NAMED THE NATION’S BEST NEWSLETTER BY NAREE
APRIL 2018 VOL 12 ISSUE 4
MY TAKE TECH AND BIG DATA DISRUPT THE REAL ESTATE INVESTING STATUS QUO P9
BIG DATA SANDBOX HOME AFFORDABILITY IN BIGGEST ARRIVAL & DEPARTURE MARKETS P14
CLIENT CORNER
DATA IN ACTION THE BEST COUNTIES FOR BUYING SINGLE FAMILY RENTALS P15
PREDICTING INTENT IN REAL ESTATE WITH DATA- POWERED AI P11
Contents
FEATURED ARTICLE
P1
PRIVATE LENDING GOES PUBLIC
Where traditional lenders fear to tread others see demand. Private lenders — individuals and organizations which make investment real estate loans to borrowers who otherwise cannot get financing — are looking for a bigger share of the marketplace. And they seem to be getting it, according to an analysis of fix-and-flip lenders in 2017 compared to 2016. The biggest challenge most real estate investors face is finding investment properties, argues Ross Hamilton, CEO at Connected Investors, a social network for real estate investors. But investors — and other home buyers and sellers — now have choices thanks to tech innovations that have opened the door for alternatives to listing properties on the MLS through an agent. P10 MY TAKE: TECH AND BIG DATA DISRUPT THE REAL ESTATE INVESTING STATUS QUO Likely.AI is an artificial intelligence platform that is specifically designed for the real estate industry, and CEO and co-founder Brad McDaniel explains how the company is leveraging hundreds of millions of property records along with demographic data and macro market trend data to predict with 70 percent accuracy when a homeowner is going to list their property within the next 180 days. P14 CLIENT CORNER: PREDICTING INTENT IN REAL ESTATE WITH DATA-POWERED AI A closer look at how home affordability plays out in the top markets with population departing and the top markets with population arriving, according to 2017 net migration data from the Census bureau. Spoiler alert: people are moving to markets that tend to be more affordable with stronger wage growth and moving from markets that are either absurdly high-priced or have weak wage growth. P21 BIG DATA SANDBOX: HOME AFFORDABILITY IN BIGGEST ARRIVAL & DEPARTURE MARKETS ATTOM Data Solutions analyzed 449 U.S. counties for potential single family rental returns in 2018 to help real estate investors identify the best places for buying single family rentals this year. View potential rental returns along with fair market rental trends, median home price trends, investment property vacancy rates and property tax rates in any of these 449 counties using our interactive heat map. P22 DATA IN ACTION: THE BEST COUNTIES FOR BUYING SINGLE FAMILY RENTALS
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LEAD ARTICLE
Private Lending Goes Public
BY PETER MILLER, STAFF WRITER
For many people the investment real estate market is off-limits. They can’t buy and they can’t invest because they lack access to traditional lenders, the banks with big vaults and lots of ATMs. The Urban Institute estimates that some 5.2 million potential borrowers have been unable to qualify for residential mortgage financing in recent years because of overly strict qualifying standards. For investors, especially flippers, the situation is
worse simply because they represent more lender risk.
Association of Realtors, existing-home prices were up 5.9 percent from a year earlier, “the 72nd straight month of year-over-year gains.” For most property owners the numbers have been pretty good but for a few the returns are spectacular: home flippers had an average 49.8 percent return on investment (ROI) in 2017 according to ATTOM Data Solutions.
This is a problem because for many Americans the most direct route to personal wealth has been real estate. Residential equity reached $14.4 trillion in the fourth quarter according to the Federal Reserve, a record. Freddie Mac reports that since 2009 home prices are up 37 percent nationwide. In February, said the National
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PRIVATE LENDING GOES PUBLIC
U.S. HOME FLIPPING FINANCING TRENDS
TOTAL FINANCED PURCHASE DOLLAR VOLUME
PCT PURCHASED WITH FINANCING
70%
$60M
60%
$50M
50%
$40M
40%
$30M
30%
$20M
20%
$10M
10%
0% 2000 2002 2004 2006 2008 2010 2012 2014 2016
$0M
Not quite as good as 2016 when the flipping ROI hit a record 51.9 percent, but still the second-highest average home flipping ROI since 2000 — the furthest back data is available. ATTOM reports that 207,088 U.S. single family homes and condos were flipped in 2017 and of this number 34.8 percent were financed — a total of 72,000 units. The dollar volume for financed flips was $16.1 billion, up 27 percent from 2016 to a 10-year high. Technology-Fueled Growth Where traditional lenders fear to tread others see demand. Private lenders — individuals and organizations which make investment real estate loans to borrowers who otherwise cannot get financing — are looking for a bigger share of the marketplace. And they seem to be getting it. “We aren’t surprised that the dollar volume and share of financed flips are hitting new highs,” said Matt Humphrey, co-founder and CEO of
“Online lenders like us exist because banks and large lenders don’t play in this space, and they aren’t using technology to be efficient, nimble and fast. Now that investors have digital-native lenders catering to them, financing becomes an attractive alternative to cash. We predict this trend will continue because 2018 is already off to an incredible start for us.”
