Housing-News-Report-July-2017

NAMED THE NATION’S BEST NEWSLETTER BY NAREE

JULY 2017 VOL 11 ISSUE 7

MY TAKE BY JOSH CANTWELL FREELAND VENTURES P9 

BIG DATA SANDBOX THE HOME FLIPPING PYRAMID P14 

SPOTL IGHT FLIPPING TO RENT IN MEMPHIS

P15 

Contents

FEATURED ARTICLE

Nearly six months into the tumultuous presidency of Donald J. Trump, an already red-hot real estate market is burning even hotter despite the lack of any major housing policy changes enacted by the new administration or its allies on Capitol Hill. And key housing trends so far in 2017 are even stronger in Trump-won counties than in Clinton-won counties. Is this Trump housing built to last or built purely on bombast and therefore bound to fall flat? P1 TRUMP HOUSING BUMP: BUILT TO LAST OR PURELY BOMBAST? Since buying his first investment property more than 15 years ago, Josh Cantwell has evolved from being a real estate investor to being a money magnet for real estate investing in his hometown of Cleveland and across the country. He shares 12 steps other real estate investors can take to follow his blueprint of success, which has allowed him to buy and sell more than 700 properties since 2003 and fund more than 200 property deals for clients, coaching students, and friends since 2015. P9 MY TAKE: BECOME A REAL ESTATE INVESTING MONEY MAGNET

P14 BIG DATA SANDBOX: THE HOME FLIPPING PYRAMID

More than two-thirds of the 44,000 single family home and condo flips in Q1 2017 were by investors who completed just one flip during the quarter, and those mom-and-pop investors tended to pay more upfront and take longer to complete the flip compared to larger investors completing multiple flips. Mom-and-pop investors were also more likely to finance the purchase of a home flip compared to larger investors.

P15

P15 SPOTLIGHT: FLIPPING TO RENT IN MEMPHIS

Memphis is the epicenter of an emerging trend in home flipping — flip-to-rent. The metro area posted the nation’s highest home flipping rate in the first quarter of 2017 — even surpassing its previous home flipping peak in Q1 2004. But only 8.1 percent of homes flipped in Memphis went to FHA buyers, typically first-time homebuyers, despite the market’s reasonably priced homes. Instead other investors are buying these flipped homes as turnkey rentals, a trend that could spread to other markets.

P22

P22 DATA IN ACTION: HOTTEST HOME FLIP ZIPS HEAT MAP

Flipped homes accounted for at least one in every five home sales in 72 U.S. zip codes in the first quarter of 2017 — well above the national average of 6.7 percent of all home sales that were flips in the first quarter, according to the ATTOM Data Solutions Q1 2017 U.S. Home Flipping Report. This interactive heat map provides detailed data on thousands of zip codes nationwide so you can see the latest home flipping trends in your local market and others across the country.

HOUSINGNEWS REPORT

LEAD ARTICLE

TRUMP HOUSING BUMP : BUILT TO LAST OR PURELY BOMBAST?

BY DAREN, BLOMQUIST, EXECUTIVE EDITOR

“We’ve certainly seen what the stock market has seen, the Trump Bump,” said Jason Hartman, founder and CEO of Platinum Properties Network, which helps real estate investors acquire income property across the country. “Since the election people have rushed into the market. I can feel it. We don’t have enough inventory to sell to investors.”

That low inventory combined with surging demand from investors and other buyers is continuing to place upward pressure on U.S. median home prices, which rose 8.7 percent from a year ago to $215,500 in Q1 2017 — the largest year-over-year increase in three years — according to data from ATTOM Data Solutions.

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Evidence of strong investor confidence in the housing market shows up in the share of home flippers taking out loans to purchase investment properties, which increased to a nine-year high in the first quarter of 2017. Hartman, who also provides hard money financing to home flippers, said a flood of capital is making that space much more competitive. “There is yield compression in the hard money lending space. I used to get 12 percent and two points, but I rarely get that,” said Hartman, who lives in Las Vegas. “They (flippers) just keep paying me back too quickly, and there is so much money funding deals they have no trouble finding money to do deals.” Meanwhile foreclosure activity in April dropped to the lowest level since November 2005, and the share of

seriously underwater homeowners at the end of Q1 2017 dropped by 1.2 million compared to a year ago and is now down by more than 7 million since peaking in Q2 2012. Even battered Rust Belt real estate markets — many of which helped Trump win the presidential election — are experiencing a surging real estate

market, although local experts don’t always attribute that surge solely to the new president. “It’s not Dallas here. It’s not Boulder or Denver, but it’s a very active market,” said Brian Stark, a real estate investor and host of a real estate-focused radio talk show in Cleveland, Ohio.

We’ve certainly seen what the stock market has seen, the Trump Bump. Since the election people have rushed into the market. I can feel it. We don’t have enough inventory to sell to investors.”

