisti- cally because they knew eventually home prices would come back up, so you could argue there was much less discipline in 2011, 2012, or 2013. There was not the same need for discipline on the part of the big funds during those years because the mar- ket was essentially near the bottom. “Today, however, big funds are buying SFR properties knowing that they have to meet several requirements: • A certain amount of annual yield (without factoring in appreciation) • Minimum neighborhood characteristics such as school score, crime ratings and proximity to employment • Consistent property characteristics such as property age, bedroom and bathroom counts, and enclosed garages “What we are seeing in nearly every market is tremendous demand and not much supply, even though there is job growth throughout the country in nearly every major metro area. Everyone, both big investors and smaller ones, are essentially frozen out of many major markets. There are next to no new houses being built. There

done historically. It’s important to remember that if institutional inves- tors did not come in when they did to stabilize the markets, we could be in a much worse spot than we are today. The market needed that liquidity they brought to the table. The issue today is a complete lack of inventory.” “When the market crashed, we had too much inventory and not enough capital in the market. Now it is the other way around, and I don’t see the nation suddenly building a lot of new housing to satiate that demand. We’re between a rock and a hard place. “I don’t think we want to see de- mand decline, as that would generally be an indicator of larger economic is- sues. That is leading to investors start- ing to get very creative to source new opportunities – build-to-rent, market expansion, direct mail, more complex renovations. All these methods and many more are being used successful- ly by investors willing to go the extra mile for their investment objectives. “In my opinion, guerilla market- ing can give individual investors access to inventory unavailable to the larger funds by expanding the ways in which they seek leads.” ON RESOLVING THE INVENTORY ISSUE: Dennis Cisterna hosts a regular podcast, “The Investability Podcast,” to provide insight into the evolving SFR investor market to investors on every scale. It may be found at investability. podbean.com/.

MAKING THE MOST OF THE INSTITUTIONAL PRESENCE While conventional real estate wisdom often advises smaller real estate businesses against diving into housing markets and sectors with heavy institutional presences already, Cisterna’s unique take on the breadth of the SFR sector leads him to present a very unconventional view on the trend of big investors taking on a larger role in residential rental real estate (see sidebar on p. 27). “You will hear investors say that they do not want to get involved in their local market, for example, because ‘the hedge funds’ are just buying everything in sight. Really, those funds can make a market a lot more predictable for smaller investors because they have certain stated thresholds and they work in a scalable way,” he explained. “The disruption comes into the picture when individual investors see the buying activity from those funds, then overpay for assets themselves. It’s a question of

portfolios in ways that never could have happened prior to big institutions entering the SFR space. The capital markets and the technology available followed the ‘big money’ and evolved to work with smaller real estate businesses,” he continued. “So many of the innovative online tools and services that make being a property manager at any portfolio volume so much easier evolved out of necessity once the biggest players in the ‘field’ were captured. As you can imagine, if I own a real estate- services company and I’m trying to grow my revenue, once I’ve captured the institutional sales I then must go downstream to the next level of investor. That trickle-down effect in products and services for real estate investors benefits every investor at every level, but those products and services, in many cases, would not have been created, refined, or perfected in the first place if it were not for the initial entry of the large investors in the space.”

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COVER STORY

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DENNIS CISTERNA

LESSONS LEARNED: DENNIS CISTERNA BREAKS DOWN ONE OF HIS EARLIEST (AND TOUGHEST) REAL ESTATE INVESTMENTS " There are some disasters that are unavoidable, but

others are not," said Dennis Cisterna bluntly. “In fact, one of the biggest disasters I ever encountered in real estate was a personal error that I really should have avoided entirely. “Early in my investing career, a few other investors and I bought a property in Memphis, Tennessee. At the time, we didn’t know anything about Memphis other than we could buy houses very cheap. This property had all the essentials for very high returns, but we missed some signs that it was very risky. “Specifically, my investment was in one of the most dangerous parts of Memphis. There was a lot of crime in that area. While we were trying to renovate that property, it was burglarized nearly every night. Say we started roofing the house and putting in appliances. Not just the appliances, but even the roofing supplies and framing would be gone the next morning! If any of us had been local, on-the-ground investors in Memphis, we would have known better than to buy that property, or we would have known to factor in the cost of the security company into the costs of the rehab. “I tell every investor, big and small: Don’t try to do everything yourself unless that property is right next door to you. Take advantage of all the top- flight service providers who can help you make good decisions and protect your investment. In a nutshell, don’t try to do all the heavy lifting yourself, especially if you cannot physically touch your investment or you have no prior experience in that sector.”

there are areas of the city where we see investors finding huge success. Detroit is adding jobs, and it has neighborhoods that are highly successful.” Cisterna added Detroit is not alone. “There are a lot of historically great urban centers like Detroit finding new ways to reinvent themselves all the time. There is a tremendous amount of opportunity in those markets, but you must really go in, do your due diligence, and align yourself with service providers who can fulfill your needs. Otherwise, you could end up hanging in the wind,” he said. “The important thing is to identify which real estate market fits your investment goals. Opportunity in real estate doesn’t have a border.” • Cisterna's early investing experiences contributed to his dedication to working with educated, multifaceted teams in every aspect of investing.