MATT HUMPHREY CO-FOUNDER AND CEO, LENDINGHOME
LendingHome, which saw a nearly 70 percent increase in its dollar volume of loans to home flippers who completed a flip in 2017 and a 50 percent increase in the number of loan originations, according to an ATTOM analysis of select fix-and-flip lenders. “Online lenders like us exist because banks and large lenders don’t play in this space, and they aren’t using technology to be efficient, nimble and fast. Now that investors have digital-native lenders catering to them, financing becomes an attractive alternative to cash. We predict this
trend will continue because 2018 is already off to an incredible start for us.”
The ATTOM analysis shows another national fix-and-flip lender, Roc, saw a more than 100 percent jump in loan originations to home flippers who completed a flip in 2017, an increase that Roc co-founder and COO Maksim Stavinsky attributes in part to data- driven culture.
“At Roc, we are continuing to build out and benefit from our data science
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U.S. HOME FLIPPING GROSS PROFITS & RETURNS
AVG GROSS PROFIT PER FLIP
AVG GROSS FLIPPING ROI
60%
$80,000
$70,000
50%
$60,000
40%
$50,000
30%
$40,000
$30,000
20%
$20,000
10%
$10,000
0%
$0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
“Typical bank products do not service investors for many reasons, both in product eligibility and speed of execution. Private lenders fill a much-needed gap where banks are unable to service the industry.”
STEPHEN POLLACK CEO, ANCHOR LOANS, LP
efforts, which helps improve all aspects of our business, especially the firm’s risk management and business development capabilities,” said Stavinsky. “We believe a data-driven culture produces a better service and product for all our stakeholders.” A key competitive advantage for private lenders is the ability to move quickly with a financing request, to fund in days instead of weeks or even months.
The use of hyper-local, hyper-now, property-specific data is allowing private lenders to make pinpoint financing decisions quickly and with great confidence. “There is a common misconception that private lenders like us only exist to service borrowers that have bad credit or are otherwise ‘unbankable,’” said Eric Krattenstein, chief marketing officer and head of sales with Asset
Based Lending, LLC. “In fact, the opposite is true. Most of our borrowers are perfectly bankable, but very few programs exist for investors. The few bank programs that do exist take eight to 10 weeks to close, where we can do it in eight to 10 days or less! Speed is the name of the game in this business.”
“Typical bank products do not service investors for many reasons, both
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2017 YEAR-OVER-YEAR CHANGE IN LOAN ORIGINATIONS TO HOME FLIPPERS SELECT FIX-AND-FLIP LENDER GROWTH
“Institutional demand in this space has grown substantially over the last several years. Fix- and-flip has become an asset class of its own that is well- financed by banks and highly sought by institutional buyers.”
LENDINGONE
116%
ROC
105%
LENDINGHOME FNDG
50%
GENESIS CAP MASTER FUND
45%
LIMA ONE CAP
28%
MAKSIM STAVINSKY CO-FOUNDER AND COO, ROC
5 ARCH FNDG
24%
ANCHOR LNS
24%
in product eligibility and speed of execution,” said Stephen Pollack, CEO with Anchor Loans, LP, which saw a 24 percent increase in loan origination volume to home flippers who completed a flip in 2017, according to the ATTOM analysis. “Private lenders fill a much-needed gap where banks are unable to service the industry.”
class of its own that is well-financed by banks and highly sought by institutional buyers.” Additionally, with growth private lenders are evolving into fully formed non-banks with multiple product lines and access to capital through securitization. LendingHome Senior Vice President of Execution Josh Stech says his firm can now originate FHA- backed mortgages and sell loans to Fannie Mae. For short-term bridge loans such as those used by flippers, LendingHome has a number of funding sources
according to Stech: whole loans sold to investors ranging from financial institutions to hedge funds; borrower- dependent notes sold to accredited investors; and an investor platform which, said Stech, “democratizes access to this asset class.” “With LendingHome’s investor platform,” he said, “accredited investors can easily build a diversified portfolio of real estate assets with as little as $1,000 per investment, and enjoy tech-enabled benefits such as ‘Auto- Invest’ that target returns averaging 7 percent.”
