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THINK REALTY 8  News & Events

BUSINESS FUNDAMENTALS 44  Who are you? Avoiding a brand identity crisis. by Carol Sours

Updates from around the industry.

10  The Dark Side of Equipment Ownership Do all the math before you take the plunge. by Dustin Thompson, Sunbelt Rentals SPECIAL SECTION: 2019 OUTLOOK 26  Sector Breakdown: Multifamily Real Estate Trends in 2018 and Beyond This year was pleasantly surprising for multifamily investors. by Jeff Adler 28  Expert Commentary: George Ratiu, NAR’s Director of Housing and Commercial Research Consumer optimism and confidence continue to affect housing. by Carole VanSickle Ellis 31  An Overview of the Looming Commercial Real Estate Debate The conversation about commercial investments is changing. by Samuel K. Freshman 34  Two Indicators Investors Should Watch in 2019 2018 offers some clear insight into the coming year. by Greg Rand 36  The Year in Review: Institutional SFR Investing in 2018 Wall Street’s bet on Main Street continues. by Dennis Cisterna III

49  Meet You at the Top

Take your investing high-speed with “communication duct tape.” by Jenna Heneghan

50  Protect Your Investment from these Elements this Winter Part 2 of the “Winter Defense” series. by BreAnn Stephenson

STRATEGY 52  The Best and Worst of Metro Boston Real Estate 2018 has been incredible, but changes are coming. by Kristin Weekley 56  3 Elements in Design that Withstand the Test of Time Special touches that remain attractive and classic. by Anita Corsini



HOUSING NEWS REPORT 60  Blurred State Lines Benefit SFR Investors

Fannie Mae's DOUG DUNCAN puts housing under the microscope.


"My Take" article from ATTOM Data Solutions. by Kevin Ortner

by Carole VanSickle Ellis :: photos by Beth Caldwell

63  10 Best Days to Buy a Home [ Infographic ] Day after Christmas is the best day to close on a home purchase. by ATTOM Data Solutions





38  Construction Costs are Deciding Our Strategies The cost of labor and materials will continue to dominate housing trends. by Bruce McNeilage

64  Where to Buy Homes with Least Natural Hazard Risk "Data in Action" article by ATTOM Data Solutions.







3 LESSONS FROMHELPING A SMALL BUSINESS INVEST Investing in a “forever home” was the right move for this business.

RENOVATION ROCKSTAR: SMALL HOUSE, BIGMAKEOVER 850 square feet never looked so spacious and modern.

41  Real Estate Syndications Gain Momentum in 2018 [Case Study] Understanding the process is more important than ever. by Kathy Fettke

INFORMATION MANAGEMENT NETWORK 67  7th Annual Single Family Rental Investment Forum (West) December 3-5, 2018 | Scottsdale, Arizona

Confidence in your future requires action in your present.

Markets with huge home price increases that still have potential.

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PUBLISHER Eddie Wilson

The “Perfect” Exit Strategy


EDITOR-IN-CHIEF Carole VanSickle Ellis SALES MANAGER Rodney Halford 816-398-4111 x86122 NATIONAL SALES MANAGER Teresa Stanton 816-398-4111 x86224 CONTENT DIRECTOR Abby Tillman FULFILLMENT COORDINATOR Blair Pierce DESIGN CONSULTANTS Rivet |


eal estate investors love pithy sayings: “Your network is your net worth.” “You make your money when you buy.” “Buy low, sell high.” And, perhaps the most apt of all: “Start with your exit strategy.” A good exit strategy does not involve a true exit, however. A good exit strategy creates a positive change for the investor (for example, selling that flip for a tidy sum) and a positive experience for the other parties involved (for example, the contractors get paid; the former owner’s property-related distress is resolved, and your buyer loves their new house). When a good exit strategy is implemented, the investor walks away with amazing relationships that will yield returns far into the future in the form of more deals, more opportunities, and new horizons. Those outcomes are the hallmark of the perfect exit strategy and, though it is bittersweet to write this, they are perfect description of my exit from this position as Think Realty Magazine ’s editor-in-chief. This issue, December 2018, is my last, and I can never thank any of you reading this now enough for your eyes on every issue, your responses on every article, and the incredible depth and breadth of knowledge and experience in this industry that so very many of you were willing to share. Working with every one of the magazine teammembers, contributors, resources, sponsors, experts, producers, and advertisers has been an honor and a pleasure. I am so proud of the publication we created together.

In this December issue, as so many publications do, we deal with the tra- ditional year-end, exit topics revolv- ing mainly about how to conduct the perfect 2018 exit and enter 2019 with all the momentum of today’s market moving you forward tomorrow.

