NAMED THE NATION’S BEST NEWSLETTER BY NAREE
JUNE 2018 VOL 12 ISSUE 6
MY TAKE FIVE FINANCIAL BENEFITS OF OWNING RESIDENTIAL REAL ESTATE INVESTMENTS BY GLENN HAMBURGER P10 CLIENT CORNER TRIGGERING REAL ESTATE LEADS WITH INTERACTIVE NEIGHBORHOOD DATA BY BARRY FRIEDMAN P13
BIG DATA SANDBOX A FAMILY TREE OF THE HOTTEST HOMEBUYER NAMES IN 2017 P16
DATA IN ACTION THE MOST UNDERWATER AND EQUITY RICH U.S. HOUSING MARKETS P17
Contents
FEATURED ARTICLE
P1 DATA-FED DISRUPTION IN REAL ESTATE
P1
Online real estate giant Zillow’s plain-vanilla purchase of a four-bedroom, three- bathroom home in Chandler, Arizona, for $410,000 last month is bursting with symbolism for the one-time housing market disrupter, itself now reacting to a new wave of disruption in the real estate industry coming from four categories of disruption: iBuyers like Offerpad; discount brokerage models like Purplebricks; predictive listing models like Offrs.com; and off-MLS marketplaces like Roofstock. An important part of many people’s financial plan is the home they live in. The choice between buying a home and renting is among the biggest financial decisions that many adults make. But the costs of buying are more varied and complicated than for renting, making it hard to tell which is a better deal. While homeownership is a great for some, there are segments of the population which find that renting a home and investing instead in income-producing real estate is a better fit, explains Glenn Hamburger, senior director with Banc of California. P10 MY TAKE: FIVE FINANCIAL BENEFITS OF OWNING RESIDENTIAL REAL ESTATE INVESTMENTS
P13 CLIENT CORNER: TRIGGERING REAL ESTATE LEADS WITH INTERACTIVE NEIGHBORHOOD DATA
P10
Barry Friedman, CEO at HomeActions, explains how lead-generating content comes in different forms. There is content just designed to provide information, not to elicit a response. Then there is trigger content designed to trigger a response from the customer – indicating a warm lead. Paired with interactive neighborhood data designed to help the customer learn more about a community, the trigger content can be a very powerful content marketing tactic that produces high-quality leads.
P16 BIG DATA SANDBOX: A FAMILY TREE OF THE HOTTEST HOMEBUYER NAMES IN 2017
Home sales nationwide decreased 4 percent in 2017 compared to 2016, but sales to buyers with last names of Lin, Zhang, Wu, Liu and Huang increased by more than 20 percent while sales to buyers with last names of Burns, Porter, Jenkins and Cole decreased by 15 percent or more, according to an ATTOM Data Solutions analysis of more than 2.3 million sales deeds along with family name origin information from Ancestry. com. More than 5.2 million U.S. properties were seriously underwater at the end of Q1 2018, down by more than 291,000 properties from a year ago — the smallest year- over-year drop since tracking began in Q1 2013. Meanwhile, more than 19.5 million U.S. properties had between 20 and 50 percent equity at the end of Q1 2018, down by 1,714,099 from a year ago. An interactive heat map shows the numbers in 98 metro areas nationwide. P17 DATA IN ACTION: THE MOST UNDERWATER AND EQUITY RICH U.S. HOUSING MARKETS
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SECTION TITLE
LEAD ARTICLE
Data-Fed Disruption in Real Estate Four Horsemen of the Traditional Housing Industry Apocalypse
BY DAREN BLOMQUIST, EXECUTIVE EDITOR
Zillow bought its first home last month.
The rapid ascent of so-called iBuyers over the past five years has forced Zillow to pivot from a core value its CEO proudly adhered to as recently as three years go. “We sell ads, not houses,” said CEO Spencer Rascoff in the company’s Q1 2015 earnings call. But in his prepared statement for the company’s
Q1 2018 earnings call, Rascoff spends seven paragraphs on how the company plans to start buying and selling houses with its version of the iBuyer business model, dubbed Instant Offers. “We purchase the home, do all the work a seller would do, and put it back on the market in short order,
The online real estate giant’s plain- vanilla purchase of a four-bedroom, three-bathroom home in Chandler, Arizona, for $410,000 is bursting with symbolism for the one-time housing market disrupter, itself now reacting to a new wave of disruption in the real estate industry.
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VENTURE CAPITAL DOLLAR VOLUME IN REAL ESTATE TECH
$12,600,000,000
$4,200,000,000
$1,800,000,000
2015
2016
2017
SOURCE: RE: TECH REAL ESTATE TECH ANNUAL REPORT 2017
in partnership with agents and brokers,” he says of the Instant Offers initiative. Rascoff also provides an example of how the company could conceivably generate $1 billion in profit from Instant Offers. “Given the enormity of the U.S. residential real estate market, the potential total addressable market for providing homesellers with a service such as this is significant. There are 5.5 million annual home sales at $1.8 trillion in annual sale volume,” reads the Rascoff statement. “It’s too early to estimate how many sellers might choose to sell in this way or what our typical net profit per transaction might be, but as an example, if 5 percent of sellers select this method, that is 275,000 transactions. For illustrative purposes at scale, using $250,000 as the typical home value, a $3,500 net profit per transaction would result in a nearly $1 billion profit opportunity annually.”