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Atlanta, Georgia, for example, you will face investors of every size,” Cisterna noted. “But if you go to Birmingham, Alabama; parts of South and North Carolina, Cleveland, Ohio; or Buffalo, New York, then you will likely have less

exposure to that competitive set.” He also mentioned Detroit, Michigan, as a market to watch in 2018. “A lot of people avoid Detroit because it has sunk so far from its zenith from an economic and financial perspective. However,

Carole VanSickle Ellis is the editor of Think Realty Magazine. She can be reached at cellis@thinkrealty.com.

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HOUSING NEWS REPORT

ATTOM DATA SOLUTIONS

second units — most notably parking requirements, setback requirements, and utility connection fees. An Accessory Dwelling Unit Memorandum published in December 2016 by the California Department of Housing and Community Development claims that these “changes to ADU laws will further reduce barriers, better streamline approval and expand capacity to accommodate the development of ADUs.” The legislation certainly appears to be accomplishing its goal of accommodating the development of ADUs. Statewide in California, building permits for ADUs increased 63 percent in 2017 compared to 2016, the biggest increase among 20 states with at least 100 ADU building permits issued in 2017, according to an ATTOM Data Solutions analysis of building permit data from Buildfax. Nationwide, building permits for ADUs were unchanged in 2017 compared to 2016. California had the most ADU building permits issued in 2017 of any state, with 4,352, followed by Oregon (1,682), Washington (1,110), Florida (944) and Maryland (872). “As affordability worsens, the incentive for homeowners to build ADUs becomes greater. But the cities just have to let them. That’s the only barrier,” said Holly Tachovsky, CEO at Buildfax, who noted that the rise in ADU building permits in some inventory- and affordability-challenged cities reflects a larger trend she has noticed in remodeling in the wake of the Great Recession. “Americans are now spending more money remodeling homes than they are building new ones. This flipped in 2009 and it has stayed flipped since then. The previous trend in all of recorded data before that — decades and

decades — was new construction dollars were more than remodeling dollars.”

You don’t want to tell the other miners where to look.” The Southern California developer was willing to provide a general, high-level outline of his strategy to the Housing News Report. He said he dove into the legislation and determined which type of streamlined ADU would work best for him as a developer and then identified cities that have a large number of properties with good potential for that specific type of ADU and are most accommodating to ADU development. “Go where they are going to roll out the red carpet for you,” he said, noting that some cities have resisted the statewide legislation. He highlighted Inglewood as one city that refused to issue any ADU permit in 2017 — confirmed by the ATTOM analysis of building permit data from Buildfax. “There are other cities that actively want this type of development. Go do development there.”

A “TON OF MONEY” IN ADUS Among 30 California metropolitan statistical areas analyzed, the biggest increase in ADU building permits was in Santa Barbara (up 314 percent). Three other Southern California cities posted increases in the top five among the state’s metro areas: Oxnard- Thousand Oaks-Ventura (up 179 percent); Los Angeles-Long Beach- Anaheim (up 127 percent); and San Diego (up 71 percent). One Southern California developer smells opportunity for a new niche in real estate development thanks to the state’s legislative changes. “I think there’s a ton of money to be made in these ADUs,” he said, asking not to be identified by name in the article to prevent other investors from copycatting his strategy. “It’s sort of like a gold mine.

The Promise and Pitfalls of Accessory Dwelling Units as an Affordable Housing Panacea

STATES WITH INCREASING ADU BUILDING PERMITS 2017 Year-Over-Year Percent Change In ADU Building Permits

California Hawaii Tennessee Washington Illinois Maryland Oregon Pennsylvania Florida North Carolina

63%

31%

25%

LEAD ARTICLE FROM HOUSING NEWS REPORT BY ATTOM DATA SOLUTIONS

22%

14% 14%

by Daren Blomquist, Executive Editor and SVP, ATTOM Data Solutions

13%

the development of accessory dwelling units (ADUs) in the hopes that real estate developers and single-family homeowners can create more affordable housing inventory one granny flat at a time. A trio of California laws that took effect in January 2017 is one example

of such an attempt to streamline ADU development. The laws (SB 1069, AB 2299, and AB 2406), encourage cities to ease some of the common hurdles to the permitting and building of accessory dwelling units (ADUs) — also known as granny flats, in-law units or just

paucity of affordable housing that threatens to inflame a burgeoning

10%

homelessness crisis and trigger an exodus of well-paying jobs is forcing local governments to consider creative solutions to this intractable problem. One such solution is to streamline

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