•  Our cover feature, Fannie Mae chief economist Doug Duncan , breaks down the process of the detailed data analysis and forecasting for which he is renowned – and tells you how to use that data yourself. •  Expert contributors in syndication, commer- cial real estate, and residential strategy review 2018 in surgical detail before revealing their personally researched insights and practical investment adjustments heading into 2019. •  The Market Data & Analysis section takes on a newly comprehensive element, incorporating more direct instruction and commentary from investors in the field than ever before, just in time for you to use that information in your own 2019 preparations. I hope you settle down in the gentle glow of the fire, if it’s cold this season where you’re reading, or with your toes in the sand if you already embody another investor favorite, “Live where you want, but invest where the deals are,” and take a minute to savor the last issue of 2018 before looking for- ward, with great anticipation, to the opportunities your exit from the old year into the new is bring- ing you with Think Realty Magazine by your side. I look forward to watching 2019 unfold with you. •



CONTRIBUTING WRITERS Jeff Adler, Aubrey Chernick, Dennis Cisterna, Jennifer Jo Cobb, Anita Corsini, Kathy Fettke, Samuel K. Freshman, Pamela J. Goodwin, Bill Griesmer, Jenna Heneghan, Bruce McNeilage, Greg Rand, Carol Sours, BreAnn Stephenson,

Reining in costs is key to running a profitable REI business. This is where a FREE membership at Think Realty pays off. Now we’re adding three more suppliers to the discounts available to members.

Andrew Syrios, Dustin Thompson, Kristin Weekley and Ingo Winzer.


Resourcing Edge: Save 50% on employer services: Fortune 500 benefits, human resources, workers’ comp and more!

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

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Think Realty 7509 Tiffany Springs Parkway, Suite 200 Kansas City, Missouri 64153 816-398-4130 Copyright ©2018 Think Realty


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Think Realty is a part of the Affinity Worldwide family of companies. Here, find exciting news about Think Realty and its sister companies, as well as other noteworthy industry news.


Good Success Awards 2018 Core Value Award to Max Keller

Think Realty Magazine to Turn Page with New Editor-in-Chief Kansas City, Missouri – Since its inception in 2016, Think Realty Magazine has quickly grown to become a premier publication in the real estate industry. That success is due to the hard work and dedication of many Think Realty team members under the guidance of Think Realty president, Eddie Wilson, and its editor-in-chief, Carole Ellis. Wilson selected Ellis to lead the charge for development of the magazine during this growth phase because of her deep industry knowledge and expertise. “She has been a wonderful partner on this journey. We appreciate her insight and leadership and wish her nothing but the best as she begins her next chapter,” said Wilson. “The only thing that could take me away from Think Realty Magazine are the needs of my own company, Self- Directed Investor (SDI) Society, a membership society for all investors interested in using self-directed accounts to invest in alternative assets, including but not limited to real estate. My position with Think Realty Magazine and leading this magazine team has brought me great joy throughout my tenure. I am truly proud of the hard work we put in and the high quality of the publication we produced,” Ellis said. Learn more about Think Realty Magazine and its editorial direction by emailing content director and acting editor-in-chief Abby Tillman at

Come See Think Realty at These Upcoming Industry Events! Think Realty will be busy this winter at these industry events. Don’t miss booths and speakers at:

Books in Print

Miami, Florida – The Good Success Mastermind awarded its Q3 2018 Core Value award to Max Keller , president of Savior Realty in Dallas-Fort Worth, Texas, during its fourth-quarter mastermind on November 8-10, 2018, in Miami, Florida. “He shows up and participates, cares about his community, and genuinely treats the mastermind community, the industry community, and their local community with love and respect,” Good Success president Tom Olson said of Keller. “We award this honor to a person in our mastermind community who attracts people to real estate and is also willing to show up for their own community and participate.”

Landlord Secrets: Immediately Increase ROI and Become a More Effective Landlord Secure Pay One CEO and Think Realty coach Linda Liberatore along with SPO team members Megan Booe, Siobhan Cerney, Jenna Heneghan, and Veronica Pinedo, recently released this comprehensive guide to managing rental real estate investments. The book deals with growing rental real estate portfolios exponentially in fewer than three years, implementing strategies for management, increasing quality of life through streamlining your processes, and overcoming hurdles that hinder growth. “It’s finally time to make your dreams come true and turn your rentals into profit!” Liberatore said. “This book is your complete guide to making that happen.” Make It Rain: Real Estate Investing for Real Estate Agents: The new launch model for moving from real estate agent to investor Summit & Crowne CIO and Think Realty Radio host and coach Abhi Golhar released his latest book, Make It Rain , last month. His collaboration with Atlanta real estate agent Lorraine Beato helps to ensure real estate agents have access to an expert on their journey to building wealth through real estate. “If you’re just starting out in real estate, Make It Rain will help you create a stronger business model from the start. If you’ve been in real estate for decades, it will help you take advantage of your experience and professional network to secure your financial future,” Golhar said. Linda's book is available on

DECEMBER 3-5, 2018 IMN: The 7th Annual Single Family Rental Investment Forum (West) Phoenician Resort - Scottsdale, Arizona