Institutional Capital Chasing Returns
“Institutional demand in this space has grown substantially over the last several years,” said Stavinsky, of Roc. Fix-and-flip has become an asset
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PRIVATE LENDING GOES PUBLIC
Lastly, the LendingHome Opportunity Fund II — announced in October 2017 — has $100 million in commitments. The commitments, said Stech, come from “more than 40 investors including asset managers, international funds, family offices, and high net worth individuals. An additional credit facility of up to $300 million brings the fund’s total potential assets to $400 million.” This year, as another example, Angel Oak Capital Advisors, LLC obtained $90 million with a securitization backed by “fix-and-flip” loans to residential real estate investors. “The securitization,” said the company, “features an 18-month revolving period in which paid collateral is replaced with new collateral. The average loan balance in the securitization is $199,052, with original terms between six and 12 months.” If securitization becomes more frequent and widespread we could see the development of standardized private lender products. In turn, more short-term dollars will become available for real estate investors, pressuring “We love banks. Our business was born from the massive unsatisfied demand created by larger financial institutions’ unwillingness and inability to serve real estate investors.”
below, the delinquency rate soars to 61 percent.
down both interest rates and borrower costs — and making private lending more common and widespread. Assets Versus Credit The private lending business exists today because the traditional banking system does not serve everyone with a banking need. If you represent “too much” risk, if you’re not seeking a standardized loan, or if you need to close in a few days then for many traditional lenders you’re more of a worry than an opportunity. “We love banks,” said Krattenstein of Asset Based Lending, LLC. “Our business was born from the massive unsatisfied demand created by larger financial institutions’ unwillingness and inability to serve real estate investors.” Neither traditional banks nor private lenders want high-risk borrowers and with good reason. Figures from credit score pioneer Fair Isaac show that borrowers with credit scores of 800 or better have a 1 percent delinquency rate. With credit scores of 579 and
While traditional banks rely on property values and credit standing to qualify borrowers, private lenders base their loans in great measure on asset values, a type of financing historically known as “hard money” lending. “We consider hard money lenders and private money lenders one in the same,” explains Linda Hyde, Executive Director of the American Association of Private Lenders (AAPL). “It’s just a matter of preferred terminology now. They are both typically asset-based loans, backed by the strength of the real estate purchase rather than the financial credentials of the borrower.” Risky Business Bobby Montagne, founder and CEO of Walnut Street Finance, explains that cable TV makes “it look like every home flip is a success. We understand first as flippers and now as lenders that flipping can be risky, so we vet our deals carefully.
ERIC KRATTENSTEIN CHIEF MARKETING OFFICER AND HEAD OF SALES ASSET BASED LENDING, LLC
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“We visit each property and meet each borrower as part of our underwriting process,” he continued. We run comps to determine the exit price and velocity of trades in each neighborhood, and we analyze borrower history and financials. If any piece of the deal doesn’t work, we decline the loan. The most common reasons for declining a loan application are a lack of borrower capital, zoning or entitlement issues, and inexperience of the borrower in relation to the complexity of the project.” “We decline early stage loan applications all the time,” said Asset Based Lending’s Krattenstein. “Without a doubt, the most common reason is that the financials just don’t make sense and we’re trying to save our
investor from a bad deal. We have a minimum profitability rule in our underwriting guidelines that stipulates a borrower must make a certain amount of (anticipated) profit on the deal for us to finance it.” Krattenstein explained that “inexperienced investors often forget to account for various fees and holding costs involved with real estate transactions, so our loan officers and underwriters help guide borrowers through the deal economics to make sure it makes sense for the risk involved. Believe it or not, most of our declined applications end up thanking us for shining some light on the situation and return with a more profitable investment.”
While the returns for flips can be significant, flipping profits – just like stock and bond profits – are not a sure thing, there are no guarantees. Much can go wrong and there is substantial risk. Real estate investors may pay too much for a property. Rehab expenses can be greater than expected. The market may cool and with it home values. The list goes on. “We underwrite the borrower as well as the property or asset,” says Montagne with Walnut Street Finance. He adds that “the borrower is an important part of the asset. If the property is a great buy in a great location but the borrower can’t execute the renovation, the project will not be a success. Personal responsibility is an important indicator of this ability to execute. If a borrower has recent bankruptcies or very poor credit, that speaks to his or her responsibility and ability to deal with crises as they arise.