JASON HARTMAN FOUNDER AND CEO PLATINUM PROPERTIES NETWORK LAS VEGAS, NEVADA

U.S. MEDIAN HOME PRICES YOY PCT CHANGE

MEDIAN SALE PRICE

20.0%

$250,000

15.0%

$200,000

10.0%

5.0%

$150,000

0.0%

$100,000

-5.0%

-10.0%

$50,000

-15.0%

-20.0%

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U.S. MEDIAN HOME PRICES

AVG ANNUAL HOME PRICE APPRECIATION JAN-MAY 2017

I think that the election came at a time when the economy was already turning around, but Trump used the inertia we already had to catapult the emotion. … He’s got the right timing. Everybody’s going to come in and say ‘Trump made it happen.’”

4.3%

4.0%

BRIAN STARK REAL ESTATE INVESTOR AND RADIO HOST CLEVELAND, OHIO

CLINTON-WON COUNTIES

TRUMP-WON COUNTIES

Bigger Bump in Trump-Won Counties A new ATTOM analysis of 2016 presidential election voting results and six bellwether housing trends in 585 major U.S. counties shows that counties won by Trump have a slight edge in five out of the six housing market trends so far in 2017 over counties won by Clinton. During the January-to-May period, median home prices in the 372 Trump- won counties included in the analysis rose an average of 4.3 percent compared to the same time period a year ago. The average home price appreciation in the 213 Clinton-won counties included in the analysis was 4.0 percent (see above).

Stark noted that there was a “groundswell of excitement” in

Clinton-won counties in Q1 2017 while sales volume rose 0.5 percent in the Trump-won counties on average (see page 4). Counties won by Trump also have narrowly outperformed when it comes to home equity, with a lower share of seriously underwater homes — those with a loan-to-value ratio of at least 125 percent — at the end of Q1 2017 and a bigger decrease in the seriously underwater share compared to a year ago, on average. Additionally, Trump- won counties at the end of the first quarter posted a bigger increase in the share of equity rich homes — those with an LTV of 50 percent or below — compared to a year ago (see page 7).

Northeast Ohio following the Republican National Convention and the Cleveland Cavalier’s NBA Championship run in the summer of 2016. “I think the local real estate market did its thing. We have a very powerful healthcare complex here that is employing a crap-load of people,” he said. “Is the election of Donald Trump the cause? I’m not sure. I think that the election came at a time when the economy was already turning around, but Trump used the inertia we already had to catapult the emotion. … He’s got the right timing. Everybody’s going to come in and say ‘Trump made it happen.’”

Home sales volume declined 0.7 percent annually on average in the

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HOUSINGNEWS REPORT

LEAD ARTICLE

Did Their Part for Trump At 136, the pre-mover index was also well above the national average in Lee County , Florida, one of the five counties that Trump campaign pollster Tony Fabrizio credits with winning the election, according to an article in The Daily Beast. “When you really drill down on this election, if you change the vote in five counties, four in Florida, one in Michigan, we’d be having a totally opposite conversation right now,” Fabrizio is quoted in the article as saying. “We figured we would do our part down here. I voted for him,” said Lee County Realtor Gloria Tate, who said she sees evidence of increased interest from outside buyers coming to the region following the election — particularly from states won by Trump. “The people that are coming here are mostly from the states that he won. …. Ohio has gotten stronger; Pennsylvania has gotten stronger for us,” continued Tate, who said her family moved to the area in 1960 “when there were 160 people” and who served on the Cape Coral city council for 10 years. “When someone gets in your car you have to hold your breath until you talk politics. That can break your sale right there. … Most of the people I take out are those who voted for Trump.”

Foreclosure rates in Q1 2017 were slightly lower, and the year-over-year decrease in foreclosure activity was bigger in counties won by Trump than those won by Clinton (see page 6). Clinton-won counties did outperform in one housing trend included in the analysis: home flipping. The home flipping rate in Q1 2017 was higher and the annual increase in the home flipping rate was bigger in counties won by Clinton than in counties won by Trump (see page 7). Moving into the Swamp But Trump-won counties also barely beat out Clinton-won counties in the final housing trend included in the analysis — the ATTOM Q1 2017 Pre-Mover Index, which anticipates the local markets poised to see the most home sales activity in the next 90 days based on

proprietary loan application data. Both Clinton-won counties and Trump- won counties had an average pre-mover index above the national average of 100, but with an average pre-mover index of 112, Trump-won counties edged out the average 111 index in Clinton-won counties. The pre-mover index in Trump- won counties increased 17 percent from a year ago on average compared to a 13 percent increase in Clinton-won counties on average (see page 5). One notable exception to the pre- mover index trend favoring counties won by Trump was in the District of Columbia, which Clinton won with 93 percent of the vote. The Q1 2017 pre-mover index for DC was 217, more than twice the national average and up 39 percent from a year ago — one indication of the influx of the extended Trump entourage moving to the area.