The seventh incarnation of this event brings together key market participants including REITs, funds, aggregators, fix-and-flippers, note buyers, ABS and REIT investors, and more for nearly three days of lively discussion, thoughtful debate, and countless networking opportunities. Learn more at Single-Family-Rental-Investment-West. JANUARY 8, 2018 The Changing Face of CRE: What Disrupting Forces Should You Expect? Waldorf Astoria Beverly Hills – Beverly Hills, California Think Realty is among the partners of this year’s CRE 2019 event, at which dozens of the commercial sector’s premier experts gather in one room to help you effec- tively analyze “the changing face of commercial real estate” in 2019. Learn more and register at JANUARY 11-12, 2018 INstateREIA 2nd Annual Statewide Investors Conference Hilton Embassy Suites – Indianapolis North, Indiana INstateREIA’s annual fundraiser has a goal of raising $80,000, 100 percent of which will be used for the association’s statewide public perception program, to hire a lobbyist to fight for the real estate industry, and to continue to implement the statewide Call-To-Action Funnel. Think Realty president and Affinity Worldwide CEO Eddie Wilson will deliver the keynote during Fri- day’s VIP kickoff dinner, and Think Realty is a premium

Learn more at

Connect for success in 2019 at Think Realty Conference & Expos!

Beato, an agent with more than 30 years’ experience, noted the book was written with agents and realtors specifically in mind. “Agents need to not just know how to work with investors. They need to know how to be investors. You need to know how to use the expertise you have as an agent to create your own wealth and passive income.” This eBook is available for free to Think Realty Members at Resources/Downloadables

Sponsorship opportunities now available!

sponsor of the event for 2018-2019. Learn more at

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More Leads. More Time. More Money. Your Freedom. WHY Realeflow? We give you the tools you need to enjoy the freedom you deserve.


The Dark Side of Equipment Ownership DO ALL THE MATH BEFORE YOU TAKE THE PLUNGE.

Realeflow gives you the leads your business needs and the tools to turn them into profits.

Motivated Seller, Buyer, Private Lender Leads Available for instant download 24/7 Direct Mail Engine Automated single-step and multi-touch campaigns Lead Generation Websites Custom high converting websites in under 3 minutes Comparables and Deal Analysis Free real estate comps and easy analysis Repair Estimates and Rehab Plans Accurate repair estimates and rehab plans (no contracting experience necessary!)

by Dustin Thompson, Sunbelt Rentals

e’ve all had that moment: You rent the same piece of equipment again and again, and you start to think to yourself, “We should just buy one.” It may sound like a good idea, but there is a dark side to equipment ownership that you should understand before you take the plunge. There are three hidden factors in the equipment ownership equation that might break your budget if you’re not aware before you make this in- vestment. On the other hand, if they line up correctly, owning instead of renting could make a huge, positive difference. How will you know? Read this article. We’ll break down exactly what you need to know about buying equipment versus rent- ing it and how to make the decision that is best for you and your real estate business. HIDDEN FACTOR #1 Unforeseen Costs You can’t just compare how much you spend on renting to the retail cost of a machine and know if the purchase is worth it. Once you own a piece of equipment, you also have to maintain it. That can get expensive. Here are a few costs you might not have factored in: •  Pay for staff or independent me- chanics when machinery breaks (and it will break) W

working order

HOWTO DO THE MATH It may seem as though you are con- stantly coming out of pocket to rent a certain item, but perception and reality can be two vastly different things. If you’re considering purchasing a machine outright, you need a firm understanding of just how much you’re going to use it. So, we recommend a little math. Divide the number of days you expect to use themachine eachmonth by 22 (the approximate number of working days in a givenmonth).The result is the rate at which you can expect to use a givenproduct. If you expect to use a piece of equip- ment 10 days per month, you divide 10 by 22, which is .45 or 45 percent. Indus- try experts suggest that you should only purchase equipment you intend to use 60 percent of the time or more. Sunbelt Rentals will provide an honest as- sessment on buying versus renting a piece of equipment and is a Think Realty Supplier. •

•  Time lost while you wait for the independent mechanic to fit you into their schedule Real-life example: Aerial Work Plat- forms (AWPs) These platforms are not just expensive to purchase and maintain; most contractors need more than one in order to get jobs done efficiently. As a result, most customers do the math, then choose to rent, not buy. HIDDEN FACTOR #2 The Aging Equation Construction equipment is like a car: The older it gets, the less value it retains. If it’s not succumbing to the wear and tear of everyday use, it’s stuck in a storage facility, decaying and rusting from inactiv- ity. We see this quite frequently with ma- chines used for emergency situations. You want it for when disaster strikes, but every other day of the year, it sits idle, one of the worst things for construction equipment. HIDDEN FACTOR #3 Storage and Transportation If you own your own equipment, get ready to invest in more storage space and at least one heavy hauler. If you do not already have the space to store your new equipment and the vehicle on which to haul it safely to jobs, those purchases must be part of the rent-versus-buy equation.