“We understand first as flippers and now as lenders that flipping can be risky, so we vet our deals carefully.”
BOBBY MONTAGNE FOUNDER AND CEO WALNUT STREET FINANCE
U.S. HOME FLIPS AT 11-YEAR HIGH IN 2017
SINGLE FAMILY HOME AND CONDOS FLIPPED
HOME FLIPPING RATE (PCT OF TOTAL SALES)
400,000
9.0%
8.0%
350,000
7.0%
300,000
6.0%
250,000
5.0%
4.0%
200,000
3.0%
150,000
2.0%
100,000
1.0%
50,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
0.0%
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“The same goes for borrowers with very low income,” he continued. “If something goes wrong with project, and the borrower needs to inject some additional capital, they will not be able to do so with very low income. Paying taxes is also an indicator. If a borrower has not paid their taxes, that’s commonly an indicator that they are very disorganized or stalling on paying money due.” Typical Terms Lenders must balance risk and reward and with flippers there’s a lot of risk. Flippers are not licensed. There are no standards and no educational requirements. You’re a flipper if you say you’re a flipper. The result is that private lenders often have terms which include 70 percent loan-to-value (LTV) ratios, 3 to 4 points, interest from 8 to 13 percent, and a length of one to two years. Hard money financing supports the purchase of the property as well as a series of repairs and upgrades to obtain a final after repair value (ARV). The property exists at the time financing is extended while the ARV does not. The ARV is an estimate of future value but six months or a year from now a local market may be very different plus it may turn out that repairs and upgrades — even if well-done — are not appealing and the property does not quickly sell. There’s a lot of risk for investors — and private lenders. Some private lenders provided Housing News Report some more specifics on their individual loan terms.
Amount to Purchase Price + Repair Cost,” said Anchor Loans CEO Stephen Pollack. “LTC is driven by the property type, location and borrower’s experience. We typically like to be no more than 85 percent of cost but can go above this on case-by-case basis.” loan finances 80 percent of the acquisition and then 100 percent of the renovations. For seasoned investors that we’ve worked with previously, we’ll occasionally go up to 90 percent of acquisition and 100 percent of renovations.” • “Our rates in the Washington, DC. metro area are typically between 10 to 12 percent with 1 to 3 points and LTVs up to 75 percent,” says Bobby Montagne with Walnut Street Finance. “However, based on borrower track record and property value and location, those can fluctuate. Additionally, we try to always right-size our deals with loan terms that fit the profile of • Eric Krattenstein with Asset Based Lending, explained that “our average
the project, so many of our simpler fix-and-flip loans have six to nine month terms. This shorter term also encourages the borrower to finish the project quickly, which, in the end, nets him or her more profit.” • Josh Stech of LendingHome says his firm will lend “up to 90 percent of the purchase price of the property for our most experienced borrowers.” He adds that the company “will finance up to 100 percent of the rehab costs which gets reimbursed after verification of the work via a holdback/draw process.” Draws and Extensions Hard money lenders insist on a series of draws and inspections as the project progresses. There are two reasons for draws. First, the lender wants to assure that its money is being spent for the project. Second, the lender wants the project to be completed in a workmanlike manner and on time. The property is security for the financing and if a property is correctly
• “One metric we look at is Loan to Cost (LTC), which is the Loan
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policies but ask about conditions and costs.
“We typically offer two extension periods with each of our loans,” said Bobby Montagne with Walnut Street Finance. “For each extension, we charge one point to extend the loan for a period of two months. We try to ‘right-size’ each loan for the amount of time the project should take to complete and sell. Time is the enemy of most renovation projects, so this provides the borrower with incentive to stick to their schedule and finish the job quickly. However, delays do occur, so we do offer extensions.” According to Eric Krattenstein with Asset based Lending, “as long as the borrower is in good standing, we typically extend loans 90 days at a time for 1 point at the same interest rate. That said, we do whatever we can to reasonably accommodate our borrowers. The most common extension takes place when a property is listed or under contract and the borrower is just waiting for it to sell. In these cases we’ll try to be flexible; perhaps a prorated extension fee or waiving it altogether if it is just a matter of days.” “Anchor” said Stephen Pollack, “offers a standard extension agreement that extends a loan three months beyond the current maturity date for a fee of 1 percent of the note amount provided the underwriting conditions still make sense. The fee can either be collected within 7 days prior to the current maturity date, or it can be accrued onto the loan as a charge and collected at payoff. Anchor does not charge interest on the extension fee.”