TRUMP BUMP: HOME SALES VOLUME

AVG ANNUAL CHANGE IN HOME SALES Q1 2017

-0.7%

0.5%

Tate said some recent policy changes at the local, state and federal level have

CLINTON-WON COUNTIES

TRUMP-WON COUNTIES

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made a difference for the area’s real estate market, helping to attract more buyers back to the region, which was one of the epicenters of the foreclosure crisis between 2007 and 2013. Those policy changes include a 10 percent cap on property tax increases for non-owner occupied homes in Florida along with $800 million committed by the Florida legislature earlier this year to prevent runoff from Lake Okeechobee that was dirtying the water in the region’s 114 miles of canals, many flowing through neighborhoods. “Our delegation was able to lobby Congress and the state,” Tate said. “You can now see down in the canals, see down to the bottom, and that is really making everybody happy … the dolphin is back, the manatee is back.”

But President Trump’s stated policy on another water-related issuing impacting the Southwest Florida market — flood insurance — may be at odds with local real estate industry interests. As reported in the April 2017 issue of Housing News Report, the president’s 2018 budget proposal advocates a restructuring of the National Flood Insurance Program (NFIP) “to ensure that the cost of Government services is not subsidized by taxpayers who do not directly benefit.” The removal of flood insurance subsidies through NFIP could result in skyrocketing flood insurance costs for many homeowners in the region. “Flood insurance is required in at least half of our city unless you pay in cash,” Tate said. “People really look at that. How high is the elevation, how much is

the insurance going to be. But it’s not been a negative for us.”

From Promises to Policy Tate acknowledged that President Trump hasn’t acted on any specific policy changes that would provide lift for the real estate market, but she argued that his campaign promises on taxes, healthcare and a balanced budget are providing a psychological lift for the marketplace — although that could be short-lived if he doesn’t take action on his promises. “People are waiting … we just want him to get on with what he said was going to do,” said Tate. “I think people are working, they are feeling better. I don’t think they are as depressed as they used to be.

TRUMP BUMP: PRE-MOVER INDEX

AVG OF YOY PCT CHANGE IN Q1 2017 PRE-MOVER INDEX*

“The people that are coming here are

17%

mostly from the states that he won. …. Ohio has gotten stronger; Pennsylvania has gotten stronger for us.”

13%

GLORIA TATE REALTOR CAPE CORAL, FLORIDA

CLINTON-WON COUNTIES

TRUMP-WON COUNTIES

Pre-Mover Index based on ratio of borrowers applying for a loan to buy a home in a given market to the total housing stock in that market.

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TRUMP BUMP: FORECLOSURE ACTIVITY

AVG OF YOY CHANGE IN Q1 2017 FORECLOSURE ACTIVITY

I really think it’s going to help HUD. I think Ben Carson is an intelligent individual who is going to surround himself with intelligent individuals … to help everybody, and cut through some red tape there.”

CLINTON-WON COUNTIES

TRUMP-WON COUNTIES -19%

-15%

MATTHEW WATERCUTTER SENIOR REGIONAL VICE PRESIDENT AND BROKER OF RECORD, HER REALTORS TROY, OHIO

president at HER Realtors, the country’s largest agent-owned real estate firm that covers the markets of Cincinnati, Dayton and Columbus. Cutting Red Tape at HUD Watercutter is particularly interested to see how Trump appointee Ben Carson — the new secretary of Housing and Urban Development (HUD) — makes changes to that bureaucracy, especially given that HER lists HUD properties and has been doing so for many years. “I really think it’s going to help HUD. I think Ben Carson is an intelligent individual who is going to surround himself with intelligent individuals … to help everybody, and cut through some red tape there,” Watercutter said.

The housing market in Ohio, which swung into the Trump win column in 2016 after being won by Obama in 2012 and 2008, has continued to struggle, fighting the inertia of a declining population and stagnant economy. Median home prices and sales volume declined from a year ago on average in both the 16 Trump-won counties and the 5 Clinton-won counties included in the ATTOM analysis. Cleveland (Clinton Country) Boom But in the Cleveland metro area, the housing market in the central urban county of Cuyahoga — which was won by Clinton with 66 percent of the vote in 2016 — is outperforming three suburban counties that were won by Trump: Lorain, Lake and Medina.

“Our young people are coming back, which is something we didn’t see before,” Tate continued. “And I think people have never been more proud to be Americans. And that is healthy for your economy.” Ohio real estate broker Matthew Watercutter is willing to give the new president the benefit of the doubt and some time to enact his promised policies, but Watercutter said he is also more than willing to criticize any actions Trump makes that he disagrees with. “I really think we’re going to cut through a lot of bureaucracy with him as president, but I think it will take a while to get there,” said Watercutter, broker of record and senior regional vice

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Median home prices in Cuyahoga County are up 5.7 percent from a year ago, while the average change in the three suburban counties is a 1.7 percent increase. Sales volume is down from a year ago in those three suburban counties on average, but up 3 percent from a year ago in Cuyahoga County. Cuyahoga County’s share of underwater homeowners is higher than the three suburban counties, as is its foreclosure rate, but foreclosure activity in the county declined at a faster pace from a year ago. Meanwhile, the home flipping rate in Cuyahoga County is double the average home flipping rate in the three suburban counties , and flipping has increased 19 percent from a year ago in Cuyahoga County while flipping has decreased 19 percent in the three suburban counties won by Trump.