Get A Special Free 30-Day Trial PLUS Realeflow’s Entrepreneurial Speed Training Course at

Think Realty Members receive access to special discounts on daily, weekly, and monthly rental rates from Sunbelt Rentals. Visit SunbeltRentals to sign up (for free!) and get started today.

•  Tools and equipment necessary for maintaining the machinery in good

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of what their monthly rent was on their previous space and the square footage is nearly identical. LESSON #3 Ownership is not the end. Owning their own retail space would have been great for my investors, but the real fruits of ownership came when they opted to lease out some of that space and essentially pay their monthly debt using the resulting income. Never be afraid of looking for the “next level” when it comes to your real estate in- vesting. Investors sometimes avoid this part because they assume that leveling up will cost more money. In some cases, however, taking the next step can actu- ally free up more capital or resources for other things! BONUS LESSON Build positive relationships at all times. Every real estate investor knows their network is important, but you really have to deliberately build your relationships over time in order to fully leverage them for great results. My rela- tionship with the lender in this scenario helped us get a good loan on a good deal because they knew that putting in the effort to try to help make the pro- cess work would be a good investment because I would not ask them to try otherwise. Equally importantly, I knew they would do their best and, if they had been unable to find a vehicle that would work on the deal, I would have known it was not because they failed to take my clients seriously. •


SBA stands for Small Business Administration. The SBA is a federal entity that works with lenders to provide loans to small businesses. Although the SBA does not lend money directly to small business owners itself, it sets guidelines for loans that other institutions can make to certain types of businesses in order to reduce risk for the lenders while increasing small businesses’ access to capital. Some of these loans even come with continued support to help business owners start and run their businesses, and SBA loans may have:

3 Lessons Learned from Helping a Small Business Invest INVESTING IN A “FOREVER HOME” WAS THE RIGHT MOVE FOR THIS BUSINESS.


This “investor story” demonstrates several valuable lessons that apply specifically to commercial real estate investing and also more generally to real estate investing: LESSON #1 Find a way. My motto is “Never give up,” but you have to apply that to your investing the right way. You can’t just keep batter- ing away at a problem without being creative and resourceful. The whole concept should really be this: Never give up and find a way. Too many times, investors give up too easily because they find investing intimidating (for example, if this couple had walked away from the idea of owning a commercial space after being turned down the first time). Other times, they doggedly pursue their goals by repeating the same process over and over even though their strategy is not working. We had to first try, then fail, then reevaluate and take a different tack in order to get our desired results.

• Lower down payments • Flexible overhead requirements • Limited or even no collateral requirements

by Pamela J. Goodwin


businesses (see sidebar on opposite page) but many small-business owners do not realize that if they do not qualify for an SBA loan, they have other options. We opted to approach a small bank with which I have a relationship already that does creative deals for commercial loans, including looking for a lot of different resources to help borrowers get the deal done. That bank was successful in finding an option for the couple. They will soon have their own space and, even better, are renting out part of that space to other jewelry professionals. It is a win- win situation that will help the new own- ers begin building equity for themselves. It truly is a happy ending for everyone, although I expect it is just the beginning for these two as commercial investors.

ecently, I worked with a jewelry designer and her husband who

tion to protect our clients when making the decision to go from leasing to pur- chasing a property for their business. That process often includes making rec- ommendations about how they might leverage a good situation or opportunity into a great one, often via strategic financing and purchasing decisions. In this case, the couple initially tried to go the SBA (U.S. Small Business Adminis- tration) route but were turned down by the first national bank they approached. They were definitely discouraged! Note: The couple’s tax returns did not meet SBA loan standards because their business did not show a profit. This was no fault of the SBA, but rather the result of past filing decisions. The SBA offers incredible opportunities to small

own a small jewelry company in order to purchase a true “forever home” for their business. They had been leasing a com- mercial retail space for the last 30 years. They told me they had always known the benefits of buying a space versus renting but had been too afraid of the process, which was completely unknown to them, to ever do so. When we finally did the math and they realized their monthly payments would literally be half the price of their monthly lease payments, they could not wait any longer. As a Texas real estate broker, one of the things I do at my company, Good- win Commercial, is educate our clients on the commercial investment process. We offer a step-by-step process evalua-

LESSON #2 Never assume. Instead, do your math. So many investors tell me they “could never” invest in commercial real estate, buy a commercial space, or take what- ever the next step is for them in real es- tate investing because it is just too hard, too overwhelming, or too complicated. One of the biggest losses many business owners take is the lost revenues and net income that could have been theirs if they had been willing to at least consid- er owning their space instead of leasing it. In the case of the jewelry store owners, their debt price, the price they are paying on the building loan, is half

Pamela J. Goodwin is the founder and CEO of Goodwin Commercial a commercial real estate firm specializing in retail/restaurant development,

brokerage and consulting firm in Dallas, Texas, and a Think Realty coach. Learn more about her commercial real estate courses at Pamela or reach her at

