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Trust This.
By Joseph E. Seagle, Esq. ● Nov 25, 2022
Smart Brevity® count: 4.5 mins...1184 words
👋 Happy black Friday! If you’re reading this while waiting in line at Wal-Mart or Best Buy, may the odds be ever in your favor.
Situation Awareness: The Fed wrote this week that it will “soon be appropriate” to slow their interest rate increases, but their target peak rate will be “somewhat higher” than what they had previously expected.
I’ll be on vacation next week, so no Post next Friday.
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1 big thing: AI landlords
The largest multifamily property management companies use RealPage’s “Yieldstar” artificial intelligence software to gather real-time data from other property managers using the software in their area to assist property managers in setting rents in their buildings.
Why it matters: While human property managers can be empathetic to prospective tenants, holding rent increases down for their neighbors in return for full occupancy, computer algorithms don’t have such empathy. They raise rates to win the game of net operating income only.
The program reached “critical mass” of data in 2016, allowing it to provide recommended rents to property managers based on what competitors of similar units were charging within a certain distance.
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The data is based on actual leases signed instead of advertised rates which is what landlords have traditionally relied upon when setting rents.
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RealPage’s executives and engineers have often touted how the software — against property managers’ conventional wisdom — will often push occupancy lower while still increasing NOI.
Yes, but: Smaller landlords who don’t use the program to screen tenants and set the rates argue that the costs related to turnovers and vacancies outweigh the increased rents that the program engenders.
While the company’s original software engineer founders spent a lot of energy on ensuring that the program would comply with Fair Housing and antitrust laws, the software’s use has grown and morphed since they were involved.
The bottom line: Rents are high because of a housing shortage and other factors. But a monopolistic, unempathetic AI setting rents doesn’t help.
Go deeper: ProPublica; ProPublica; Analytics Insight; and Gizmodo
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2. Subject-to in a probate
The past month, I’ve fielded a lot of questions about purchasing a property that is owned by a dead person and subject to a mortgage.
I’ve written here before about buying properties subject to the mortgage from sellers who are still alive, but adding probate gets into more complicated issues.
In the cases we’ve seen in the past month, the principal amount outstanding on the loan is very low in comparison to the property’s after-repair value.
The due on sale clause is more pronounced when the original borrower is no longer alive. The law protects heirs who want to take over their dead relatives’ mortgage payments. However, the heirs often don’t have enough funds to continue making the mortgage payments or to open a probate.
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The decedent’s relatives typically have contacted the mortgage servicer to let it know that the borrower has died.
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The payments have fallen behind, and — in many cases — the foreclosure process has been started.
Eager investors will offer to pay for the probate, to reinstate the mortgage, and about anything else to get the mortgage under contract. But before doing that, there are some things they should be aware of:
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Since the lender has often been contacted, they could be in “due on sale” acceleration mode.
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The lender won’t provide information on the mortgage to anyone until the probate is open and a personal representative is appointed. Then they will only provide information to the PR.
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Where there is a will, there’s a relative. Beware of disgruntled heirs who don’t want to sell and make sure everyone — not just the PR — signs the contract.
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Obtaining a payoff or other mortgage information down the road will be more difficult logistically with the added layer of probate.
Our thought bubble: The numbers should be scrutinized very carefully before jumping into such a complicated transaction.
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Fannie Mae‘s Economic and Strategic Research (ESR) Group forecasts single-family home sales to post 5.67 million in 2022 before dropping to 4.42 million in 2023 and then climbing to 5.25 million in 2024. HousingWire
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NAR’s economist thinks that housing prices could still rise in 2023. Bigger Pockets
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The share of distressed home sales decreased in October. DS News
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The amount of annual income needed to buy a typical home increased over 45% from last year to over $107,000.00. CNBC
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With the Fed indicating that it may be time to slow their interest rate hikes, investors are rushing into anything related to housing, expecting that sector to bounce back bigger and faster than other sectors of the economy. Wall Street Journal
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Lulu in 2016
November is national “Adopt a Senior Pet” Month. We’ve been fortunate to be parents to several senior pets over the years. They’re always content to just get attention, and they are well past the chewing and barking phases of life.
Lulu was one of our favorite senior pets. The shelter asked us to take her in as a “hospice,” saying she would probably make it a few weeks at most. They said she’d been a breeding dog for years in a puppy mill, and her hips were so arthritic that she could barely walk. When we got her home, we were surprised when she bounded out of the car and wobble-ran around the yard, barking in delight, stopping here and there to dig in the dirt under bushes.
I went inside and left Philip to follow her around as she acclimated to her new surroundings. Later, Philip came in carrying Lulu who was smiling widely and panting furiously. They were both covered in mud. He said she’d taken off down the hill toward the lake and couldn’t stop. By the time he caught her, she was in the lake and walking along the muddy shore to the neighbor’s house, gleefully barking the whole way.
Lulu ended up making it over a year — much longer than the few weeks the shelter had estimated. When we had to let her go, it was sad but also fulfilling to know that her time with us had been full of life for her even if it was only for a short sliver of her time. If you ever have a chance to adopt a senior pet, I would encourage anyone to take the chance of feeling the love regardless of how short that time may be.
While I know James Taylor wasn’t singing about a senior dog, this song reminds me of Lulu.
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We hope you found this helpful — any feedback is appreciated and can be shared by hitting reply or using the feedback feature below.
Be on the lookout for our next issue! 👋
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