The outperforming Cuyahoga County market is thanks to renewed interest in single family rentals from real estate investors and an increased willingness to live in “fringe” neighborhoods close to revitalized pockets of the city, according to Stark, the local real estate radio host, investor and lender. The Foreign Factor Ironically in light of Trump’s promises to restrict immigration, some of the lift in Cuyahoga County is coming from foreign interest in the city. “People are coming here from all over the world, buying (rentals),” said Stark. “You can buy houses in a decent suburban neighborhood … be in for 40 grand on a property that’s going to rent for $900 a month. Stark noted that the renewed interest is making the market more competitive, however.

“You have to work hard to find a motivated seller now. … The fringes of the neighborhoods where three or four years ago no man has gone before, people are saying we’ll go a few steps away from the best neighborhoods,” he said, providing as one example the University Circle neighborhood on the east side of Cleveland that is home to several museums and other arts-centric attractions. “We’re starting to see white families move into that neighborhood because they can walk to the school of the arts. “Doctors are from all over the world, and they are coming here from all over the world to finish their residencies … they’re renting in fringe neighborhoods around the hospitals,” Stark added. Although Stark believes the forces now lifting the Cleveland market were already in place before the presidential

TRUMP BUMP: HOME EQUITY

TRUMP SLUMP: HOME FL IPPING

AVG OF Q1 2017 PCT SERIOUSLY UNDERWATER

AVG OF YOY PCT CHANGE IN HOME FLIPPING RATE

8.5%

10.4%

7.8%

9.5%

CLINTON-WON COUNTIES

TRUMP-WON COUNTIES

CLINTON-WON COUNTIES

TRUMP-WON COUNTIES

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LEAD ARTICLE

WHERE HOMEBUYERS ARE MOVING

Q1 2017 PRE-MOVER INDEX

326

CLICK ON GRAPHIC TO VIEW INTERACTIVE VISUAL

became law in 2010 in response to the wild west lending practices of the last housing boom — would be the single biggest policy-driven impact that Trump and his fellow Republicans in Congress could have on the housing market, according to Hartman, the Las Vegas-based investor, coach and hard money lender. “It’s harder to finance properties with Dodd-Frank. It’s a poorly written bill,” Hartman said. “If Trump repeals or softens Dodd-Frank that will allow a lot more money to flow into the real estate market. … I think it will be good for everybody.”

If Trump repeals or softens Dodd-Frank that will allow a lot more money to flow into the real estate market. … I think it will be good for everybody.” JASON HARTMAN FOUNDER AND CEO PLATINUM PROPERTIES NETWORK LAS VEGAS, NEVADA

Loosening Lending One tangible action Stark is observing post-election is that lenders are lending more freely. “Banks are rushing to lend money to apartment developers,” he said. “We see all this crazy business lending.” The loosening of the credit box, — specifically in the form of repealing or relaxing the Dodd-Frank bill that

election, he does see the election helping to pour more gasoline on an already hot fire. “I think the election had a positive effect because if nothing else the person who was elected was telling people, things are going to be great. I guarantee it,” he said. “When you give people hope, they go take action. And that’s what he did. … He gave people hope.”

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HOUSINGNEWS REPORT

MY TAKE

BECOME A REAL ESTATE INVESTING MONEY MAGNET IN 12 EASY STEPS BY JOSH CANTWELL, CEO, FREELAND VENTURES

When I got started and began recruiting and raising capital for real estate, my first private lender was my brother’s mother-in-law. Now I have so much conviction about what we are doing and the returns I can produce for people, I have no problem having every single person that I know and meet investing with us. People say, if you have a business, would you put your mother’s money in it? My answer is absolutely

yes. If you could answer yes to that, then everybody around you, your family friends and business associates, are going to invest with you. Compensation drives behavior. The only people that don’t really care about compensation are monks and priests. But for most of us, we need money. We need money to pay the bills to take care of our kids, spouse whatever it is.

And we need to make money. We are not financially independent yet.

And so for those of you that need it, it becomes, well, how can I get more of it? How can I just have more without taking more risk? Or how can I have more without much more effort? And when you are lender that’s what it comes down to.

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HOUSINGNEWS REPORT

MY TAKE

So let’s jump in. These 12 steps are what you need to do to ultimately get yourself in a position to present private lenders with a real estate investment funding opportunity and get them to fund your deals so you don’t have to risk any of your own money. 1 Create a Project 100: make a list of 100 prospective private lenders or referrals starting with family ranging all the way to the guy who makes your coffee at Starbucks in the morning. Don’t count anyone out, everyone has the same goal — to save money and invest it wisely. Your goal is to become the top-of-mind reference for everyone you know so they will buy from you and sell to you, refer deals and investors to

interested and have questions for you to learn more about the opportunities you offer. You must create your “Private Money Partner Elevator Pitch“. 4 Create your money magnet pitch book and marketing collateral: get a three-ring binder and fill it with important documents you’ll need to share with a potential private lender: for example mortgages, notes, summaries and a Private Placement Memorandum. 5 Develop a system for tracking your private lenders: invest in a CRM database. I use Infusionsoft, but you can also use Google docs or an Excel spreadsheet if you can’t afford to pay for a service.

you, loan and invest with you, or even just cheerlead for you.