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Exterior after


Front porch after

Front door, interior, after


Front door after

by Carole VanSickle Ellis | Featured investor: Kyle Blake of Kyle Blake Homes

fun places make it a per- fect place to live, which is why I decided to keep it as a rental property,” he added. The property is just a few blocks from dining and entertainment options as well as within walking distance to the University of Kansas Medical Center (KU Med). Although Blake did not add windows to the property, his upgrades to the interior make the entire home seem brighter and airier. He removed large, built-in shelves and cupboards immediately inside the front door (right), installed brand-new hardwoods, and brought the bright white of the exterior indoors with shiplap walls. The result is a modern take on a classic style that offers “tons of natu- ral light,” he noted. Front porch and door before

hen Kyle Blake, owner at Kyle Blake Homes and a Berk- shire Hathaway agent, first saw the little green house in the West Plaza area of Kansas City, Missouri, it was love at first sight. Not everyone could have seen past the exterior, which boasted peeling green paint, a worn porch, and a seriously out- dated kitchen, but Blake immediately saw so much more. “The second I saw it, I loved the curb appeal and the cute, charming farmhouse potential,” Blake recalled. “I could envision changing to exterior white paint, adding black shutters, and put- ting on a brand-new front porch. Modern farmhouse has always been my favorite style because it seems timeless and classic.” Blake noted that the HGTV Show “Fixer Upper” hasn’t hurt the farmhouse style’s appeal, either. “I always loved it though, well before they were on the air!” he laughed. Blake knew he would have to completely replace the porch, which held plenty of potential for outdoor-living lovers. “It is a quaint house, only about 800 square feet, so I had to play into W


Location: West Plaza area of Kansas City, Missouri Purchase Price: $ 80,000 Rehab & Carrying Costs: $ 35,000 Market Value: est. $ 175,000 Strategy: Cash-out refi with a 30-year note, added to his rental portfolio the cute factor and add as much charm as possible,” he said. In his rental listing, he describes the front porch (upper right, p. 15) as “perfect for sipping your morning coffee.” “The house is in a fantastic area with values going up tre- mendously the last few years. Great walkability to all kinds of

Front door, interior, before

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Kitchen before

fixtures and all new appli- ances. Floating shelves add to the open feel while gray cupboards under the counter offer plenty of storage space. The bedrooms have huge walk-in closets and, like the rest of the house, are designed to maximize space and light. Blake brought out contrasts using the unusual

Mudroom before

Laundry/Bath after

Mudroom after

design technique of com- bining dark wood door- frames with the white walls and made a bold decision to install glass panels in the custom closet doors (see lower right). Invisible but Important: The home comes with Google Fiber Fast internet, a must for today’s renters in this trendy area. “If I had it to do over again, I would have subbed out more work to my subcontractors,” Blake said. “I bought this house in the late fall [when I] was going into my slow season of real estate during the holidays, so I was hungry for a project. I didmost of the work myself at this house, which hurt my realtor business because I was not out hustling to find leads for the coming Spring months. If I could do it again, I would have subbed out way more work and payed more than $35,000 for the rehab. Lesson learned!” THEWALKABILITY FACTOR: According to, walkability affects health (average residents in walkable neighborhoods weigh about 10 pounds less than those in sprawling neighborhoods), financial stability (1 walk score point may be worth more than $3,000 of value for a property), and community (walkability is associated with higher levels of arts organi- zations, creativity, and civic engagement). Blake’s property, with its close proximity to neighborhood parks, dining and entertainment options, and even local employ- ers like KU Med, is located in the perfect spot for residents who value walkability. However, he noted, the property does have two- car off-street parking, so you don’t have to give up your wheels. • Kitchen after LOOKING BACK: DELEGATINGWORKWOULD HAVE HELPED

Blake did not alter the layout of the mudroom and adjacent bedroom, but his decision to dramatically adjust the way the rooms are used, including moving the laundry facilities to a different location in the home entirely, created far more usable space than the previous owner had accessed. In the “after” photo (above), the mudroom, which opens onto a brick pa- tio, offers plenty of room for residents to sit down and remove outerwear or enjoy the view out the window on cold days. Blake decided to enlarge the bathroom and moved the washer and dryer to their

Bedroom after

own specialized nook in the same area. The result, in con- junction with the classic white tile, dark floors and vanity, and new, wider door with frosted glass panes, is a relatively small bathroom that feels luxurious. The living room, adjacent to the one bath, now without the built-in bookshelves and with new, multicolored hard- wood flooring and simple, modern lighting, is warm, well-lit, and inviting (see before and after at right).

Living room before

Living room after

Bedroom before

Bedroom closet after

Probably the most dramatic transformation in the property was the kitchen. Blake removed the central divider, moved the sink and appliances so they lined up (along with plenty of custom wood counterspace) along one wall, put in a classic white tile backsplash, and installed a modern farmhouse sink with gold

Kyle Blake is a realtor, remodeler, and real estate investor based in Kansas City, Missouri. Learn more at or email him at

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Produces Good Business POWERFUL DATA

Fannie Mae's Doug Duncan puts housing under the microscope.




