All Forum Posts by: Michael Smith

@Neil Schoepp, thanks. So you recommend moving forward with a real estate attorney?

I've been been mailing postcards and letters to home owners asking if they're interested in selling and actually getting replies faster than I thought I would. My question is what are the steps involved in purchasing the house after an informal price is agreed upon by me and the seller? 

I'm not quite a cash buyer yet but I'm not worried about obtaining financing, my questions revolve mostly around paperwork. I have a close relationship with my broker and I suppose I could always use them but how would their commission work? I doubt my seller would want to pay them a commission out of their already discounted sale price. Can lawyers handle it for me? I suppose I could always add an extra 2-3% to my offer price and finance my brokers commission. 

Any advice from folks that have done this before would be awesome. Also I'm looking for partners with contracting experience if anyone is interested. 

-Michael

@Joaquin Camarasa, The classic travel destinations will return stronger, but will be on the same longer timeline that the rest of hospitality and airlines are, probably the Fall and Winter of 2021. And remote work isn't going anywhere, I think it would be hard to find a job (desk job) that requires you to be in the office 5 days week from 2022 onward. 

Yet again I am writing about an aspect of the real estate industry that is experiencing fundamental change because of COVID, but Black Swan Events do tend dramatically change everything. AirBnb’s research arm, AirDNA, recently released their “2021 AirDNA Trend Report”. This report is a review of some of the interesting trends they saw in AirBnb’s data during past year and their analysis of what it means heading into the next 12 months. My main takeaways are below (all charts were taken from the report, link above).

Bigger is Better

Rental homes with at least bedrooms will finish 2020 with positive Y-o-Y demand change compared to smaller 1 & 2 bedroom units, or what they call HC “Hotel Comparable”. These units also have the highest nightly rates, so as the data shows it definitely pays to looks for as many bedrooms as possible when shopping for a vacation investment.

The chart above also had some interesting parallels to what we have been seeing in the long term rental space, which is that the demand for single family units has now surpassed that of multi-family units. This may also be attributed to changing demographics, millennials are starting families and are no longer choosing to live in apartments and apparently don’t want to vacation in them either.

Working Remotely?

This next set of data was the one that I found the most fascinating. This was that longer term stays, over 7 days, went from 21% of AirBnb’s total bookings at the beginning of the year to now 41%. With the pandemic closing offices around nation, a lot of people were working remotely full time, and AirBnb’s data is showing that a larger and larger part of their business is people figuring that they might as well get out of town for a few weeks and continue to stay online a work. This is a potential paradigm shift in the way that the average American travels, spending the entire Summer in a vacation house is no longer for the independently wealthy, now that both Mom and Dad are working remotely and the kids are out of school for the summer the family can head to the lake for the Summer.

Large Investors

Although the majority of units that compromise AirBnb are offered by hosts with less than 5, those with more than 6 properties have been gaining ground of the past 5 years.

The charts above clearly show that smaller investors are losing ground to larger investors, with larger investor gaining quite of bit of steam in the share of revenue in the past two years. It’s hard to say exactly why this is happening but if you own more than 6 AirBnb units you are clearly making money and are most likely looking to expand, compared someone who owns one unit and may be looking to sell. This will sound similar to those who have been investing in multifamily or rental homes for a while, there always comes a point when you decide you are going to try and become financially independent and scale your business up or cash out.

AirDNA’s report represented some really fascinating data, especially the increase in long term stays. This is something that “digital nomads” have been doing for several years now. These are professionals, mostly in tech, that work remotely and travel the world while continuing to report into work. Now that remote work has been hugely increased it looks as though a lot of others are joining in on the party. I also found the data on larger investors interesting. The aspects of what makes a strong vacation rental are much different and more complicated that the aspects of a strong traditional rental but the opportunities for huge revenues are present if you can keep your vacancy levels low.

Despite a COVID created recession people are buying homes like crazy and according to housing analyst Logan Mohtashami were in the beginning of a housing boom which has been developing for the past decade.

CNBC's Josh Brown interviewed Mohtashami on his podcast where the two of them broke down the current housing market, what’s driving the boom in housing and what future outlook is. This is a brief review of what was discussed on the podcast, I highly recommend that you listen to the whole thing and follow Josh and Logan for their financial commentary.