2 Make a second list: this time, write down all the places you can go to meet potential investors and partners — from the obvious places like your local real estate investment club meetings to the not-so-obvious places like the gym or local grocery store. Think about social groups, golf courses and country clubs, etc. 3 Tell everyone what you do in a cool way: you have to be able to tell everyone in your family, all your friends and anyone you can come across on a regular basis what you do in a cool way. Nine times out of 10, they will be

These 12 steps are what you need to do to ultimately get yourself in a position to present private lenders with a real estate investment funding opportunity and get them to fund your deals so you don’t have to risk any of your own money.”

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HOUSINGNEWS REPORT

MY TAKE

Walk your potential private lender through your Money Magnet pitch book you created and ask them at the end, “Do you know anyone who might be interested in learning more about this?” This is the Exclusion Mentality and leaves them thinking, “what about me?”

6 Send out a monthly physical mailer: remember, marketing is sales in print and your overall goal is to be everyone’s top-of-mind real estate reference. Sending a monthly reminder mailer will help with this. 7 Email a “Deal of the Week”: we send out a Funding Opportunity email every Monday to our network to showcase our newest funding opportunities and what we’re working on. 8 Follow up with a phone call: 4 to 6 days after the physical mailer hits the addresses. 9 Set up an appointment: face- to-face appointments are crucial to this business. Set your meetings at a

12 Gain commitment: once you gain their trust, you can start the rollover process of the IRA, locate a good deal and make offers and have a real estate agent craft a sample note and mortgage with your name on it so they can see what the paperwork will shape up to look like. These are the 12 steps that I have done over and over and over. Some people are going to say, “Well, you can raise money because you are Josh Cantwell.” I wasn’t Josh Cantwell, the real-estate guy, and then I started raising money. I raised money when I was on my deathbed surviving from cancer. I raised money in 2004 when I was leaving the

local coffee shop or sit in the bar of a high-end restaurant for happy hour, depending on what time of day you’re meeting. 10 Hold Money Magnet Meetings: this is education-based selling. Walk your potential private lender through the Money Magnet pitch book you created and ask them at the end, “Do you know anyone who might be interested in learning more about this?” This is the Exclusion Mentality and leaves them thinking, “what about me?” 11 Follow-up meeting or phone call: this usually includes answering any questions your potential private lender may have.

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HOUSINGNEWS REPORT

MY TAKE

HOME FLIPPING FINANCING TRENDS

TOTAL FINANCED PURCHASE DOLLAR VOLUME

PCT PURCHASED BY FLIPPER WITH FINANCING

$16,000,000,000

80.0%

$14,000,000,000

70.0%

$12,000,000,000

60.0%

$10,000,000,000

50.0%

$8,000,000,000

40.0%

$6,000,000,000

30.0%

$4,000,000,000

20.0%

$2,000,000,000

10.0%

0.0%

When you are super successful and worth millions, it’s because you did the fundamentals every day that made you successful.”

JOSH CANTWELL Josh Cantwell has 15 years of experience as an active investor, private lender, passive investor, educator, author, nationally recognized speaker and fund manager. He bought his first real estate investment in 2001 at age 24 and has bought and sold more than 700 properties since 2003. He has funded more than 200 properties for clients, students and friends since 2015.

financial services business, jumping into real estate when I had only done one deal. It wasn’t the reverse. So don’t think for a second, “oh he is successful because he is whoever he is; he is successful because he did something that made the difference in his life.” When you are super successful and worth millions, it’s because you did the fundamentals every day that

made you successful. And then one day you are going to wake up and all of a sudden, you are an overnight success that was 5 or 10 years in the making. Don’t put the cart before the horse and say, “oh you know because he is who he is, it’s easy.” You are doing yourself a disservice if you think that way.

Be daring.

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HOUSINGNEWS REPORT

SECTION TITLE

P r Public Records T a Tax Assessor D e Deed F c Foreclosure P m Plat Maps C I Cost of Living Index

L s Landslide E q Earthquake F i Fire N h S h Sinkholes P b Parcel Boundaries Natural Hazards

ATTOM Table of Data Elements

M I Mortgage Loan

F I Flood S p Spills H h Health Hazards A v Assessed Values

P f Pre-foreclosure

O w Ownership S c Schools C r Crime

E r Environmental Risks N c Neighborhood Characteristics C o Criminal Offenders

S f Superfund Sites D I Former Drug Labs

B f Brownfields A q Air Quality H c Home Condition

R p Registered Polluters U v UV Index B p Building Permits

U t Underground Storage Tanks R d Radon H v Home Values

F t FCC Towers

D g Demographics

P c Property Characteristics

P v Pre-mover

U S Utility Score

MLS Analytics M s

Coming Soon

Public Records Environmental Risks

Property Characteristics Neighborhood Characteristics

Natural Hazards Health Hazards

www.attomdata.com 1-800-462-5125

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BIG DATA SANDBOX

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HOUSINGNEWS REPORT

SPOTLIGHT: MEMPHIS

A NEW TWIST ON HOME FLIPS IN MEMPHIS BY JOEL CONE, STAFF WRITER

MEMPHIS HOME FL IPPING RATE AT NEW ALL-TIME HIGH

Memphis is the epicenter of an emerging trend in home flipping — flip-to-rent.

