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How Covid-19 Is Shaping New Necessities In The Housing Market



Front door of house with key in lock

Miriam Moore is the President of Default Services at ServiceLink, a provider of transaction services to the mortgage and finance industries.

If the U.S. housing market were a human, it would be familiar with experiencing a rollercoaster of emotions. Over the past several decades, there have been significant ups and devastating downs. It’s an industry that ebbs and flows depending on a host of market dynamics. The 2008 financial collapse was tough, but one thing the housing market has never had to navigate before is a worldwide pandemic. Despite the coronavirus’s negative impact, the housing market generally rode a wave of positivity through the balance of 2020, fueled by strong demand and historically low interest rates.

One thing the Covid-19 outbreak and subsequent quarantine period has done is reinforce the value of the home. The additional time most families are spending together has caused Americans to take a much-needed inventory of things that matter most. The result of this introspection is sparking a new set of demands that are reshaping the housing market. As outlined in PwC and Urban Land Institute’s “Emerging Trends in Real Estate” report, prospective homeowners’ general requirements are rising in terms of finding a fully functioning home that accounts for space to live, work and play.

Shiny And New

When weeks of quarantine and social distancing turned into multiple months, the weight of the situation caused many to re-evaluate their living conditions and think more long-term. Large numbers turned to the internet to view properties that could more appropriately accommodate their family’s needs, which became more glaring with every week spent in isolation.

New construction has had a sort of magnetic effect on select buyers looking to trade their cramped quarters. A brand new home comes with many alluring features, one of which is the fact that no one has ever lived there before. It’s quite literally a breath of fresh air. This interest in newly constructed homes is sparking a new set of baseline requirements that builders must take into account.

For example, not only do today’s buyers in this sector want more square footage per floor plan, they also want additional flex space, indoor/outdoor space, a larger backyard, air purification systems and data connectivity. With a brand new house, buyers not only want these amenities, they expect them. After all, new construction comes with a healthy price tag, one that 60% of all U.S. households cannot afford.

Even with limited inventory and a smaller subset of qualified buyers, new construction purchases surged nearly 19% in 2020, the biggest increase since before the financial meltdown. For this trend to continue, I believe builders that are adaptable and committed to being nimble and responsive to buyers’ needs will continue to be rewarded. Of course, this all is contingent upon the rebuilding of our economy and key market drivers.

Key Features And Phrases

Sellers of existing homes are also taking advantage of some trends that have developed as a result of the pandemic. Considering inventory is low, it’s a seller’s market. Sellers are in a position of power, especially those whose homes offer two key features that buyers have identified as a new necessity.

One of the most sought-after features throughout the pandemic has been a dedicated office space. With many households shifting to working and learning from home, homeowners are placing a high value on being able to retreat to a quiet space. Not surprisingly, properties being marketed with the phrases “home office” or “home workspace” have spiked by nearly 17% in one analysis and garnered additional attention on the market.

Additionally, buyers are also looking for an upgrade on outdoor space in their new home. Families who have been stuck inside for months now want that escape, even if it’s in the form of a larger backyard. Competition for homes with these features has been fierce, as evidenced by the dramatic increase in multiple offer scenarios. I foresee these particular desires to remain at the top of the list, even post-pandemic.

Renters Return

Single-family rental (SFR) is also a market that has been impacted by the virus. With more families moving out of the city and into suburbia, demand for rental properties reached record highs in the second and third quarters of 2020. More specifically, renters have been searching for detached homes where they can get more space for the money.

So far in 2021, investors are seeing strong rental returns, particularly in the Midwest markets (registration required). In fact, the top 50 SFR rental returns are located in this section of the country, followed by the South and Northeast.

Looking Ahead

There are many factors that will determine whether these trends will continue throughout 2021 or if they were simply a knee-jerk reaction to an unforeseen event. Rising interest rates, housing affordability, the availability of the Covid-19 vaccine and other variables will likely set off another shift in the market. While homeowners’ evolving demands are likely here to stay, the rest remains to be seen. 

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Real Estate

How To Determine Your Investment Strategy For Apartment Buildings



Rows of keys

Eric is a Real Estate investor, founder of MartelTurnkey, and author of Stop Trading Your Time for Money.

Apartment buildings are widely considered to be a good investment, but are they right for you?

To answer this, let’s first differentiate between two investment strategies when it comes to apartment buildings: buying turnkey properties versus value-add properties.

