Innovation is More Critical than Ever!

By Rebecca McLean Executive Director, National REIA

Looking back through my commentaries over the last two years, a word that comes up repeatedly is challenges. And while as a community, country, and world, we are still facing significant challenges that we can’t ignore, including supply chain issues, a labor shortage, and inflation, we often need to take time to celebrate what’s good and a cause for celebration.

Within our industry, we celebrate the upcoming REIA Awards at National REIA’s MidYear conference, taking place this June in Las Vegas, Nevada. We will publish the results of those awards in an upcoming issue of the Real Estate Journal and on our website. The focus of our awards is innovation. And now, innovation is more critical than ever. Also of importance is the power of our industry and the organization’s culture. Now more than ever, an organization and industry’s culture matters. An organization’s shared values, beliefs, goals, and practices set the tone for everything that organization does and affects how our members feel about the work they do, where our industry is going, and, ultimately, how long those members stay in our industry contributing to their communities. That’s crucial in this new era!

We want to know what your business is doing right now so we and our other members can learn from your best practices. Please submit any interesting stories from your business to us at info@nationalreia.org so that we can highlight your business and how you contribute to your community, personally or professionally. Not only is recognition great for you and your REIA group, but it also helps our industry, further boosting our community and our reputation as a thriving industry. Please nominate other REIA members and their businesses that you believe are successful due to the power of innovation or their culture. We highlight those winners in our quarterly publication through the Member Spotlight and our “We Provide” channel on YouTube and social media.

We have an upcoming session on our REIA Now monthly webinar series about the “State of the Industry.” On some of our past monthly calls and our blog, we’ve heard from experts and members alike that despite familiar concerns, including inflation, labor issues, the pandemic, and tax worries, an astounding 80-plus percent of our members expect revenues to increase in 2023 thanks to strategic choices they made and improving economic conditions as the pandemic recedes. Talk about something to celebrate! (If you aren’t planning to participate in our upcoming live webinar, you can see that replay on our YouTube channel.) Experts have also said that it’s been a challenging but very profitable 12 to 18 months for many businesses in our industry. However, challenges continue to mount around inflationary pressures, higher borrowing costs, shifting supply chains, a tight labor market, and increasing legislative pressures.

Small business owners must be adaptable in the months ahead and concentrate on managing both sides of their personal and business balance sheets.

National REIA’s mission and purpose includes nurturing and educating real estate investors about their business and helping those businesses drive a vibrant economy. We work hard to be a valued partner delivering knowledge, connection, and community. Our commitment to our members is both broad and deep. We will continue to bring you relevant offerings in person and online — including expanding our benefits and tools to help your business. We seek continued membership expansion by welcoming all investors to National REIA and our local groups and chapters. We’re here to help in the face of headwinds. Remember this: We are stronger together as we share, learn, and support each other!

Leg/Reg/Fin

No, this is not a biology update, rather those three-letter abbreviations reflect a host of issues that are confronting the modern housing provider. Macro issues ranging from global inflation and pandemic related logistics concerns are reluctant to give way to brighter days. Interest rates and clamp down on cash liquidity by the Fed has impacted housing in a couple of different ways. First, the climbing interest rate has a dampening effect on valuation increases and the willingness of buyers to step into the market. While this can be offset by price decreases as in the case of many of the early high-flying cities like Denver and Phoenix, the sheer need for housing by the “Millennial Bump” demographic is creating a scenario different from the 2008 housing crisis. An additional factor that is starting to be acknowledged is the solidifying effect of rising rates. Homeowners locked into 30-year rates in the 3 percent range are very unlikely to make a jump to 6 percent+ rates. Additionally, the value increase they may have been counting on has also been diminished by higher rates. In this way higher rates tend to impact the housing market by reducing supply as existing owners sit tight, fewer properties are available for sale, and there is less value available in the market for the buyers driven to purchase.

If you are remodeling properties, what can you do to get an edge on the competition? First and foremost, don’t get HGTV glammed up! Make sure the property is in the right area – built for the appropriately-priced customer. Beyond that basic, many communities incentivize renovation by creating Community Reinvestment Acts which allows for the tax valuation to be locked in at the current rate for seven to fifteen years. This can be a solid attraction in a world of increasing values and tax rates! Most municipalities keep this a simple process – but it typically needs to be filed for BEFORE the work starts. Additionally, there CRA requirements for banks and occasionally a bank will get sideways with the regulators for not investing enough in low-income areas – knowing when this happens can provide an opportunity for sales in those areas, as well as an opportunity for refinancing at discounted rates. A local bank (unnamed publicly) for example is offering 5.75 percent at 85 percent LTV for 20-year amortization on residential/commercial buildings, and 30-year amortization on owner-occupied rentals. That extra percent or two saved in the downpayment and interest can help make a deal – or a better deal!

