Interview with Jamie Moyle, president and CEO of RealtyTrac.
RealtyTrac is a leading provider of "better data, better decisions" for homeowners, with everything from foreclosure maps, to auction listings, to environmental reports, to Secrets for Purchasing Foreclosure Properties and much, much more. While searching through the prolific information on the RealtyTrac.com website, I discovered a few startling statistics. There are still a million foreclosures and bank-owned properties, with 8.1 million people who are currently underwater on their homes. Even more importantly, those investors who shop for distressed properties are enjoying a discount of 35 percent off of what MLS shoppers are paying. According to Daren Blomquist, the vice president of RealtyTrac, as of November 2014,"[Foreclosures] are selling for an average price of $128,000, and non-distressed properties are selling at a median price of $190,000." That's a savings of over $60,000! Naturally, I wanted to learn more, so I turned to RealtyTrac CEO Jamie Moyle for answers.
Natalie Pace: I hear that banks won't work with individuals. Can the average homeowner with a reasonable credit score purchase distressed properties? Do you have to go in with cash? Or have someone who is on the inside?
Jamie Moyle: You certainly have to have some level of insight. That's part of the reason for the discount. These properties can be in various stages of condition. They could have been neglected for quite some time. Someone who is in the early stages of foreclosure and pre-foreclosure wants to get out of the house without declaring bankruptcy. But you have to get to them before they get too deep in the process and it becomes an REO and the bank owns it. Do banks want to deal with one-off transactions? Probably not. A lot of big banks want to deal in large transactions. It's about getting there at the right time.
NP: Is there any trick to finding these people before they get in too deep? It's not like they are out there advertising this.
JM: RealtyTrac.com is a great source of that information. Every house is for sale for the right price. The question is, "How can I find the person who has been in the house the right amount of time, has the right amount of equity and has the right motivations to be willing to listen to an offer today." It doesn't necessarily mean that they are behind on their payments. It might mean that they have more equity than they realize, and they want to be in a one-story instead of a two-story.
NP: Downsizing as a motivating factor is a good point, particularly with all of the retiring Baby Boomers. Where are these distressed opportunities located? Are they evenly distributed or concentrated in certain markets?
JM: Right now, they are pretty concentrated. The city with the highest rate of foreclosure inventory as a percentage of total housing units is Atlantic City, New Jersey. 1 in every 27 housing units there is in some stage of foreclosure or bank-owned. And then you have Miami, which might be a surprise to some people. The Miami market is doing very well, but there is still a lot of distress in that market and bank-owned properties that the bank hasn't sold. You have Orlando, Tampa and Palm Bay, Florida. Trenton, New Jersey. Savannah, Georgia. Jacksonville, Florida. There is a theme here. New Jersey and Florida have a lengthy foreclosure process. They are lagging in dealing with a lot of the distress that other states have already dealt with.
NP: I was surprised to see Maryland and Connecticut in the Top 10. Are these judicial foreclosure states as well? You would think that these communities would be strong in employment and wages, due to the strength in banking and government currently, rather than plagued with foreclosures.
JM: Those both are judicial foreclosure states, and both had foreclosure mediation legislation passed, requiring banks to go through some level of mediation with the homeowners before foreclosing. While that was well-intentioned, what it has done is prolong the high distress levels in those states. Maryland is very interesting to look at compared to Northern Virginia. They are a tale of totally different markets when it comes to distress. Virginia has mostly cleared its distress and the market has absorbed it, whereas in Maryland, it is still lingering there.
NP: I know people in California who haven't paid their mortgage in two, three or even four years. It's astonishing how long people can hang onto their home in some states before they have to give them back to the bank.
JM: Absolutely correct. We hear from the brokers that there are homeowners even 5+ years out who haven't made a payment. I live in California, too. I have one on my street that I tracked on RealtyTrac that went into foreclosure in 2010. It wasn't foreclosed until 2014. The bank has listed it for sale, but they have overpriced it. Someone is waiting to swoop in and get a good deal on that property.
NP: What's your prediction for real estate in 2015?
JM: We are back to a baseline market when it comes to foreclosures. That's a great place to start from. We've seen a nice run-up in home prices over the last two years. Home prices have risen nationwide 35 percent since bottoming out in March 2012. We think that home price appreciation is going to slow down, which a lot of people will interpret as the market softening. For us, this means the market is normalizing, with more sustainable price appreciation. We don't see another huge risk of another wave of foreclosures, absent some kind of shock to the economy in 2015.
NP: What about affordability?
JM: Affordability is already becoming an issue in a lot of areas. That's a concern for 2015. International investors, cash buyers and hedge fund investors, who are buying up rental properties, have they driven up prices so that it is too expensive for the traditional buyer - the 1st time home buyer to jump in at this point? We need them to jump in.