As many of you know there is a lot of demand for single family homes and not a lot of supply. Currently total housing inventory is down 18% year over year causing a deficit in housing, leading to a forecasted 3x increase in housing starts in the third quarter compared to the second quarter of 2020.

Despite the recession potential borrowers have a very healthy loan profiles, due to increased personal savings rates (people staying home because of the pandemic) and increasing equity in their homes, home prices are up 8% from last year. The US MBA Purchase Index, which counts all mortgages applications for the purchase of a single family home in America on a weekly basis, has been over 300k every week since early June, compared to 250k last Summer.

Mohtashami cites the greatest demographics and lowest rates in history as millennials are entering their “home buying years”. In Brown’s words “..we have a bull market in 30 year olds” 🤣. I can personally attest to this myself as a 33 year old with one young son and was recently in the market for a house, and this is the same story for many of my friends.

According to Mohtashami this boom is only getting started, stating that the current activity is only replacement demand (see chart above), meaning that buyers who were priced out in the last ten plus years since 2008 are beginning to purchase homes. Although the pandemic seems to be driving people away from cities as remote work is increasing and there is a demand for larger homes which include space for offices, classrooms and gyms, Mohtashami feels that it has actually hurt the housing market more than helped it, saying that existing home sales would have been up an additional 3-400k without the pandemic.

Simply put, excellent demographics, low mortgage rates and plenty of demand for the American Dream from Millennial couples with young and growing families will continue to drive the housing market for the next 5 years. One question mark is whether or not the price of homes will outpace the growth in wages, continuing to challenge American’s ability to save for a down payment, not to mention the rising rents around the country. This was only a brief review of Brown’s 55 minute interview with Mohtashami where they discuss these topics in greater detail as well as the new home market where they had some very interesting points.

@Kelsey Pryor I’ve had success with beenverified.com, just punch in the address and if should bring up the property owner. It’s very economical too, around $20 a month.

@Ujwal Velagapudi , temporary. I have no experience as an investor in the Bay Area, but this likely a price correction, and I wouldn’t bet against Silicon Valley.

Some projections have home prices increasing 10% there in 2021.

Also it’s the worst kept secret that we up in Portland have been piggybacking off the flow of transplants from the Bay for a while now.

@Su Pak, I can't speak for California, but we have the same eviction bans in place up in Oregon and haven't had any issues with our properties. If you're worried about evictions try and stick with rentals on the higher end of the market, and you'll be blown away with the quality of applicants you receive. 

It’s getting closer to the end of the year and that means economic and market forecasts are starting to show up on the internet. Danielle Hale, realtor.com Chief Economist, released their 2021 housing forecast. The report reviews the unprecedented events from 2020 and how they affected the housing market and will continue to moving into 2021.

It reminded us that the normal seasonality of the real estate market was thrown way out of whack by the pandemic as stay at home orders were issued in March right when sellers are getting ready to put their homes on the market. This caused an uneven balance of buyers to sellers in the market, as sellers refrained from listing their homes, buyers came back in earnest and paid a premium for homes on low supply.

This is the base of their predictions heading into 2021. They write that, as the seasonality of the real estate market returns to normal in the Spring of 2021, more inventory will cause year over year price increases to slow somewhat in 2021 compared to 2020. They forecast that home prices in 2020 will be 7.6% higher than 2019 by the end of the month, when 2020 is over 🥳. For 2021 they forecast home value increases to slow somewhat to 5.7% above 2020 levels. Also, they predict a 7% increase in overall home sales nationally for 2021 compared to 2020.

Locally they are forecasting an 8.1% increase in home sales and 6.2% increase in home prices for 2021 for the Portland area, compared to 7% and 5.7% nationally. This is positive news for the Portland area, we’ve enjoyed excellent growth in the past several years and it appears the good luck will continue. But our area was far from the most bullish forecasts, other interesting market predictions included a 17% increase in sales, and 7% price increase for the Sacramento area, 10% in both sales and price in the already expensive Silicon Valley area and 9% in both sales and prices in Boise. Overall 2021 looks like a seller’s market, but buyers may regret sitting it out if the price increases continue over the next several years due to favorable demographics.