“With LendingHome’s investor platform accredited investors can easily build a diversified portfolio of real estate assets with as little as $1,000 per investment, and enjoy tech-enabled benefits such as ‘Auto-Invest’ that target returns averaging 7 percent.”
JOSH STECH SENIOR VICE VICE PRESIDENT OF EXECUTION LENDINGHOME
done it makes it easier for both the flipper and — if necessary — the lender to sell the project. “The number of draws or disbursements often depends on the total construction budget, as well as the scope and duration of renovation,” said Montagne. “For smaller projects and budgets, we usually recommend three to four disbursements; larger projects may have six or more. The borrower creates the disbursement schedule, with assistance from us if necessary. We do order third-party inspections before each disbursement, within 24 hours of borrower request. The inspector sends his or her report the day after the inspection, and we usually wire 24 hours after we get the report.”
Pollack explained that “draws can vary given the project size and scope of work. Our average fix and flip projects will typically consist of 5 draws, while large additions and ground up projects can typically average around 15 to 18 draws. Prior to funds being disbursed, every draw must be inspected in order to verify all work being reimbursed has been completed. Once the Anchor inspector has approved the draw request, our finance team will release the funds to the investor.” It happens that projects run long, say a few days or a few weeks. Borrowers do not want to be in a position where funding is overdue but settlement is delayed. Lenders likely have extension
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MY TAKE
Tech and Big Data Disrupt the Real Estate Investing Status Quo
BY ROSS HAMILTON CEO, CONNECTED INVESTORS
In the world of real estate investing, there’s a common challenge that most investors face these days. The first inclination might be to think it’s funding. But much has changed, and in fact improved, in the world of investment property funding since the hangover and recovery from the big crash. (See lead article on page 1.)
The result? Agents need listings and investors need properties.
the single family market — is finding investment properties.
The Market Disruptions The influx of buyers into the market and the availability of capital from banks and private money lenders that drives up demand on the MLS aren’t the only factors at work when it comes to buying and selling real estate.
The Multiple Listing Service (MLS) — while it works for the typical home buyer — offers little for the active real estate investor in most markets. The upswing in the market has created competition for both owner occupants and potential investment property buyers. This creates a big demand for properties.
The biggest challenge most real estate investors face — especially those in
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TECH AND BIG DATA DISRUPT THE REAL ESTATE INVESTING STATUS QUO
for the average on-the-street real estate investor until now. For years, big data has been at work for the institutional-level investor looking for bulk REO purchases. The smaller investor has had to rely on data services like Connected Investors’ Deal Dog that pulls together quasi-off market property listings from dozens of online sources. While this represents an improvement over a more laborious internet search, it doesn’t quite do what big data can. Investors looking for off-market properties have relied largely on “list providers” to connect with homeowners who may or may not have an interest in selling their property. These marketing lists — a form of big data — give investors access to data taken largely from tax records. A typical list might include absentee owners, high-equity owners or landlords that investors used largely for direct mail campaigns. But data, being what it is today, is able to simplify the job of the investor looking for properties. Using the latest technology and advanced algorithms, smart data filters and overlays, real estate investors can access big data that provides more than names and
addresses. Smart tech and big data combined also puts phone numbers, email addresses, social profiles into the hands of investors making direct mail an alternative rather than the norm. With the wealth of data now out there, it’s a fact that the aggregation of the right data for the job can empower progress in any industry. Another big data plus for the real estate investor is the availability of information regarding the financial position of a property. It’s now possible to assess debt-to-value — a key indicator of a property’s viability as a potential purchase. Plus, information on the property’s mortgage status is now readily available giving pre-foreclosure investors’ unparalleled access to potential property purchases from sellers hoping to avoid foreclosure. Is the traditional buy-and-sell model dead? No. But the alternatives available to investors and the public alike are heralding in an entirely new and in most cases, more efficient and cost-effective way to move properties in our market. Tech and big data have disrupted the status quo and it’s a welcome change for buyers and sellers of any stripe.