Turnkey Properties

Buying turnkey apartment buildings offers a way to build wealth without having to renovate anything or build from the ground up. You simply collect the rent from tenants each month. If you’re thinking long-term, this is a great way to build equity and a solid investment. As a passive investment, the returns are not as high as a value-add strategy, but this may work better for investors who don’t wish to spend a lot of time managing their properties.

So why would someone buy a turnkey apartment building? For those who don’t have time to manage construction projects, turnkey investments are great because they are tenanted and have cash flowing from day one. Turnkey apartment buildings are a great way to build multi-generational wealth with steady appreciation.

Leverage is one of the key strengths of real estate. To buy an apartment building, you would apply for a commercial loan. These loans have significant advantages over your typical residential mortgage. Banks don’t look at your W-2 when underwriting commercial loans, but rather look at the intrinsic Net Operating Income (NOI) of the building, which can open up more opportunities than if you were trying to purchase a single-family home. Some of these commercial loans are accessible with a non-recourse clause, which protects you in the event that something happens to the building that impacts your ability to pay the mortgage. The bank cannot claim the debt from you personally, making this a great option for protecting your personal assets.

Turnkey apartment buildings are not completely devoid of opportunities for value add. You can slightly increase rent, provide additional services (e.g., WiFi), tweak building expenses and pursue various other renovations and strategies to increase the building’s net operating income, and therefore its value.

Value-Add Properties

The second investment strategy is to seek an apartment building that requires significant renovations. Value-add apartment buildings are very time intensive. You have to be involved on a regular basis with contractors, property management and various other players who keep the building operational and manage the tenants during the construction. A lot of coordination is necessary; it doesn’t become a passive investment until the renovations are complete and the building is fully tenanted. It’s similar to the “buy, rehab, rent, refinance, repeat” (BRRRR) strategy, but on a much larger scale. A bridge loan would be used during the renovation. The building would be refinanced with a long-term commercial loan once the building is fully occupied and showing its highest value.

The value of a building is determined by its NOI and the cap rate for its neighborhood or comparable buildings in the area. For example, if the NOI of a building is $100,000, and the cap rate for the area is 10%, then the value of the building is $1,000,000. So, if you can increase the NOI — whether through renovations, increasing rents, reducing expenses or more — by $10,000, then you’ve added $100,000 total value for the building. As you can see, the cap rate is a strong multiplier on your investment. As long as the cap rate outpaces your renovation costs, you’ll enjoy a tremendous value add to your building. These types of returns are difficult to achieve with residential properties because their values are typically determined by comparable sales in the area without taking the rental revenue into consideration.

So should you consider investing in apartment buildings? The short answer is yes. Turnkey apartment buildings provide an opportunity for passive income and long-term wealth building. If you want a more active and time-intensive type of investment, a value-add apartment building will increase your equity. Obviously, investing in apartment buildings requires more money, including everything from the down payment to loan fees to maintenance. If you’ve never owned rental property, apartment buildings are probably not the right entry point for you. Instead, I’d recommend you start with turnkey single-family rentals.

It’s important to make sure you enjoy the responsibilities of being a landlord and working with tenants. It may not fit your personality! However, if you find you do enjoy it, you can then move your way up to more complex properties like apartment buildings.

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Real Estate

Three Things Buyers Should Know When Shopping For Their First Home



Male realtor shows a couple a beautiful home

Beatrice is the Consumer Trends Expert for Opendoor

Buying a home will likely be one of the biggest and most important purchases you make during your lifetime, and it’s still part of the American dream. Investing in a home can also be a smart way for younger generations to build wealth over time.

Over the last year, we’ve seen interest rates drop to historic lows, making it possible for many people across the country to buy a home earlier than planned. And while you might be willing to make big compromises to score a home you love in a hot real estate market, there are a few important things I wish all first-time home buyers knew while looking for their first property.

1. Home and termite inspections are critical, even in a hot market.

While you might win a bidding war or save money in the near term by skipping a home or termite inspection, having them done is a smart move that can save you from making an expensive mistake. Once your offer is officially accepted, schedule a general inspection and a termite inspection as soon as you can.

With the general inspection, an inspector will visit your property and spend a few hours looking at key areas of your home. These include the roof, foundation and even smaller items like cracked tile or leaky faucets. Your inspector may recommend a specialist if they see issues with something more specific, like a fireplace or the swimming pool system. 

Though sellers may reveal termite damage upfront, an inspection is the only way to know how extensive the issue may be. While significant termite damage can be terrifying and costly to fix, having an inspection done is typically inexpensive. In addition to reporting on the state of the home and any problems, your inspector can also share preventative treatments to keep termites away in the future.