NP: Millennials are working for wages that we saw decades ago, while expenses on the big-ticket items, like housing, have quadrupled. I'm wondering how they can buy anything. Is owning a home even possible for their generation?
JM: A lot of the Millennials don't have the same motivation to own a house. The romance of that washed away. They got to see their friends and parents have a tough time with the housing market, so they are not so enamored by that process. Affordability aside, one day these people are going to have to make a life choice. Right now, this is not a life choice that they are leaning toward.
Daren Blomquist: We actually did a study a few weeks ago that showed that the Millennials are moving to the least affordable markets. There are a lot of affordable markets out there, but the Millennials are moving to the coasts, where rents are pretty unaffordable. But home prices are even less affordable than renting.
NP: I heard some crazy story that some Googlers are living in their car and using the Google showers, sleeping bunks and cafeterias for eating because they can't afford to rent or own in Silicon Valley and San Francisco. Speaking of affordability, what success strategies do you have for people who are shopping for distressed opportunities?
JM: First of all, you have to understand that you can get a great discount, but there is usually going to be some reason for that discount that you'll need to take on. You're going to be taking on problem properties. Either the homeowner needs a solution or the property needs a solution - or both. And so, that's going to mean dealing with people on a very personal level, and helping them to solve their problems. You need to make sure that you are taking into account those problems when you make your offer and also when you are rehabbing that property. Look at data sources, like RealtyTrac to find the distressed properties that are not listed for sale on the MLS.
NP: Some people will want to buy and flip. Is that a good idea in this marketplace?
JM: It's not a great time to flip because home price appreciation is slowing down. It's just a little risky when you don't have that 20-30 percent appreciation in home prices. The strategy that is the best right now, given the dynamics of the market, is the Buy and Hold Strategy because there is such strong demand for rentals out there that you are probably going to have a relatively easy time getting the property rented out. With the prices that are available now in most markets, taking out those coastal unaffordable markets, you can make a good return on rental properties, and maybe in a few years, you take the appreciation. Take advantage of all of these Millennials and the other big element in this market, the seven million homeowners who lost their homes over the last seven years, who can't buy a home and are forced to become renters in the short term. Tap into that market dynamic.
NP: Unless those foreclosed, credit-downtrodden individuals get their hands on some cash...
JM: Good point. It's still about financing. Having that financing ready to go very quickly is important. You can still finance these foreclosures, just like you would a normal purchase. Realizing what you can afford is important, just like it is in a normal transaction. Partner with a local agent who can help you navigate buying these distressed properties, and help you to deal with those homeowners who are in distress.
NP: Is the due diligence process the same for foreclosure?
JM: We use the word pre-diligence. You have to do your homework. That's whether it is a distressed property or any other property. There are a lot of great sites that give you information on the fly. There's a site called HomeFacts.com that we power, which gives a lot of great information. In a normal process, you have a lot of time. If you are on the courthouse steps, you have a lot less time. So, you have to use all of the tools you can, bring all of the technology with you, bring a lot of information with you. But also build in a little padding. Say, "I'm going to be taking on a certain amount of risk, so I'll put in a 10 percent discount over what I'd pay if this were a normal process." Build that in for some of the unknowns.
NP: What lies at the heart of your business plan?
JM: We're just excited about data. We're empowering large corporations with big data so that they can make good decisions, and then we're taking that data down and helping individual users use it. The challenge that we have is that there is so much information, but how do you make that digestible to the guy who is buying his first house? You're taking data and then you're adding some love to it. Daren's really good at that.
NP: Toward that end, you have a free homeowner-friendly informational video, "7 Secrets for Buying Foreclosures" on your home page. Is there anything that I haven't asked that you want to highlight or mention?
DB: One of the trends that we're seeing is that smart investors are not just seeing foreclosures as the opportunity. They are going out and identifying other off-market properties that could be good opportunities. Even in this information age when we have technology at our fingertips, they go out and knock on doors. Talk to people. Build relationships with homeowners who may be motivated to sell. They may not be in foreclosure, but they may be in a position to be motivated to sell. That's the next evolution, as the foreclosure market has a more limited opportunity. In the next years, it will be at a more normal historical level. So, just being creative and thinking outside of the box of how you can, as a buyer or an investor, find opportunities and even take the perspective of how you can find people who are in a problem situation and help them out, and find a property for yourself at the same time.
JM: The data is going to allow the market to become a much more liquid market. Properties are going to be worth what they are gong to be worth. Situational things, like distress or people's individual motivations will become part of the equation, but less of a factor, as data transparency helps things to be much more liquid and fluid.