Tech innovations have opened the door for alternatives to listing properties on the MLS through an agent. Home buyers and sellers — whether owner-occupant or investor — now have choices. For years, word on the street was that the Internet would send both the MLS and the Realtor the way of the dinosaur. That hasn’t evolved but alternatives have. Necessity and demand is the mother of invention, and technology has stepped in to solve the inefficiencies of the status quo. Opendoor.com provides sellers and buyers an alternative to the traditional buy-sell model. Real estate agents are still an important part of the Opendoor equation, but the process doesn’t look quite the same. “Using the latest technology and advanced algorithms, smart data filters and overlays, real estate investors can access big data that provides more than names and addresses.” Zillow Instant Offers allows home sellers to get offers from qualified and pre-screened corporate and local investor buyers. Both of these services represent a blow to the traditional U.S. home selling model. Big Data — The Game Changer for REI Despite these types of tech innovations, there hasn’t been a big game changer
ROSS HAMILTION Ross Hamilton is the founder and CEO of Connected Investors. Launched in 2005 as a social network for real estate investors, the company has grown to more than 250,000 community members. In 2015, CiX.com was launched to serve the funding needs of investors giving them direct access to hard and private money lenders who specialize in investment property funding. Earlier this month, Connected Investors launched its PinPoint Profits database, opening up big data for the average real estate investor.
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CLIENT CORNER
Predicting Intent in Real Estate with Data-Powered AI
BRAD MCDANIEL CEO AND CO-FOUNDER, LIKELY.AI
What is your elevator pitch/30- second sound bite for Likely.AI? We are an artificial intelligence platform that is specifically designed for the real estate industry. We’ve built this platform by aggregating data, including public record data from ATTOM on 155 million properties nationwide. We also incorporate a 225-million- record demographic dataset that
In essence we score every U.S. property based on the likelihood of a sale in the near future, and once a property reaches a certain confidence threshold in our deep learning models, we say that is a valuable lead for real estate professionals. How is Likely.AI Data utilizing ATTOM data? Other companies — list optimizers
provides information on buying trends and behavioral trends. We also have accumulated a macro market and micro market data set that is proprietary, made up of both local and national influence signals. We use all this to create different lead- generating products for the real estate industry, the first one being who has the desire to sell. We’ve gotten down to where we’re highly accurate.
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PREDICTING LIKELY EVENTS IN REAL ESTATE WITH DATA-POWERED AI
— look backwards to predict and it’s not a very viable model. It’s something we were doing back in 2007. These list optimizers, some of whom have rebranded as AI companies, use shallow neural networks with limited layers of neurons. Now we use deep learning. Deep learning has very deep neural, long neural networks. All these layers of neurons allow you to make non-linear non-sequential connections between layers. Because of all the different property data that ATTOM Data Solutions has, we started looking at other models we could train and what industries would care about those models — predicting the appearance of a notice of default, or predicting the appearance of a trustee sale. If we can predict that a month or two in advance it is highly valuable for real estate investors.
caught up to our vision, we did a soft launch in Q4 2017, providing 10 leads a week per zip code for our beta customers. We got great feedback from this launch. One customer in South Carolina knocked on 10 doors and talked to two people — both wanted to list. A Realtor in Contra Costa County, California got four really solid follow-up leads and one called back with three properties to list from one hour of cold call prospecting. The key piece of what we do is to identify the people who haven’t done anything about transacting on their home but they are thinking about it — that’s what we’ve found we’re able to predict well. I knew the predictive modeling was working when my name was highly ranked in the last run for Travis County, Texas, even though my wife and I don’t have any of the regular indicators in terms of years owned, size of home, age of children, etc. But the model was correct in that we are seriously considering a move! Why did Likely.AI decide to use ATTOM Data Solutions? We were evaluating ATTOM against another company, and really what it came down to for us was model accuracy and price. At a baseline, we wanted to make sure that our models would function as well or better with ATTOM data and that ATTOM data coverage was comparable or better than the other source. ATTOM passed this initial check with flying colors.
that were higher-quality leads based on basic property and ownership characteristics. Our fourth-generation platform, driven by artificial intelligence and machine learning, will narrow down that same list of 100,000 homes to just 1,000 homes that we can predict with a high degree of certainty will represent revenue-generating opportunities for our clients. When we went out and created our team we really wanted someone with that AI and machine learning expertise … that next level of guy. We got very lucky in finding somebody we had a relationship with and thus being able to go to market very quickly. How is the marketplace responding to Likely.AI products/services, specifically those integrating ATTOM data?
“There are a lot models we can create utilizing different pieces of ATTOM data. The challenge is to identify which of these models service the most industries and which industries are willing to pay the most for the models.”