“We sell ads, not houses.”
IN 2015
“We purchase the home, do all the work a seller would do, and put it back on the market in short order, in partnership with agents and brokers.”
SPENCER RASCOFF CEO OF ZILLOW
IN 2018
That $3,500 net profit may be a bit ambitious based on Zillow’s first home purchase, which is now listed for sale with an asking price of $425,000 — just $15,000 above the purchase price. A listing commission of just 3.5 percent would alone wipe out any profits, not to mention any needed renovation costs and carrying costs such as property taxes. But it’s the bigger picture represented by the $1.8 trillion in annual home transaction volume attracting disruptive business models and the capital funding those disruptive models. Total funding to real estate tech startups in 2017 was $12.6
billion in 347 deals — up 200 percent from $4.2 billion in 2016, according to RE:Tech, real estate tech research marketing agency. Highlighted below are four companies representing four distinct business models threatening to disrupt the predictive listing models, and off-MLS marketplaces. Although each company is disrupting a different niche of the marketplace, the common theme among all four companies is the heavy use of data and technology to fuel the disruption. traditional real estate industry: iBuyers, discount brokerages,
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FOUR HORSEMEN OF THE TRADITIONAL HOUSING INDUSTRY APOCALYPSE
IBUYERS : OFFERPAD DISRUPTING THE DISRUPTER
DISCOUNT BROKERAGES : PURPLEBRICKS DISRUPTING THE REALTOR ROLE
“As we are defining a new industry, there are a lot of competitors coming in. It really only validates that consumers want this.”
“We’re giving consumers a viable alternative versus the traditional real estate model. … Ten years ago the gatekeeper was the agent, but now consumers have access to that information so now the role of the agent is more of the trusted advisor.”
CORTNEY READ DIRECTOR OF COMMUNICATIONS AND OUTREACH, OFFERPAD
ERIC ECKARDT U.S. CEO, PURPLEBRICKS
SEE BELOW FOR MORE ON OFFERPAD’S DATA-FUELED DISRUPTION OF SELLER CONTROL.
SEE PAGE 5 FOR MORE ON PURPLEBRICKS’ DATA-FUELED DISRUPTION OF THE REALTOR COMMISSION STRUCTURE.
“Most of the market today is looking at a transaction-based model. … In order to get to that transaction before others do, you have to have predictive analytics.” PREDICTIVE LISTING MODELS : OFFRS.COM DISRUPTING FUTURE HOUSING INVENTORY
OFF-MLS MARKETPLACES : ROOFSTOCK DISRUPTING SINGLE FAMILY RENTALS
“The one thing real estate has going for it is the market size is quite large. That is appealing for investors who see a lot of companies. It is really the last major sector to not be discovered.”
GARY BEASLEY CO-FOUNDER AND CEO, ROOFSTOCK
RICH SWIER CO-FOUNDER, OFFRS.COM
SEE PAGE 7 FOR MORE ON HOW OFFRS.COM IS DISRUPTING THE IDENTIFICATION OF HOUSING INVENTORY.
SEE PAGE 8 FOR MORE ON ROOFSTOCK’S DATA-FUELED DISRUPTION OF THE INVESTMENT PROPERTY MARKET.
OFFERPAD:
“As we are defining a new industry, there are a lot of competitors coming in,” she said, noting that each of the companies under the iBuyer umbrella is offering a different flavor of products and services to the real estate marketplace. “It really only validates that consumers want this.” The success of Offerpad has attracted venture capital, with a total of $410 million raised so far, according to Crunchbase. Its biggest round of funding was a $230 million deal in
2017, landing Offerpad as No. 3 among notable funding deals ranked by RE:Tech for the year. While Zillow has purchased one home so far, Offerpad and fellow iBuyer pioneer Opendoor — which launched in 2013 — have purchased nearly 10,000 homes combined over the past five years, according to an ATTOM Data Solutions analysis of public record data.
Disrupting the Disrupter While the iBuyer model may be new for Zillow this year, it’s a disruptive business model that has already proven to have some staying power thanks to pioneers like Offerpad, which started purchasing homes directly from homeowners in the Phoenix area as early as June 2015, according to Cortney Read, director of communications and outreach for the company.