SINGLE FAMILY & CONDO FLIPS

FLIP SHARE OF SALES

900

16.0%

800

14.0%

The Memphis metro area posted the nation’s highest home flipping rate as a percentage of home sales in Q1 2017 (15.1 percent), more than twice the national average of 6.7 percent, according to ATTOM Data Solutions. The 15.1 percent home flipping rate in Memphis even exceeded the previous peak of 14.8 percent in Q1 2004, in the midst of the last housing boom.

700

12.0%

600

10.0%

500

8.0%

400

6.0%

300

4.0%

200

2.0%

100

0.0%

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SPOTLIGHT: MEMPHIS

But only 8.1 percent of homes flipped in Memphis went to FHA buyers, typically first-time homebuyers, despite the market’s reasonably priced homes — median home prices were $112,900 in the first quarter of 2017, well below the national median of $225,000. The 8.1 percent of flips going FHA buyers in Memphis was less than half the national average of 19.2 percent and fourth lowest in the country behind the high-priced markets of Honolulu and San Jose as well as Raleigh, North Carolina, another flip-to-rent hotspot. Many of the remaining home flips not sold to FHA buyers are being sold to rental property investors as so-called “turnkey rentals.”

center because of the potential high rents compared to purchase price. Property can be purchased here for a very reasonable price,” said real estate attorney Joseph T. Kirkland, president of the Memphis Investors Group. “There are good investment pockets in all areas of the city, and there are bad investment pockets in all areas. We have turnkey providers who specialize in certain areas.”

and then offering it as a complete turnkey package to rental investors.

“Housing was affordable and well- maintained. Much of it built in the ‘60s, ‘70s and ‘80s. Well-built, inexpensive and had rental demand,” said Clothier, a partner at MemphisInvest. “Memphis had this perfect mix of affordable market with good housing stock.” According to the 2010 U.S. Census, 250,000 out of the 292,000 total housing units in Memphis city were occupied — approximately 130,000 (51.9 percent) were owner-occupied while 120,000 (48.1 percent) were renter-occupied.

Chris Clothier is in the thick of the flip-to-rent boom in Memphis.

Instead of the more traditional process of buying, fixing and flipping properties to owner-occupants such as FHA buyers, Clothier’s family — which has been in Memphis for 14 years — took the next logical step, identifying and placing a renter in the property, managing and maintaining that property

The share of investor purchases has trended higher in recent years, according to an analysis of public

Turnkey Rental Central “Memphis is and has been for quite some time now a very large turnkey

THE MEMPHIS HOME FLIPPING TWIST SHARE OF FLIPS SOLD TO CASH BUYERS SHARE OF FLIPS SOLD TO FHA BUYERS

Memphis is and has been for quite some time now a very large turnkey center because of the potential high rents compared to purchase price.”

70.0%

60.0%

50.0%

40.0%

30.0%

JOSEPH T. KIRKLAND PRESIDENT, MEMPHIS INVESTORS GROUP

20.0%

10.0%

0.0%

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SPOTLIGHT: MEMPHIS

INVESTORS MORE THAN HALF OF MEMPHIS HOME SALES

U.S.

MEMPHIS

60.0%

51.2%

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%

2000 2002 2004 2006 2008 2010 2012 2014 2016

record data by ATTOM, which shows 51.2 percent of all single family home and condo purchases in 2016 are non- owner occupied, up from 50.8 percent of homes purchased in 2015 and 49.4 percent of homes purchased in 2011. $25 Million Renovating Rentals Clothier estimates that his company spent over $25 million last year alone in renovating properties, pulling around 1,000 work permits. “Our average resident stays for more than four years. We specialize in homes in demand for two-income earning families. We’re looking to attract families looking for stability. That’s how you get the four-plus year occupancy,” he said. “Instead of a quick turnover it’s a long-term fix-up. We have an investor interested in holding for a long time,

Instead of a quick turnover it’s a long-term fix- up. We have an investor interested in holding for a long time, and we have a resident who wants to stay. Given the right environment, it’s a low risk, very consistent kind of city.” CHRIS CLOTHIER PARTNER, MEMPHISINVEST

and we have a resident who wants to stay. Given the right environment, it’s a low risk, very consistent kind of city.” MemphisInvest manages just over 3,000 properties in the Memphis area for about 1,600 investors, according to Clothier, and the company has expanded its operation into the Dallas and Houston markets, where it now manages just over 1,300 properties combined. Just recently the company

opened new offices in Oklahoma City and Little Rock.

“The houses are being purchased in arm’s length transactions and being sold in a short time period in arm’s length transactions. It’s a reflection of how much investor activity is going on in the market,” Clothier said. “We will complete 300 to 350 transactions a year in the city.”