We started conceptualizing these types of products as early as 2007, before the now-ubiquitous data science nomenclature even existed. We sat on it until technology and the industry caught up — when industries were willing to incorporate data into their growth strategy. Until that happened, the industry was talking about data like high schoolers talk about sex. Everybody was talking about it but nobody was really doing it. Once we believed market forces had
There are a lot models we can create utilizing different pieces of ATTOM data. The challenge is to identify which of these models service the most industries and which industries are willing to pay the most for the models. We want to be that fourth-generation marketing platform. First generation was direct marketing followed by online leads and then list optimizers who narrowed down a list of 100,000 homes to 20,000 homes
During the evaluation process we also discovered some additional datasets
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PREDICTING LIKELY EVENTS IN REAL ESTATE WITH DATA-POWERED AI
ATTOM offered outside of the standard public record property datasets that would be very beneficial to our models. That was of course icing on the cake. On the pricing front, our rep John — whom I’ve known for many years and is a great industry resource — worked with us closely to fairly and flexibly price the data licensing agreement so that we were getting the data and terms that fit the specific objectives of Likely.AI. Lastly it became apparent during the evaluation process that the level of customer service we would be getting from ATTOM far exceeded what we were getting from the other company. When dealing with that other company, we had to wait months for something to get done. We had to sit on our hands for months. That high level of customer service continued after we signed on as an ATTOM client. As with any data provider, there are always challenges that arise, but ATTOM has been quick to respond to and address those challenges. As long as I have the support of my data provider to solve a problem, that’s what I need. As long as it’s getting resolved in a timely manner. That was something that was a deciding factor for us. The data delivery was actually a pretty smooth process; there weren’t a lot of errors, which is a testament to the robust data management process that ATTOM employs — merging all the various sources together to create one superset of property data. What has been your experience with the data delivery?
“We were evaluating ATTOM against another company, and really what it came down to for us was model accuracy and price. At a baseline, we wanted to make sure that our models would function as well or better with ATTOM data and that ATTOM data coverage was comparable or better than the other source. ATTOM passed this initial check with flying colors.”
What has been your experience with customer service? Our rep John carries around two cell phones, and he gave me both cell phone numbers and told me to call him any time. There was nothing that ever fell through the cracks. And that was very important to me being in a detailed-oriented space. Having someone at the customer support level being able to understand and being able to get us in touch with the right people very quickly is key to our success, and ATTOM has excelled in providing that high level of customer support.
What has been your experience with the data quality? Each property in the ATTOM Data Warehouse is assigned a unique ID that persists across all records associated with that property, and that ensures that the data quality and quantity is consistent across all areas. ATTOM has also been willing to listen to — and work on implementing — our recommendations to improve the data for our specific use case. That type of responsiveness is far above and beyond what we have experienced with others in the industry.
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APRIL 2018 | ATTOM DATA SOLUTIONS
BIG DATA SANDBOX
Median home prices in Q1 2018 were not affordable for average wage earners in 304 of 446 U.S. counties (68 percent) analyzed in the most recent home affordability report from ATTOM Data Solutions. Here’s a closer look at how home affordability plays out in the top markets with population departing and the top markets with population arriving, according to 2017 net migration data from the Census bureau.
Analysis: Affordability is a big challenge in two of the top three markets with the biggest drop in net migration of population: Los Angeles County, California, and Kings County, New York (Brooklyn). Homes are much more affordable in the third market, Cook County, Illinois (Chicago), but the economy is struggling as evidenced by a 3 percent decrease in average wages over the last five years.
Analysis : While not the epitome of home affordability, three of the four top markets with the biggest increase in net migration have home prices below the $300,000 mark, keeping affordability under the 43 percent of income line designated by the Consumer Financial Protection Bureau. The fourth market (Riverside County) has bargain home prices compared to its immediate neighbor Los Angeles County, where median home prices are more than $200,000 higher.
The ATTOM Data Solutions U.S. Home Affordability Index analyzes median home prices derived from publicly recorded sales deed data collected by ATTOM Data Solutions and average wage data from the U.S. Bureau of Labor Statistics. Affordability is based on the percentage of average wages needed to make monthly house payments on a median-priced home with a 30-year fixed rate mortgage and a 3 percent down payment, including property taxes, home insurance and mortgage insurance. Net migration data is from the U.S. Census Bureau and is the difference between the number of people moving into a county and the number of people moving out of a county in 2017.