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iBUYER HOME PURCHASES BY YEAR OFFERPAD & OPENDOOR COMBINED HOME PURCHASES
The number of purchases by these two pioneering iBuyers has grown exponentially each year, up 112 percent in 2016 and up 133 percent in 2017, and is on pace to nearly triple in 2018, according to the ATTOM analysis. The average purchase price for homes acquired by Opendoor and Offerpad over the past five years was $230,307, a significantly lower price point than the charter Zillow home purchase, and translating into roughly $2.3 billion in transaction volume. It’s important to note that the $2.3 billion represents less than one-half of the transaction dollar volume that the two companies are participating in given that the iBuyer model involves reselling homes purchased within a relatively short period of time — and at a higher price point. Offerpad’s Read estimated that her company alone is involved in $130 million in real estate transactions per month, a run rate of more than $1.5 billion for the year. “We are doing it at a large scale,” Read said, noting that after launching in Phoenix the company has expanded to eight total markets. Data-Fueled Business Model The large scale Offerpad has achieved in just a few years has been fueled largely by data, according to Chief Real Estate Technology Officer Dan Mayes. “While real estate is at the core of our history and brand, Offerpad uses data to fuel its business model,” he said. “If an organization is only in one market, they only have one market to consider when making decisions. We’re currently in eight markets —
3,992
3,141
1,715
809
8
2014
2015
2016
2017
JAN-APR 2018
“Investments in data and technology help us identify potential market expansion while providing our investors and partners with the insight and the confidence to continue to fuel our operations.”
DAN MAYES CHIEF REAL ESTATE TECHNOLOGY OFFICER OFFERPAD
eight markets that each have their own trends. The market trends can be identified with the help of data and it’s how we stay ahead of market.” In addition to informing market trends, data also helps inform decisions Offerpad makes at the property level, according to Mayes. “Offerpad receives data from many sources, and most importantly knows how to use when buying and selling homes,” he said. “From deep neighborhood data that helps set a benchmark for offers, to providing property characteristics to better help us determine the needs of our buyers.”
original purchase date in Phoenix in 2017 and found the median price of those sales was $26,400 above the median price at purchase. That price differential was significantly higher than the potential $15,000 expected with the Zillow resale and leaves more room for a net profit, but Read said that price differential is not the company’s primary source of revenue. “The way that we make money is that we have a fee … that varies on the home (depending on) how soon they are looking to move out of the home,” she said. “We manage all the renovations. We have our team that does that and they are very efficient to get it done and get it buyer-ready to put it back on the market.”
ATTOM analyzed homes resold by Offerpad within 12 months of the
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Read said Offerpad’s business model is disrupting the marketplace by giving control back to sellers. “The number one thing is you’re putting the control back in the seller’s hand,” she said. “Before Offerpad there wasn’t much control they had or certainty over the process. “A lot of people have actually lost out on their dream house … because they had a contingency of their house selling. There is not really peace of mind until the deal closes and the funds are transferred to their account,” Read explained. “With Offerpad you come to us, give us your property address, upload some pictures and within 24 hours we’ll provide you an offer. … We actually have customers that sell to us and buy Offerpad homes and they are able to do those transactions within a month.”
business model and customer-facing applications is also helping to fuel investment in the company. “In addition to using data to provide a tremendous home buying and selling experience, we invest continuously in developing our proprietary technology and enhancing the millions of real estate and economic data points we collect,” he said. “These investments in data and technology help us identify potential market expansion while providing our investors and partners with the insight and the confidence to continue to fuel our operations.”
million investment in Q1 2018, the second largest in the real estate tech space during the quarter, according to RE:Tech. “We’re giving consumers a viable alternative versus the traditional real estate model,” said Purplebricks’ U.S. CEO Eric Eckardt, noting that the company appeals to investors because it is cashflow positive on an adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) basis, “which is almost unheard of for a tech company.” Purplebricks was founded in 2014 in the U.K., and has expanded to six states since its U.S. launch in September 2017: California, New York, Connecticut, New Jersey, Arizona and Nevada. “We’re moving quickly,” said Eckardt, noting the first quarter infusion of capital helped to fuel this rapid
PURPLEBRICKS:
Disrupting the Realtor Role Real estate tech company Purplebricks, which allows homeowners to list their homes for a flat fee rather than using the traditional commission- based fee structure, secured a $177
Mayes said the same data and analytics the company has developed to fuel its
ESTIMATED DOLLAR VOLUME OF iBUYER HOME PURCHASES BY YEAR
OFFERPAD & OPENDOOR COMBINED HOME PURCHASES
$924,919,962
$739,780,229
$325,906,550
$144,728,887
$1,395,784
2014
2015
2016
2017
JAN-APR 2018
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expansion. “I think that’s a really validation of great value, great service.”
platform. … When you want to schedule a showing, it goes directly to the home sellers.” The Market Has Spoken At its heart, the Purplebricks model disrupts the traditional role of real estate agents. “The market has spoken. The shift has taken place,” Eckardt said. “There is pressure on commissions. Ten years ago the gatekeeper was the agent, but now consumers have access to that information so now the role of the agent is more of the trusted advisor.”
Purplebricks utilizes technology and data on its website to provide consumers with self-service access to the information and services that previously would have been provided by agents. “Data and technology is helping buyers and sellers make more informed decisions,” Eckardt said, noting that Purplebricks users can “not just look at price and features of the property, but also look at the community to help them make a more informed buying decision.”