JULY 2017 | ATTOM DATA SOLUTIONS

HOUSINGNEWS REPORT

SPOTLIGHT: MEMPHIS

Rental Research Still Required Turnkey investment solutions catering to the passive investor do not excuse individual investors from doing their necessary research to understand a market, according to Kathleen Kramer, a licensed real estate broker with the Long Beach, California, office of Keller Williams Commercial. Kramer helps clients purchase investment properties across the country, including in Memphis, and she said that flying out to Memphis, doing her due diligence and building business relationships was key before

turnkey providers in the area, including Clothier.

she starting helping clients who were interested in buying properties there.

What she found was that the Memphis economy is robust, being bordered by the Mississippi River to the west. The city is a major transportation hub not only for freight carried by barge on the river, but it also has major railway and freeway access for truck freight. The region is also the home of the second largest freight airport in the world. Companies such as FedEx, Nike, and International Paper have major distribution centers there, and the area is also a growing hub for the medical industry. Block-by-Block Approach Kramer also recommends that investors looking at going into Memphis must take

“I think the process is to look at the local economy, and figure out who would your client be,” said Kramer. “What are the demographics? If I buy a house in this area who is my tenant? Where do they work? Will that category of work do well in a recession? Can I find quality property management? And then do the numbers work?”

Through her connections dealing with various real estate investment clubs, Kramer met a number of the

People who invest in Memphis need to be careful what part of town they’re buying in. Neighborhoods change in just a couple of blocks.” KATHLEEN KRAMER BROKER, KELLER WILLIAMS COMMERCIAL, LONG BEACH, CALIFORNIA

MEMPHIS Q1 2017 HOME FLIPPING HEAT MAP -3.3% HOME FLIPPING RATE (PERCENT OF TOTAL HOME SALES) CLICK ON GRAPHIC TO VIEW INTERACTIVE VISUAL 50.0%

JULY 2017 | ATTOM DATA SOLUTIONS

HOUSINGNEWS REPORT

SPOTLIGHT: MEMPHIS

MEMPHIS AVERAGE HOME FL IPPING PROFITS AVG GROSS FLIPPING PROFIT AVG GROSS FLIPPING ROI

You’re selling a single family house like a one unit apartment complex. It’s the exact same thing. Selling a house on the income approach.”

$45,000

$40,000

$35,000

$30,000

$25,000

$20,000

$15,000

$10,000

EDDIE SPEED FOUNDER, NOTESCHOOL

$5,000

a block-by-block approach to identifying potential properties.

adds up to lower returns and it worries me to get in at the top of the market.”

“I can remember looking at BPOs in Memphis and I remember a Memphis asset that appraised for $8,000 and rented for $800 a month. That’s a few years ago, but that market extreme is not uncommon in Memphis,” said Speed, the founder of NoteSchool. “People are buying cash flow and are buying on similar cap rates to what apartments trade for.” Before the market crash, Speed said the Memphis market was suffering from a terrible blight. Then the crash happened, resulting in a large number of defaulted loans, creating a market inefficiency which was a perfect scenario for investors like the Clothiers to step in and provide turnkey properties for investors. “You’re selling a single family house like a one unit apartment complex. It’s the exact same thing. Selling a house on

“People who invest in Memphis need to be careful what part of town they’re buying in. Neighborhoods change in just a couple of blocks,” she said. Kramer believes there are still deals to be found in Memphis due to the quality of the turnkey providers and their property management, although with so many turnkey providers competing in that market she believes the margins are being squeezed and the potential rental returns rates are coming down. “The amount of investors chasing a smaller pool of properties has driven down cap rates and possible profit,” she said. “The turnkey providers have been successful in marketing the area to foreign investors, and you have the west coast investors there as well. All this

Kirkland agrees that doing one’s own independent research is essential before purchasing a property. “You must have independent verification of whatever you’re getting,” he said. “People that do not live in the area need to be careful in dealing with property they’re not used to dealing with. It’s all about location, location, location. If you think the cost of education is expensive, imagine the cost of ignorance.” Buy for $8,000, Rent for $800 To investor Eddie Speed, entrepreneurs like Clothier are filling a void by introducing the turnkey property into the marketplace, and as a result bringing up the housing standard for neighborhoods and putting money into the local economy.

JULY 2017 | ATTOM DATA SOLUTIONS

HOUSINGNEWS REPORT

SPOTLIGHT: MEMPHIS

Investors Purchasing All Homes Tighter inventory caused in part by investor activity in Memphis is creating challenges for own-occupant buyers as well, according to Realtor Melba Jones. “We’re running into issues of not finding them a home or taking longer to find a home, or going further out of the market to buy because we don’t have the supply,” Jones said.

the income approach,” Speed explained. “The repairs have to be done. So a passive investor now owns a house that he owns himself and depending on the price will determine whether he gets a loan or not.” Tightening Inventory for Turnkeys While a lot of the turnkey providers tend to look at the older housing stock, institutional investors like the hedge funds are only interested in the W newest areas. “Hedge funds cherry-pick at a particular price point. They have very specific areas they want to invest in. They don’t want stock that is 50 years old. They don’t want lead paint issues,” Kirkland said.

from Australia, New Zealand, China, Singapore, Japan and England, Kirkland realizes that the turnkey providers are selling product at a price point that’s at the top of the market, generally higher than what local investors would pay for similar product. “The market has gotten tight for turnkey providers. Several of the local providers have branched out to other cities like Little Rock and Dallas because of lack of inventory,” he said.