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APRIL 2018 | ATTOM DATA SOLUTIONS
DATA IN ACTION
The Best Counties for Buying Single Family Rentals
Counties in Baltimore, Macon, Montgomery, Detroit, Atlanta post highest rental returns Counties with the highest potential annual gross rental yields for 2018 were Baltimore City, Maryland (28.6 percent); Bibb County, Georgia in the Macon metro area (21.8 percent); Montgomery County, Alabama, in the Montgomery metro area (21.7 percent); Wayne County, Michigan in the Detroit metro area (21.7 percent); and Clayton County, Georgia in the Atlanta metro area (20.3 percent). “With continued job growth in Cleveland and Atlanta, Divvy is seeing a significant year-over-year increase in the percent of highly-qualified single-family renters, who are often less than two years
ATTOM Data Solutions analyzed 449 U.S. counties for potential single family rental returns in 2018 to help real estate investors identify the best places for buying single family rentals this year. Rental data was from the U.S. Department of Housing and Urban Development, and home price data was from publicly recorded sales deed data collected and licensed by ATTOM Data Solutions. The average annual gross rental yield (annualized gross rent income divided by median purchase price of single family homes) among the 449 counties was 8.9 percent for 2018, down from an average of 9.2 percent in 2017.
away from mortgage qualification,” said Tiffany Li, co-founder of Divvy Homes, a tech startup that provides lease options with an equity-building component. “This population is seeking SFRs in neighborhoods that are largely owner-occupied and with family-friendly amenities and good schools. We’ve continued to see strong and growing demand through the Midwest and Southeast for lease options and other unconventional rental options that allow highly-qualified renters to move towards homeownership.” Along with Wayne County, Michigan, the highest potential annual gross rental yields among counties with a population of at least 1 million were Cuyahoga
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APRIL 2018 | ATTOM DATA SOLUTIONS
HOUSINGNEWS REPORT
THE BEST COUNTIES FOR BUYING SINGLE FAMILY RENTALS
SINGLE FAMILY RENTAL RETURNS BY COUNTY: 2018 2018 ANNUAL GROSS RENTAL YIELD 2.3% 28.6%
CLICK HERE TO VIEW INTERACTIVE VISUAL
Rental returns increase from year ago one-third of counties Potential annual gross rental yields for 2018 increased compared to 2017 in 150 of the 449 counties analyzed in the report (33 percent) led by Rowan County, North Carolina in the Charlotte metro area (up 36 percent); Randolph County, North Carolina in the Greensboro metro area (up 32 percent); Tazewell County, Illinois, in the Peoria metro area (up 21 percent); Baltimore City, Maryland (up 21 percent); and Kings County, California in the Hanford-Corcoran metro area (up 20 percent). “As the stock market starts to show some weaknesses, investors continue to put their money into cash flowing assets such as rental properties,” said Ross Hamilton, CEO at Connected Investors, an online community for real estate investors. “Many view rental real estate as a way to recession-proof their income and retirement.”
County (Cleveland), Ohio (11.6 percent); Philadelphia County, Pennsylvania (10.0 percent); Cook County (Chicago), Illinois (9.5 percent); and Harris County (Houston), Texas (9.5 percent). “At Roofstock we are seeing increasing interest from investors in a number of SFR markets that have historically not gotten much love from the large institutional players,” said Gary Beasley, CEO and co-founder at Roofstock, an online marketplace for single family rentals. “These include many cities in the Midwest, South, Southeast and even certain markets in the Northeast. Investors are attracted to the strong rental yields in many of these less flashy cities like Cleveland, Pittsburgh and Detroit, as well as perennial favorites like Atlanta, Houston and Charlotte which have been popular with investors for several years. The nice thing about SFR is there is enough variety out there that there really is something for every investor, depending on their unique objectives.”
Among counties with a population of at least 1 million, those with the biggest increase in potential annual gross rental yields for 2018 compared to 2017 were Harris County (Houston), Texas (up 7 percent); King County (Seattle), Washington (up 7 percent); Queens County, New York (up 5 percent); Contra Costa County, California (up 4 percent); and Cook County (Chicago), Illinois (up 3 percent). “The single-family rental market in Seattle remains strong, which is a good thing for the people who own the rentals, but not so good for tenants as rents continue to escalate,” said Matthew Gardner, chief economist with Windermere Real Estate, covering the Seattle market. “Demand for rentals is high but some of this is due to Seattle’s rising home prices. Growth in rental rates is robust in the core Seattle market, but as you move further away from the city it starts to soften due to more modest income growth in those areas.”
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APRIL 2018 | ATTOM DATA SOLUTIONS
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.
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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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APRIL 2018 | 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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