Purplebricks charges home sellers a flat fee of $3,600 to list and market their home for sale. On a property that sells for $500,000, that amounts to a savings of $8,900 over paying the typical seller-side commission of 2.5 percent. Included in the fee is a local real estate agent to help with the process along with professional photography, a 3D virtual tour of the home, yard signage, and the property is listed for sale on the local Multiple Listing Service (MLS) along with popular listing portals such as Zillow, Trulia and Realtor.com — everything one would expect paying a real estate agent the full 6 percent commission, according to Eckardt. “If you compare it to a quote-on-quote traditional real estate firm they are getting the same service,” he said, adding that every home seller gets the same level of service, whether the home is selling for $250,000 or $1 million. “Everything we do is built around the consumer.” Prospective homebuyers using Purplebricks get a $1,000 rebate out of the buy-side commission to use toward closing costs, and Eckardt noted that buyers using Purplebricks also get access to additional online offering and negotiation tools that are not available through a traditional real estate agent. “(Buyers) can transact online 24/7,” he said, adding that the online platform enables peer-to-peer transactions. “If you see a home that you like, you can make an offer directly through the
The Purplebricks’ model also releases agents from time spent prospecting
Along with a plethora of other online listing platforms now available,
“We still believe the agent is the center of the transaction. Their role is more as a trusted advisor rather than gathering information.” ERIC ECKARDT U.S. CEO, PURPLEBRICKS
WHERE HOMEOWNERS ARE MOVING IN Q2 2018 Q1 2018 PRE-MOVER INDEX (100 IS U.S. AVERAGE) 29 313
CLICK HERE TO VIEW INTERACTIVE VISUAL
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for new clients given that each agent has an exclusive territory according to Eckardt. “We estimate that a traditional agent spends 70 percent of their time finding new business,” he said, noting that the average Purplebricks agents has seven years of experience, indicating that even veteran agents are interested in hanging up their prospecting hat. “(Our agents are) professional, full-time, ethical, just want to work with customers, not deal with online lead gen or CRM. There is a home at Purplebricks for them. “We still believe the agent is the center of the transaction,” he added. “Their role is more as a trusted advisor rather than gathering information.” Disrupting Future Housing Inventory A completely self-funded startup, Offrs.com has not needed to raise capital thanks in large part to the success of its predictive analytic-driven products for real estate agents and others in the industry, according to co-founder Rich Swier. “It’s been very rapid growth for us over the last few years,” he said noting that since the company launched in 2013 its customer base has grown to more than 10,000 agents accessing its predictive analytics and marketing platform, designed to help those agents identify inventory of homes for sale before those homes are listed or the homeowner even knows they are going to list. OFFRS.COM:
“We are predicting the single transaction, and by predicting the single transaction we are also predicting the broader market. This will be a living and breathing machine … and that will impact the way people will look at the market.” RICH SWIER CO-FOUNDER, OFFRS.COM
“Most of the market today is looking at a transaction-based model,” Swier noted. “In order to predict that transaction you have to have predictive analytics. In order to get to that transaction before others do, you have to have predictive analytics.” Many real estate agents fear that discount brokerage models such as Purplebricks and iBuyer models such as Offerpad will eventually push them out of the real estate transaction, according to Swier. “There’s a natural disruption that’s happening on many levels,” he said. “If real estate agents embrace the data we provide, they can solidify their place in the real estate transaction.” In the simplest terms, Offrs.com predicts future real estate transactions so that agents and others in the industry can identify these transactions
further upstream, before they flow into the discount brokerage and iBuyer business models. “It really depends on who comes to the table first,” he said, citing a statistic that shows 70 percent of soon-to-be sellers choose the first real estate agent they meet. “Predictive analytics is the name of the game. If you predict future listings, you’re going to be first in the door. That’s one of the reasons we sell our data exclusively because it’s so powerful that whoever has that data is going to be in a great position. ”Offrs.com pulls data from more than 25 data providers, including consumer, demographic, financial, property, recorder and behavioral social media data. “We have a unique combination of machine learning methods, and we base it on geography,” said Swier,
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SINGLE FAMILY RENTAL RETURNS BY COUNTY: 2018
of how these hedge funds drive everything is based on quants … it’s computers doing the trading … and this is going to spill over into the real estate market.”
2018 ANNUAL GROSS RENTAL YIELD
2.3%
28.6%
ROOFSTOCK:
Disrupting Single Family Rentals Roofstock raised $35 million in Series C funding in 2017, according to the RE:Tech report, which listed that as one of the top 20 notable real estate startup fundraising deals for the year. “It has been an attractive time to raise money in real estate and fintech,” said Gary Beasley, CEO and co— founder of the online marketplace for buying and selling single family rental investment property outside of the Multiple Listing Service (MLS). “Lots of capital chasing a relatively few companies.” Roofstock was born out of some of the inefficiencies identified when hedge- fund thinking collided with the real estate marketplace in the wake of the Great Recession.