We’re running into issues of not finding them a home or taking longer to find a home, or going further out of the market to buy because we don’t have the supply... The investors are purchasing all the homes.” MELBA JONES REALTOR, CORDOVA, TENNESSEE

Having represented buyers from out of state as well as foreign buyers

MEMPHIS MEDIAN SALES PRICES

YOY PCT CHANGE IN MEDIAN PRICES

MEDIAN SALES PRICE

$140,000

$120,000

$100,000

$80,000

$60,000

$40,000

$20,000

JULY 2017 | ATTOM DATA SOLUTIONS

HOUSINGNEWS REPORT

SPOTLIGHT: MEMPHIS

MEMPHIS HOME SALES VOLUME

SINGLE FAMILY HOME & CONDO SALES

YOY PCT CHANGE IN HOME SALES

30%

6,000

20%

5,000

10%

4,000

3,000

-10%

2,000

-20%

1,000

-30%

“The investors are purchasing all the homes. We’re getting a lot of people moving here for a job change. Moving from other states.” Although there are many renters in Memphis who say they can’t afford to buy a home, Jones argued that with the amount of money they are spending to get into a rental she could get them into a home with just a little more money. “It’s been like finding a needle in a haystack so far for customers this year. It’s just a matter of location and we can find it. It just takes a little time. You’ve got to beat the investor’s offer and the next person’s offer,” Jones said.

Memphis region give every indication that 2017 should be another growth year for the housing market. The U.S. Census estimates that population in Memphis city was 652,717 people as of July 1, 2016, a slight increase from the 646,889 reported during the 2010 census. In May 2017 the Bureau of Labor Statistics reported that unemployment in the Memphis metro area fell 1.1 percent from the year earlier to 3.7 percent. Job growth for 2017 is projected to continue for the seventh consecutive year, generating an estimated 7,000 net new jobs, according a forecast published by the Sparks Bureau of Business & Economic Research at the University of Memphis.

ATTOM reported that total distressed sales — including REO sales, short sales and foreclosure auctions — for the metro area were down 20 percent in the first quarter of 2017. ATTOM also reported that the median home price for the Memphis metro area (which includes parts of three states — Tennessee, Arkansas and Mississippi) hit a new all-time peak of $137,000 in the third quarter of 2016. Additionally, ATTOM reported that the number of seriously underwater homeowners in the Memphis metro area between the second quarter of 2013 and first quarter 2017 declined by more than half, down to 14.7 percent — although still above the national average of 9.7 percent.

Memphis Market Trends For investors and owner-occupant buyers alike, the economics of the

JULY 2017 | ATTOM DATA SOLUTIONS

HOUSINGNEWS REPORT

DATA IN ACTION

HOTTEST ZIPS FOR HOME FLIPS IN Q1 2017

HOTTEST HOME FLIPPING ZIPS IN Q1 2017 Q1 2017 HOME FLIPPING RATE (PCT OF SALES)

2.9%

34.2%

Flipped homes accounted for at least one in every five home sales in 72 U.S. zip codes in the first quarter of 2017 — well above the national average of 6.7 percent of all home sales that were flips in the first quarter, according to the ATTOM Data Solutions Q1 2017 U.S. Home Flipping Report. Five of the top 10 zips with the highest home flipping rates were in the city of Memphis, led by 38118, where more than one in every three home sales (34.2 percent) in the first quarter was a flip. In this top Memphis zip code, real estate investors purchased homes for a median price of $38,000 and sold them within 12 months for a median

price of $79,000, more than doubling their initial investment.

Two zip codes in the District of Columbia were also ranked among the top 10 zip codes with the highest home flipping rates in the first quarter, led by 20032, where 33.3 percent of all home sales during the quarter were flips. In this DC zip code, home flippers purchased their investments for a median price of $160,000 and sold for a median price of $310,000, a gross flipping return of 93.8 percent (not including rehab and carrying costs).

CLICK ON GRAPHIC TO VIEW INTERACTIVE VISUAL

21040 in the city of Edgewood, Maryland, in the Baltimore metro area (home flipping rate of 28.7 percent); 35005 in the city of Adamsville, Alabama, in the Birmingham metro area (28.3 percent); and 90002 in the city of Los Angeles, California (27.8 percent).

The three remaining top 10 home flipping zip codes in Q1 2017 were

JULY 2017 | ATTOM DATA SOLUTIONS

HOUSINGNEWS REPORT

Housing News Report is a monthly publication dedicated to helping individuals and institutions succeed by providing them with timely and relevant information about the residential real estate market.

EXECUTIVE EDITOR Daren Blomquist

CONTACT US Phone: 800.306.9886 Email: marketing@attomdata.com Mail: Housing News Report 1 Venture suite 300 Irvine, CA 92618

WRITERS Daren Blomquist Peter Miller Joel Cone

ART DIRECTION Eunice Seo

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