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staggering. “At the end of the day, all of this work, these forecasts, these strategic planning groups, these analyses, are geared to help every player in real estate, from lenders to consumers to investors, understand what we are all doing and thinking about real estate and housing at any given time,” he said.

“THE ROLE OF CHIEF ECONOMIST at Fannie Mae is a little different than a chief economist role anywhere else,” Doug Duncan, Fannie Mae’s chief economist, started out. He then went on to detail a list of responsibilities, data and analytics sources and reports, and economic teams under his supervision that is, in a word,


Title: Senior Vice President, Chief Economist at Fannie Mae

Recognitions & Awards

Named one of Bloomberg/ BusinessWeek’s 50 Most Powerful People in Real Estate

Leads the Economic & Strategic Research (ESR) Group, which won the NABE Outlook Award for most accurate GDP and Treasury note yield forecasts for back-to-back years in 2015 and 2016

Academic Background:

B.S. and M.S. in Agricultural Economics from North Dakota State University

Ph.D. in Agricultural Economics from Texas A&M

Fortunately, Duncan is up to the task. After spending 16 years as senior vice president and chief economist at the Mortgage Bankers Association (MBA), he transitioned to his current position, senior vice president and chief economist with Fannie Mae, where he is the head of economic and strategic research. “A lot of things that might be separate from the economist’s team in other organizations are included at Fannie Mae,” Duncan said. “We do forecasts, obviously, but we also have a strategic planning group (the Economic and Strategic Research (ESR)

group), a group that runs pilot programs, and a group that studies startups, for example. We survey not just consumers and residents, but also lenders to find out what they are doing, seeing, and thinking.” Duncan noted that while most people think of Fannie Mae as existing primarily to serve homeowners and further homeownership in the United States, that role is more multifaceted than most imagine. Duncan’s division of Fannie Mae is dedicated not just to identifying current and future housing trends, but also to understanding what events may

have contributed to the evolution of those trends and the motivations and rationale behind the actions of all parties involved. For example, Duncan said, at present his ESR group is involved in a great deal of research revolving around what he called simply, “the question of floods.” He explained, “We are looking closely at what we believe we know about risks related to flooding.” Because Fannie Mae has predetermined underwriting standards that compel it to purchase certain mortgages from lenders if no other buyer emerges (see sidebar on p. 22), it is vitally important

the GSE understand every facet of risk to a physical property at every point in time. In addition to Fannie Mae’s National Housing Survey and Mortgage Lender Sentiment Survey, Duncan and his team are constantly involved in the diligent analysis of a variety of “Special Topics” gleaned from the data collected through the two cornerstone reviews, which are conducted monthly and quarterly, respectively. At present, special topics include digital mortgage technology, housing affordability, barriers to homeownership, and cybersecurity.

Professional Positions & Experience:

Senior Vice President & Chief Economist, Mortgage Bankers Association (MBA) 1992-2002 Senior Vice President & Chief Economist , Fannie Mae 2018-PRESENT

LEGIS Fellow & staff member, Committee on Banking, Finance & Urban Affairs for Congressman Bill McCollum (U.S. House of Representatives, R-FL) Financial Institutions Project, U.S. Department of Agriculture

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AQUICK LOOKAT FANNIE MAE’S MARKET INTELLIGENCE “Everything we do is intended to help actors in the housing market and economy understand what is happening in these environments today and what that might mean for tomorrow,” Duncan said. Below, you can see some of his department’s featured research publications, surveys, and reports: THE ECONOMIC & HOUSING OUTLOOK This monthly economic outlook details interest rate movements, housing and mortgage market forecasts, and the overall economic climate. ESR also provides a weekly report, The Economic & Housing Weekly Note, as a “snapshot” of current housing data. NATIONAL HOUSING SURVEY A monthly telephone survey polling 1,000 consumers a month on housing topics. This survey is distilled into the Home Purchase Sentiment Index (HPSI), an indicator used to provide signals on housing market movement. MORTGAGE LENDER SENTIMENT SURVEY Fannie Mae’s quarterly online survey of senior executives of Fannie Mae’s lending customers. The survey includes standard tracking questions and also special topics. THE PROCESS BEHIND THE FORECASTS With this kind of data at his fingertips and a highly skilled population of economists and subject-matter experts available to distill and refine the continuous onslaught of information, Duncan has become a master not just of the accurate economic forecast, but also of the actionable economic forecast. Because Fannie Mae’s goals center around the support and sustainability of housing, Duncan’s insights often rely on his ability to discern why individual players will act