CLICK HERE TO VIEW INTERACTIVE VISUAL
who has a degree in mathematics and built out the technology driving the company’s predictive modeling. “That’s what makes us really special. We score parts of Florida completely different than we do in New York.” Democratizing Big Data Sweir claimed that Offrs.com is disruptive not only because of the accuracy of its inventory-predicting model — he said the model accurately predicts 70 percent of all U.S. listings in advance — but also because the model is made available to the masses at an affordable price point. “We democratize big data,” he said. “Our customers might buy a very small zip code and it might be very affordable to access this valuable data and analytics. … Before it would be very time consuming and costly for them.” Swier also noted that Offrs.com provides marketing assistance for agents as well to help them put big data into action.
“We provide templates and campaign systems for them to use,” he said. “You could effectively create a digital postcard on Facebook to the homeowners who score high on our algorithm for very little money.” Although Offrs.com is primarily applying its predictive analytics to disrupt access to future housing inventory on a transaction-by- transaction basis, the model could eventually disrupt housing inventory on a macro basis, according to Swier. the single transaction we are also predicting the broader market,” he said. “This will be a living and breathing machine … and that will impact the way people will look at the market. “The long tail of predictive analytics is this is really going to drive the entire industry,” Swier continued, noting that while predictive analytics is newer to real estate, it’s long been used in other industries. “The entirety “We are predicting the single transaction, and by predicting
In 2009, firms like Blackstone, Starwood Capital Group, Colony Financial, and American Homes
for Rent each began purchasing tens of thousands of single family homes to hold as rentals — lured by discounted foreclosure properties and plummeting homeownership rates that foreshadowed a strong rental market in the years ahead.
Inefficiencies in the real estate marketplace grated against the data-
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“It has been an attractive time to raise money in real estate and fintech. Lots of capital chasing a relatively few companies.”
GARY BEASLEY CO-FOUNDER AND CEO, ROOFSTOCK
Rental Genome Project “One of our projects last year was to complete a database of all the SFR owners in the country,” Beasley said, noting that the company can now display all 16 million SFR homes in the country on an interactive map that can be used for internal purposes but also productized for clients to “use that data to make ourselves relevant to our clients … we can get inventory that way and sell it for them in a pretty elegant way.” Roofstock’s SFR database — which it has dubbed the “Rental Genome Project” — includes the ownership entity of each property along with ways to contact those owners, a marketing goldmine for the company. “We can use it for multiple purposes. … Once you know a little bit about someone, you can target them on Facebook, for example,” Beasley said. “It has borne fruit. We have gotten a lot of retail inventory with these targeted Facebook ads.” Individual property-level data is auto-populated at key points in the Roofstock workflow to help further reduce friction in the process of selling a single family rental, according to Beasley.
driven culture of many involved in this massive shift in residential real estate ownership, including Roofstock’s Beasley, who at the time was CEO of Starwood Waypoint Residential Trust, a firm that at one point managed more than 15,000 U.S. single family rental properties. “(Roofstock) was really born out of frustration of trying to sell homes we had a Waypoint,” said Beasley, who co-founded the company along with Gregor Watson and Rich Ford in mid- 2015. “We found it was very difficult to sell homes with tenants in them because the traditional MLS was really set up to sell vacant homes … It seemed kind of crazy that you had to wait for the tenants to move out … it was costing 10 to 12 percent on average to sell these homes.” Rapid adoption of the Roofstock platform over the past two years is proof that disruption was needed in the single family rental (SFR) marketplace, according to Beasley, who said the platform went from $40 million in transactions in 2016 to nearly $1 billion 2017 — a 25-x increase. Roofstock charges sellers 2.5 percent, and buyers pay 50 basis points on transactions to use the platform’s big- data analytic tools.
“We have a process where sellers can onboard their properties in a self- service way. … we can use data and AI and machine learning to make people answer as few questions as possible,” he said, adding that the company serves up automated property valuations to help seller decision- making. “We have our own valuation that can predict probability of sale at certain price points.” Beasley said a data-driven culture at Roofstock has also helped the company attract funding. “Having a head of data science and a data science strategy is the price of entry for any startup in the valley,” he said. “The fact that we had a strategy that involved data and really understanding our future customer “The one thing real estate has going for it is the market size is quite large. That is appealing for investors who see a lot of companies,” he continued. “It is really the last major sector to not be discovered … and I think there are a lot of pockets of opportunity in real estate.” base was very attractive from a business model perspective.
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Five Financial Benefits of Owning Residential Real Estate Investments MY TAKE
BY GLENN HAMBURGER SENIOR DIRECTOR, BANC OF CALIFORNIA
Alternative markets, but I feel it is important to also be aware of the power of investing in cash-flowing residential real estate in areas of the country which make sense. An important part of many people’s financial plan is the home they live in. The choice between buying a home and renting is among the biggest financial decisions that many adults make. But the costs of buying are more varied and complicated than for renting, making it hard to tell which is a better deal.