The commercial property discount

As noted above, the potential recession (some say current recession) is really focused on commercial property and most specifically office space, not on single family housing. This is good for the overall housing market, at least until the Millennial Bump moves through somewhere around 2027 or 2028. In the meantime, there will be an ongoing shakeup in the commercial market. As A space becomes more available and companies consolidate office space, there will be two key impacts: B & C grade spaces will drop in price as some companies upgrade space or at the very least reduce their footprint. This will have a rolling impact on a variety of commercial properties that were sold between 2017-2020 on interest only loans that need to be refinanced. The decreasing square foot costs will mandate the sale of the property as it will not meet financing debt service. Additionally, with reduced liquidity in the primary capital markets there will be even larger devaluation potentials – for those with cash and available for a quick closing. Market size and culture will determine if this is prime space just outside of a downtown area or smaller suburban sites. This year and next could be a good time to pick up some nice smaller office space.

Introduced! Meet HR 3464

The freshly prepared and introduced bipartisan Affordable Homeownership Access Act was made public on May 18th by Rep. Andy Barr (R-Ky.) and Rep. Vincente Gonzalez (D-Texas). Both Congressman stating: “The Affordable Homeownership Access Act is a critical step towards providing a pathway to homeownership for hardworking Americans. By reducing barriers and streamlining processes, we empower individuals and families to achieve their dreams of owning a home.” Congressman Barr said “This legislation not only addresses the housing and credit challenges faced by many, but also ensures that vital consumer protections are upheld. I am proud to champion this initiative, as it promotes economic mobility and strengthens our communities.”

“Homeownership is a vital pillar to building strong communities and generational wealth. I am proud to join Congressman Barr to re-introduce the bipartisan Affordable Homeownership Act, which will increase opportunities for South Texans to achieve the American dream,” said Congressman Gonzalez. “This bill offers another path to homeownership through seller financing, a flexible option that can meet the needs of working-class families without forfeiting critical consumer protections.”

National REIA is proud to work with the Seller Finance Coalition (www.sellerfinancecoalition.org) on this latest version of the bill that appears to be headed to committee hearings – and quite possibly a first ever bicameral introduction as the Senate has taken an interest in this work as well. Special thanks go to Jeff Watson, General Counsel for National REIA and Bob Repass of Note School. These two fine gentlemen have worked with numerous individuals over the years and wrangled the legislative cats to the point where legislative traction is digging in!

S 1212 Electronic approvals

While it may be a bit amusing watching octogenarians debating the electronic signatures verification, it is in fact making its way through in the Senate with S.1212. Having already passed in the House, the formal process is expected to be approved in the Senate – at least as much as a bipartisan no-brainer bill can! The bipartisan Securing and Enabling Commerce Using Remote and Electronic (SECURE) Notarization Act is especially helpful for investors as this bill would allow for interstate commerce of electronic notarization! If you have ever bought property out of state, you know this is a big deal! Remote Online Notarization (RON) would become standardized for all notaries and allow for a quick and convenient option in a variety of real estate related transactions including lien releases! National REIA strongly supports the passage of S 1212 the SECURE Notarization Act!

The Sky is Falling

Numerous articles on politics are often about the sky falling and the excessive use of the word “dramatic.” Hold on for more. As the split House/Senate leadership que up for a final run-on debt ceilings, in preparation for the Constitutionally required 12 budget bills, the world will resonate with calls of the sky falling. The potential claw back of Covid funds from local and state bureaucracies unable to spend the money fast enough(!) could lay the groundwork for local calls for tax increases – so be prepared to address those demands locally. The real concern, as has been written about over the past couple years now, is the likelihood of increased regulatory efforts.

One key area of confusion is the difference between arrest records and a criminal record. In America, we pride ourselves on the principle of innocent until proven guilty. And while our media may jump the gun in the court of public opinion, it must remain clear that by actual court process, that is due process, is due to every citizen. Arrest records have been utilized by some background searches and while arguments are made that they may reflect a pattern and practice, they

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Preferred

Published quarterly for chapters, associated real estate investor associations, their members and guests.

Editor Brad Beckett brad@nationalreia.org

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