in a certain way in the future. Duncan explained home prices may seem straightforward on the surface, but many factors lie beneath. “When we look at the Home Purchase Sentiment Index (HPSI), for example, we can identify certain trends in what consumers are thinking,” Duncan explained. “In September 2018, for example, the HPSI remained flat because perceptions of high home prices and expectations for rising mortgage rates continued to weigh on potential homebuyers. However, to get a clear forecast, you have to combine that information with what we know about how most consumers think about the value of their homes. It is not just the price of their home, but it is how they are enjoying the home, how much of their income ownership requires, their long-term plans, etc.” He added, “You also have to consider lender sentiment to get the full picture. In September, for example, lenders remained bearish because of ongoing anemic refinance activity and the worst purchase mortgage demand for a third quarter in the Mortgage Lender Sentiment Survey’s history. Consumer demand was one of the top two reasons for lenders’ downbeat profit outlook.” When these diverse particles of information are combined, a clearer picture of housing market sentiment begins to emerge: “Consumers are attuned to the divergence between the slowing housing market and strong macro economy. They are becoming less optimistic about both homebuying and -selling conditions [even though] perceptions of income growth and confidence about job security are high,” Duncan said. “Lender sentiment indicated as early as this past June that on the lending side of the equation, demand was likely to fall and, with it, housing sentiment.” For real estate investors, this type of information can serve as a glimpse into

the “playbook” of the championship team in the sector. Fannie Mae is, itself, an investor in the market, albeit an extremely powerful one both playing by and bound by different rules than the “average” real estate professional. Because the GSE is bound to purchase certain types of loans, Duncan’s economic insights can help it identify areas where threats may loom. While most investors are not operating on the same scale or even purchasing mortgages or mortgage-backed securities, insight into what national trends are in the Fannie Mae sights can help with local market analysis and due diligence. AN OUTLOOK OF “MEASURED OPTIMISM” Looking forward into 2019, Duncan and his ESR Group predict relatively strong real GDP growth although, Duncan noted, “a lot will depend on how the midterm results affect economic policy.” However, Duncan’s expectations for housing, he said, “have become more pessimistic” in recent months. “Affordability, especially for first-time homebuyers, remains at the top of the list of challenges facing the housing market,” Duncan said, going on to observe that for real estate investors making investment decisions in local markets, keeping this issue in mind could prove advantageous. “The first thing I always say when someone asks about the ‘affordability crisis’ is that there is no affordability crisis,” he emphasized. “Appreciation absolutely is slowing, but that means an investor considering purchasing rentals, for example, should look at the investment and ask themselves, ‘If I buy this rental in this market, how many people [should I expect to be] attracted to this market?’ Part of the answer will frequently involve housing affordability in that market.” Investors who are able to offer

Duncan (center) confers with internal communications team members Chloe Jefferson (L) and Chay Rao (R).


Fannie Mae is the common nickname for the Federal National Mortgage Association (FNMA). Fannie Mae is a United States government-sponsored enterprise (GSE), which means its specific, intended function is to enhance the flow of credit to targeted sectors of the economy – in this case, the housing market – and make those segments more efficient, transparent, and secure for investors and other suppliers of capital. While most people believe Fannie Mae became a GSE in 2008 after the housing bubble burst and created a national mortgage-based meltdown, the association has actually held this status since it was chartered by the U.S. Congress in 1968. Fannie was originally founded in 1938 as part of President Franklin D. Roosevelt’s New Deal, which was created in order to help the country recover from the Great Depression. The New Deal created the Federal Housing

Administration (FHA), and Fannie Mae, operating as the National Mortgage Association, had the explicit purpose of providing banks with federal money to finance home mortgages. At that point in time, it was simply operating as part of the federal government. The goal was to raise homeownership and affordable housing, an aim it retains in the present day. Fannie Mae was privatized in 1968 in order to remove its activity and debt from the federal budget. Two years later, the entity received authorization to purchase conventional mortgages. Eventually, Fannie Mae and competitor Freddie Mac (Federal Home Loan Mortgage Corporation, FHLMC) facilitated the evolution of today’s secondary mortgage market. “Our intent is always one of partnership,” observed Doug Duncan. “We look at the country’s housing-related issues in as much depth as possible to make sure we have put as much thought into each topic as we can.”

Learn more about Fannie Mae at

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housing options at affordable levels either through acquisition strategies that enable them to keep costs down or creative financing or renting structures that keep monthly rents at that magic “one-third of local median income” rate will likely find their properties selling or renting while others stagnate on the market or sit vacant. “There has been no change in the attitude about owning a home,” Duncan said, noting that millennial buyers, now the largest generational home-buying population in the country, ultimately value homeownership as much as their predecessors – and there are more of

them. “90 percent of millennials say they want to own a home. In the longer- term, that is a reason to be optimistic. However, in the short-term, it could be a tough market because interest rates are going up,” he said. However, Duncan added, “If you are in the business of providing homes that people want to live in, then it is a good business to be in.” •


Housing affordability levels are generally measured through consideration of a local market’s median household income and the household income necessary to qualify for a 30-year fixed-rate mortgage to fund the purchase of a local median-priced house. Conventional wisdom states that in general, the best chance a

homeowner has of qualifying for such a mortgage is to put no more than about one-third of their household income toward that monthly payment, and generally the same is assumed to be true for renting. In reality, however, housing affordability is a far more complicated topic, since the issue is not so much how much you

should allocate for housing, but how much you must allocate for housing in order to live in an area. Many borrowers opt to put as much as 36 percent of their income toward their monthly payment before paying basic expenses like utilities and homeowners insurance, and, in some areas of the country, renters find themselves putting much more than half of their income toward monthly rents.

