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62 homeowners to sell their homes without experiencing a loss. Nevertheless, a new survey conducted by ORC International, a leading global market research firm, shows that a majority of individual investors would be interested in investing in single-family rental (SFRs) properties, if they could do it without becoming hands-on landlords. Most of the people surveyed said they were attracted to the potential for income and asset allocation, not the prospect of a quick gain by house-flipping. ABILITY TO CHANGE AND ADAPT IS ESSENTIAL As the real estate market changes, success is dependent on the ability to change and adapt. A Florida investment firm that previously was enthusiastic about buying mortgage notes changed its way of doing business when the prices of these notes began to escalate. Wendall Collins, senior partner of EDI Financial Group, based in Florida, said, "When we first started buying notes in 2006, we could buy non-performing notes at very attractive values, but gradually prices went up so much that these notes didn't seem to be good investments anymore." Collins said he feels that investing in mortgage notes is a different industry now. "In addition to the cost being too much, notes are long term and most are non-performing," he explained. "You have to be careful and patient, and profitability on these notes doesn't happen overnight." After making a careful assessment of real estate investment opportunities, Collins said his firm decided to focus on buying 10 to 15 REO properties from banks at a time. en they would rehab them and put them back on the market. In addition to the firm's "fix and flip" program, they also purchase REO properties and convert them to rentals for their investors. ese properties are selected from certain ZIP codes and areas that the firm has closely studied such as Port St. Lucie, Florida. Collins points out that location is important and that certain ZIP codes work best for their purposes while other ZIP codes do not. Most of the properties purchased for rental purposes are in the $150,000 to $200,000 range. Collins said the company holds its rental properties for a period of two to five years before selling them. e investors receive an 8 percent monthly return and receive 25 percent of the net profits upon sale of the properties. "In addition to making sound investments for our clients, we're also trying to help some of the folks who were hurt during the recession," Collins said. "ey can rent a three-bedroom, two-bath home from us for the same price as an apartment. We also offer a lease/option program that allows tenants to buy the house if they want to." He believes that owning rental properties will allow the firm to "get ahead of the curve." He said that if the market begins to decline, they can sell off the properties one at a time without taking a loss. Collins, who has been in the real estate investment business for more than 30 years, said that many of his clients are professionals who invest their self-directed IRAs and 401K Retirement Accounts in his firm's properties. "We manage everything for them, and it's an easy way to make a wise investment," he added. LOCATION IS STILL THE NUMBER ONE CRITERIA Edward Pinto, a resident fellow at the American Enterprise Institute, Washington, D.C., reminds us that no matter what type of investment you're considering, don't forget that old adage that "all real estate is local, and the most important things are location, location, and location." Pinto, who was an EVP for Fannie Mae until the late 1980s, is currently researching policy options for rebuilding the U.S. housing finance sector. He said that investors need to do some research to find out if the location of the property they are contemplating investing in is in a volatile area. As an example, he lists Riverside and San Bernadino, California, as being volatile areas. "Zillow had a list of risky markets covering 35 years, from 1979 to 2013," he said. "e Riverside/San Bernadino area was listed as third on a list of the 50 most volatile metro areas," he explained. Based on past history, Pinto predicts that house prices in Riverside and San Bernardino, which are now increasing, will at some time in the future go down. In addition to location, there are other factors used in determining risk. Despite what most people believe, Pinto states that delinquencies are not a good indicator of risk. "Before house prices began to decline, mortgage delinquencies were at a cyclical low. Nevertheless, this was not a good indicator of risk," he adds. "at's why at the American Enterprise Institute, we publish our National Mortgage Risk Index based on factors known at the point of origination that have correlated to future default levels when loans come under stress." As an example, in the March Housing Risk Index, Dallas was given an A- rating. "ere is a lot of construction going on in Dallas," Pinto said, "and jobs are there. Dallas is pretty healthy, and so it has the least risk." Other cities are also given ratings. Pinto said that an area that received a D rating would probably have some corrections in the next 18 to 24 months. In addition to the cost being too much, notes are long term and most are non- performing. You have to be careful and patient, and profitability on these notes doesn't happen overnight." –WENDALL COLLINS

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