Owning a home is potentially the largest investment most people will make during their lifetime. Many purchase homes with the hope that the value will appreciate, and they will be able to build a sizable amount of equity, sell one day and live off the proceeds after investing in a 1 percent Certificate of Deposit (CD). Homeownership Tougher in High- Priced Markets While homeownership is great for some, there are segments of the population
For the last 25 years, I have been helping families and individuals identify goals, establish a plan and determine a clear vision of their financial future. While a financial plan is a future road map that is normally put into writing, it is also a guideline that is used to track results, and make adjustments when needed. Since this is an ongoing process, there are several areas which should be discussed. When it comes to Investments and cashflow, many financial planners will focus on the Equity, Bond or
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FIVE FINANCIAL BENEFITS OF OWNING RESIDENTIAL REAL ESTATE INVESTMENTS
need to refinance or sell the house, and then you are back to having mortgage debt or looking for a place to live. A growing numbers of Americans — millennials, baby boomers and Gen-Xers in particular — are showing less and less interest in owning a home, according to new data from Freddie Mac. The study released by Freddie Mac Multifamily, found that while economic confidence is growing among renters, affordability concerns remain the dominant driver of renter behavior. The study found that 63 percent of renters view renting as more affordable than owning a home. That includes 73 percent of baby boomers. And 67 percent of renters who plan to continue renting said they would do so for financial reasons. That’s up from 59 percent two years ago, according to Freddie Mac. Additionally, recent trends indicate that segments such as the millennials and baby boomers are electing to rent where they want to live and invest in a single family residence to create cash flow in another, more affordable market. The following are five advantages to
“A growing numbers of Americans — millennials, baby boomers and Gen-Xers in particular — are showing less and less interest in owning a home, according to new data from Freddie Mac.”
which find that renting a home and investing instead in income-producing real estate is a better financial decision. In many areas of the country, home prices are reaching unaffordable levels for many homebuyers, especially in California. According to an article in the Los Angeles Times, California’s median home price is now $537,315, reflecting a compounded annual growth rate of nearly 10 percent since 2012, according to real estate website Zillow. During the same time period, the median rent for a vacant apartments jumped an annual rate of nearly 5.5 percent to $2,428. As a result of rapidly increasing housing costs in California, more people are leaving, according to a study conducted by Beacon Economics and Next 10, cited in the LA Times article. In 2016, 41,000 more households left the state than moved in, according to the study referenced in the article. What this means is that people
need a place to live no matter what the economy is doing. Unlike the commercial, retail and industrial real estate markets, the residential rental market (in many areas of the country) is less likely to drop as far down. Money Out of Your Pocket So is owning a home for your primary residence a good investment? To answer that question you need to understand that your personal property takes money out of your pocket each month. Every month you have to pay the mortgage, insurance and property taxes. Even if the house is paid off you are still spending money maintaining the house and paying your taxes and insurance. The house is still taking money out of your pocket, not producing income. While your paid-off house might make your net worth look good, the equity is locked up in the home. If you actually need to access that money, you either
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“Important factors to consider when choosing a real estate market for single family rental property investing include population and employment growth and home value appreciation. When buying single family rental properties located in a different city or state, investors also research purchase prices, taxes, and housing regulations.”
such an approach:
the Equity/Bond Markets, where you can have daily ups and downs of up to 10 percent. 5. Tax advantages Tax credits are available for low- income housing, the rehabilitation of historical buildings, and certain other real estate investments. A tax credit is deducted directly from the tax you owe. You also get an annual deduction for depreciation, which is typically a percentage of the value of the property that you can write off as an expense against revenues. Finally, in some countries, the gains from the sale of real estate can be postponed indefinitely as long as the proceeds are reinvested in other real estate, known as a 1031 exchange. Important factors to consider when choosing a real estate market for single family rental property investing include population and employment growth and home value appreciation. When buying single family rental properties located in a different city or state, investors also research purchase prices, taxes, and housing regulations.
percentage of the population that are renting. For instance, D.C., New York, and California have the most renters
1. Leverage If you pay 10 percent to 30 percent as a down payment, a bank, lending institution or private party will provide the rest of your funding. That means you can own a $100,000 piece of property for just $10,000 to $30,000. 2. Cash flow If purchased and managed properly, your property can offer long-term positive cash flow, and this ongoing stream of income you receive from an investment offers other benefits — see below. 3. Appreciation If the value of your property has gone up, and you decide to sell, your profit is called appreciation. Cash flow and appreciation are two forms of revenue from rental properties. Remember, even though you aren’t buying in hopes of selling to earn a quick profit, you should always have an exit strategy in place. 4. Fewer highs and lows A cash-flowing property is not subject to the daily ups and downs of the markets. It is typically a longer-term play — as opposed to paper assets or
in terms of percentage of the population. Another important
consideration is that you want to use the 1 percent rule, which means that the monthly rent generated is at least 1 percent of the sales price of the home. For example, if you have a house worth $250,000, you want to be able to generate around $2,500 per month in rent. This is going to eliminate a lot of areas of the country — in particular coastal California, New York and even some middle-America markets such as Denver, Colorado.