2. Don’t panic when you receive your inspection reports.

Though it’s daunting to think about uncovering a list of items that need attention after making an offer on a home you love, first-time buyers should remember that all inspections turn up a long list of issues — and it’s important not to panic. 

The purpose of having a home inspection is to show you the condition of the home and eliminate any surprises before you’re the owner. Typically, most items are minor and aren’t costly to maintain. And some might not require immediate repair. For example, I often see inspectors recommend changing the A/C filter. This is incredibly easy to do yourself, and it only costs about $10 to buy a new filter. If there are bigger problems on your report, I suggest working with a professional who can help you understand what needs to be fixed and how much it will cost.

If the inspection turns up results you’re not happy with, or if you can no longer afford to pay for the home and its necessary repairs, you can choose to renegotiate your offer or walk away. Major red flags such as mold, structural problems or other expensive issues may indicate it’s a good idea to move on. You should also pay close attention to the real estate deal-breakers and anything that presents a risk to your health or safety.

3. Your lender will help you navigate the appraisal process.

Much like with home inspections, many first-time home buyers are unfamiliar with appraisals and how to navigate them. While mortgage lenders require an appraiser to visit the home, they’ll also work with you closely during that part of the process. Having a home appraised is a quick process. The appraiser will only spend a short amount of time inside the home. Following their visit, they’ll complete the appraisal by comparing similar homes in the neighborhood. 

Your appraiser may find that the home is worth exactly what you’ve offered, or even more than what you’ve offered. In these cases, nothing will change and you’ll be set to continue moving forward with your home purchase as planned. In the event that the home is appraised for less than you’ve offered, you’ll be asked to pay the difference between the appraised value and your offer price as a cash down payment to the seller at closing. 

If you can’t afford to pay the difference, you can choose to cancel your purchase. Alternatively, you can also try to work with the sellers to negotiate the price. Your third option is an appraisal rebuttal, or asking for a correction on value. It’s important to remember that appraisals are an art, rather than science, and the exact value of a home is difficult to define. I had my current home appraised by two different appraisers within a week, and they each came up with very different values. Consulting with your agent can help provide you with clarity on the best next step.

Buying your first home is a major purchase. Working closely with industry professionals — from your agent and lender to inspectors and appraisers — will help you avoid costly repairs and financial errors. This will not only save you unnecessary stress but also set you up for happiness in your new home later on.

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Real Estate

Where Apartment Rents Are Falling Fastest In The U.S. [Infographic]



Where Apartment Rents Are Falling Fastest In The U.S.

When it comes to renting, the U.S. has experienced a noticeable shift in patterns due to Covid-19. After the pandemic struck, many residents decided to pack up and leave expensive city centers in order to relocate to the suburbs or smaller and more affordable towns. The widespread adoption of remote working has made that possible in many cases and it is already resulting in a fall in rent prices in some of the country’s most notorious rental hotspots such as the Bay Area and New York City.

That’s according to ApartmentGuide’s most recent Rent Report which found that out of all major U.S. cities, San Francisco experienced the largest decrease in its average apartment rental price over the past year. Its position as America’s leading tech hub makes remote working a realistic option for many workers struggling to pay exorbitant rent and the average rental price for a one-bedroom apartment fell 45% between March 2020 and March 2021. Likewise, the average rent for a two-bedroom apartment also declined by 24%.

Chesapeake in Virginia, located in proximity to prominent naval installations, experienced the second largest decline in rent over the last year with a 29.4% fall. Ludicrous rental prices are nothing new in New York City and it posted the third highest decline in the analysis for a single bedroom apartment at 27.3%. Other notable cities experiencing some of the greatest falls include Long Beach (-27.0%), Seattle (-18.9%) and Los Angeles (-16.0%).

Rents are not decreasing everywhere, however, and some U.S. cities are experiencing a spike. With a 33.5% year-over-year increase in the average rental price for a one-bedroom apartment, Kansas City experienced the biggest rise in the country over the past year. Gilbert in Arizona posted growth of 26%, putting it second, while Las Vegas came third with 25.3%. Despite the recent downward trend, New York City still has the most expensive rental prices for a one-bedroom apartment in the country, averaging $3,117 as of March 2021. Los Angeles and Chicago come second and third with averages of $2,648 and $2,205, respectively.

*Click below to enlarge (charted by Statista)

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