Conclusion: An investor whose investment strategy permits them to profitably offer housing options to local buyers and renters seeking to spend the recommended portion of their income on housing will likely have no trouble selling properties or filling vacancies.

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

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however, was that the inventory I men- tioned a moment ago as peaking during 2018 would be absorbed so readily, so rapidly, and so well. I was pleasantly surprised to see over the past summer that absorption of new supply was far better than I anticipated, which had some positive and unforeseen results. Those results included: •  Occupancy rates stopped dropping, even on stabilized properties • Despite a growing prevalence of rental concessions, new multifami- ly supply is being absorbed •  Rents are moving forward or at least have stopped declining even in those core cities I mentioned earlier THEAFFORDABILITY ISSUE Of course, while stabilizing rents are good for landlords and other property owners, they are not necessarily good for individuals already worried about finding affordable housing. Stabiliz- ing rents, rising interest rates, and a shortage of housing at lower price points have combined to produce a high volume of discussions about what to do about affordability. The answer to the affordability issue is, however, mostly a local one. The problems associated with a housing un- affordability are local and, in nearly all cases, the solutions will be local as well. For example, in California, the shortage of affordable housing is largely due to local land use policies, local restric- tions and regulations, local population density, and local zoning requirements. There is no magic stroke (no matter what rent-control advocates may tell you) to will the problem away. It is a natural phenomenon: Where we would like to have housing the most is where we are least likely to have a lot of it.


CLASSA: Properties representing the highest-quality buildings in the market area. Tend to be built within the last 15 years and offer top amenities to high- income residents. CLASS B: Properties older than Class A with lower-income tenants. They usually have lower rents and fewer amenities but are well-maintained and usually represent “value-add” opportunities. CLASS C: These properties tend to be more than 20 years old and located in relatively undesirable locations. Class C properties tend to need renovation and may need to be brought up to code. 24-HOUR CITY: Densely populated metro areas that “operate” 24 hours a day. 18-HOUR CITY: A second-tier city with higher- than-average population growth that offers its population opportunities similar to cities that operate on a 24-hour basis. GATEWAYCITY: A city hosting an airport or seaport serving as an entry point to the country.

Don’t overlook emerging cities full of potential! Here are a few to consider when making your next investment:

• Indianapolis • Columbus • Pittsburgh • Philadelphia • Phoenix • Salt Lake City • Tampa • Orlando

Sector Breakdown: Multifamily Real Estate Trends in 2018 and Beyond THIS YEAR WAS PLEASANTLY SURPRISING FOR MULTIFAMILY INVESTORS.

Note: While these cities are not traditionally considered “tech hubs,” they are working hard to build that portion of their employee population. Tech experts are ideal citizens because they bring in steady income and tend to create real estate opportunities.

by Jeff Adler

he multifamily sector started off the year with some pretty big issues to watch. We end the year, on the whole, pleasantly surprised by the way some of the trends in our industry have developed and wholly intrigued by the potential represented by 2019. Entering 2018, most analysts and investors in this space had some basic things they were watching: •  The burgeoning supply of multi- family inventory and how it would be absorbed •  When and where inventory vol- umes would peak and how inven- T

•  Class B and C assets would likely perform better than class A assets •  Secondary markets and 18-hour cities would likely perform better for investors than primary, or “core,” and 24-hour cities, exclud- ing international gateway cities from the equation •  Certain cities, including Orlando, Las Vegas, Tampa, and Phoenix, would perform well in terms of rising rents in multifamily devel- opments year-over-year What I did not necessarily predict,

tory availability would shift in response

WHATDIDTHEAFFORDABILITY ISSUEMEANFORMARKETS THISYEARANDWHATWILL IT LIKELYMEAN INTO2019? When any inventory shortage hits a critical point, people begin fleeing high- cost locations. They do not necessarily

•  What ramifications the recently passed tax reform would have on our sector •  The national economy (most expected it to continue to be good) and how it would grow over the course of the year I had a few predictions of my own about this based on my experience as a former COO of an apartment REIT and the current vice president of Yardi®Ma- trix. They included:

> Continued on :: PG 96


Jeff Adler is vice president at Yardi® Matrix, which offers the industry's most

A property that has an occupancy rate of 80 percent for at least one calendar quarter.

comprehensive market intelligence service for multifamily, office, self- storage, and vacant land properties. Learn more at

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