GLENN HAMBURGER
Glenn Hamburger CFP® is an Orange County lifelong resident. He a Senior Director with Banc of California Private Banking located in Newport Beach. All of the opinions in this article are his personally and do not necessarily reflect those of Banc of California.
Other investors also look at the
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CLIENT CORNER
Triggering Real Estate Leads with Interactive Neighborhood Data
BY BARRY FRIEDMAN CEO, HOMEACTIONS
1. What is your elevator pitch for HomeActions? HomeActions is a cloud-based platform designed to help agents communicate more effectively with their sphere of influence: their clients, prospects and referral sources. We try to get agents connected to a potential customer as early into the buying cycle as possible, before the customer has decided to buy or sell.
information, just designed to provide information, not to elicit a response. Then there is trigger content. We start all trigger articles out with “is this your situation?”. If this is not their situation, they are probably not going to read it. No matter what we say afterward, if someone clicks on that article in my mind it is a warm lead — someone you would want to go in your pipeline.
And we do that primarily through content marketing.
We provide the content in the newsletters, and we’ve developed unique systems to tell when a client or prospect has put their toe in the water, meaning they are ready for a real estate transaction.
We’ve found that content comes in different forms. There is just
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TRIGGERING REAL ESTATE LEADS WITH INTERACTIVE NEIGHBORHOOD DATA
Another key type of content we use in our newsletters is an interactive article. There is special technology associated with it. What this is about is how do you build your pipeline so that eventually people come out of your pipeline and become clients? I started a previous company called BizActions which was sold to Thomson Reuters in 2012. From 2012 I really got into HomeActions wanting to build it up. We think we are the largest in the real estate space delivering about 3.5 million newsletters every two weeks on behalf of our 5,000 Realtor clients. We help those clients put together their database. We learned you can’t have content marketing without a database. We de-dupe it and cleanse it to make sure the email addresses are as clean as possible. 2. How is HomeActions utilizing ATTOM Data Solutions? Our interactive articles are what uses ATTOM data. It’s basically a know-your- neighborhood type of article. Or if you are looking for real estate, check out the neighborhood first. When they “Our interactive articles are what uses ATTOM data. It’s basically a know-your- neighborhood type of article. Or if you are looking for real estate, check out the neighborhood first. When they click that article, we provide some content about why this information is important. Then we ask for their name and phone number.”
click that article, we provide some content about why this information is important. Then we ask for their name and phone number. We ask “why are you interested in this content?”. You wouldn’t think people would answer that but they do. These are purpose questions, and there are six purpose questions. They check off the ones that apply. When they hit submit, we then go to ATTOM’s servers and grab that property and we deliver a URL to them that gives them all the property and neighborhood information. We’ve kept certain things in and kept certain things out. We don’t include crime statistics. We used to include AVM (Automated Valuation Model) in there but we took that out and we made AVM a separate article. Some Realtors like the AVM component because if someone is looking for the value of a property that is a heck of lead. We then deliver that neighborhood data to the client. And they are always happy about. They often check it for
several properties. Then we send it over to the Realtor with the reason why they are looking for the information. Mr. Smith is looking to buy a house. That’s a heck of a warm lead. 3. How is the marketplace responding to HomeActions products/services? Realtors are happy with having that type of local information. I would say that it has gone over well with the Realtors. We kept on getting more and more interest in this information … and how we managed the information. We figured out a way to take your data and make it work in a lead generation environment. We just came out with a new feature where you can add advertisements to your newsletter and there is a shared revenue component so you can share the revenue from that. We do all the work. We are sending out about 7 million newsletters every month. Let’s build the template of our
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TRIGGERING REAL ESTATE LEADS WITH INTERACTIVE NEIGHBORHOOD DATA
little problem where the data was not updated promptly, but we got that fixed quickly. 6. What has been your experience with the data quality? I’ve had no problem with data delivery or data quality with the exception that ATTOM hasn’t built an API that allows me to send information on Realtors so that when you present the neighborhood data you present it as branded with that Realtor. We haven’t been able to do that in an eloquent way. 7. What has been your experience with customer service? Customer service has been fine. People have been very nice.
“There were a few companies that had the data so it wasn’t like ATTOM was the only one. But I like the way they presented the data, and there was some flexibility so I could add some things and subtract some things. And the people were nice.”
newsletter in such a way where we can embed unobtrusive advertising, share the money with the Realtor, and that way we can make money off all these contacts. We already have 100-plus Realtors signed up. 4. Why did HomeActions decide to use ATTOM Data Solutions? There were a few companies that had the data so it wasn’t like ATTOM was the only one. But I like the way they presented the data, and there was some flexibility so I could add some things and subtract some things. And the people were nice.
I didn’t know if I could afford this. I didn’t know if people would like it or not. So we were able to start out with flexible pricing. That worked out really well for me because I could gauge whether my clients were interested or not, and we kept on getting more and more penetration. Then we decided to integrate into our overall product. And that’s when I went back to negotiate a fixed-price contract. And that is working out well. 5. What has been your experience with the data delivery? We have had no problem. Maybe one
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BIG DATA SANDBOX
Home sales nationwide decreased 4 percent in 2017 compared to 2016, but sales to buyers with last names of Lin, Zhang, Wu, Liu and Huang increased by more than 20 percent while sales to buyers with last names of Burns, Porter, Jenkins and Cole decreased by 15 percent or more. ATTOM Data Solutions analyzed more than 2.3 million sales deeds from 2016 and 2017 with buyer last names available along with family name origin information from Ancestry. com to determine where these most active buyer names originate from and where they are buying U.S. homes. A Family Tree of the Hottest Homebuyer Names in 2017
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DATA IN ACTION
The Most Underwater and Equity Rich U.S. Housing Markets
More than 5.2 million (5,206,446) U.S. properties were seriously underwater (where the combined balance of loans secured by the property was at least 25 percent higher than the property’s estimated market value) at the end of Q1 2018, down by more than 291,000 properties from a year ago — the smallest year-over-year drop since tracking began in Q1 2013, according to the ATTOM Data Solutions U.S. Home Equity & Underwater Report. The 5.2 million seriously underwater properties at the end of Q1 2018 represented 9.5 percent of all U.S. properties with a mortgage, up from 9.3 percent in the previous quarter but down from 9.7 percent in Q1 2017.
HOME EQUITY HEAT MAP Q1 2018 SERIOUSLY UNDERWATER
CLICK HERE TO VIEW INTERACTIVE VISUAL
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HOUSINGNEWS REPORT
THE MOST UNDERWATER AND EQUITY RICH U.S. HOUSING MARKETS
“We’ve reached a tipping point in this housing boom where enough homeowners have regained both sufficient equity and sufficient confidence to tap into their home equity — resulting in a noticeably slower decline in seriously underwater properties and slower growth in equity rich properties,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “This tapping of equity could take the form of a cash-out refinance, home equity loan or simply a home sale. We saw the biggest quarterly drop in average homeownership tenure for homeowners who sold in the first quarter since Q4 2008, evidence that more homeowners are reaching that equity-tapping tipping point more quickly and deciding to sell.” More than 19.5 million (19,513,871) U.S. properties had between 20 and 50 percent equity (LTV of between 80 and 50 percent) at the end of Q1 2018, down by 1,714,099 from a year ago, an 8 percent decrease. Homes with 20 to 50 percent equity represented 36.1 percent of all properties with a mortgage as of the end of Q1 2018, down from 36.3 percent in the previous quarter and down from 37.6 percent in Q1 2017. See the number and share of seriously underwater and equity rich properties in your local housing market using the interactive heat map on page 17. Highest share of equity rich properties in coastal California, Honolulu, Seattle States with the highest share of equity rich homes were Hawaii (41.6 percent);
“We’ve reached a tipping point in this housing boom where enough homeowners have regained both sufficient equity and sufficient confidence to tap into their home equity — resulting in a noticeably slower decline in seriously underwater properties and slower growth in equity rich properties.”
California (41.5 percent); New York (34.8 percent); Washington (33.1 percent); and Oregon (31.8 percent). Among 98 metropolitan statistical areas with a population of at least 500,000, those with the highest share of equity rich homes were San Jose, California (66.1 percent); San Francisco, California (56.0 percent); Los Angeles, California (45.4 percent); Honolulu, Hawaii (43.1 percent); and Seattle, Washington (39.1 percent). Highest share of seriously underwater properties in Scranton, Baton Rouge, Youngstown States with the highest share of seriously underwater homes at the end of Q1 2018 were Louisiana (20.1 percent); Mississippi (18.0 percent); Iowa (17.2 percent); West Virginia (15.9 percent); and Illinois (15.9 percent).
Among 98 metropolitan statistical areas with a population of at least 500,000, those with the highest share of seriously underwater homes at the end of Q1 2018 were Scranton, Pennsylvania (21.9 percent); Baton Rouge, Louisiana (19.9 percent); Youngstown, Ohio (19.5 percent); New Orleans, Louisiana (18.5 percent); and Toledo, Ohio (18.0 percent). Along with New Orleans, among 51 metro areas with at least 1 million people, those with more than 13 percent of seriously underwater properties were Cleveland, Ohio (16.5 percent); Milwaukee, Wisconsin (16.0 percent); St. Louis, Missouri (14.7 percent); Chicago, Illinois (13.8 percent); Detroit, Michigan (13.6 percent); Virginia Beach, Virginia (13.4 percent); and Kansas City, Missouri (13.4 percent).
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HOUSINGNEWS REPORT
SECTION TITLE
Know the Risks and Benefits Before You Buy Your Next Home A Home Disclosure Report provides comprehensive property and neighborhood data that will help you make a better decision about the home you want to buy.
Criminal & Sex Offenders Former Local Drug Labs Nearby Hazardous Sites
Local School Ratings Property/Loan Information Neighborhood Demograhics
“I can research homes and neighborhoods like never before. Great data for negotiating with the seller!” G. BUSBY, HOMEOWNER - CHICAGO
Get your FREE Home Disclosure Report at www.homedisclosure.com
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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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