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» VISIT US ONLINE @ DSNEWS.COM 61 some of them to perform." According to Gagan Sharma, CEO of BSI Financial Services, investors will typically choose to specialize in buying either performing, nonperforming, or re-performing loans. In any of those cases, the investor needs to investigate not only the performance of the loans themselves but also the current creditworthiness of the borrowers and the condition of the properties themselves. Other investors buy nonperforming notes they know are unlikely to turn around with the goal of foreclosing on the properties and selling them as as-is, or as fix-and-flip opportunities, or redeveloping the homes themselves, Sharga said. With rates on the rise, though, Sharga said it will be more difficult to convert nonperforming notes into re-performing notes because credit is becoming more expensive. MORTGAGE SERVICING RIGHTS Like notes, mortgage servicing rights can provide investors with steady income streams, but investors must be careful to dig into mortgagee payment histories to determine not only their delinquencies but also the regularity of their payments, Sharma stated. While there are some technological tools that can automate much of this process, as with buy- ing properties and mortgage notes, deep research and due diligence is important, experts advise. Investors also need to vet mortgage servicers to learn about their collections success, accord- ing to Lykken. Some servicers are only good with regularly paying borrowers, while some specialty servicers specialize in recovering delinquent payments. Lykken says knowing the servicer's history in light of the type of rights they're buying is key. PROPERTIES FOR FLIPS Flipping—buying properties to fix up and sell—has become popular again after a downturn following the housing crisis. But whether looking at single-family homes for flips or for rentals, the investor needs to have sufficient capital to support the property for several months, including necessary improvements, taxes, and interest, according to Sonja Bullard, Sales Manager for the Alpharetta, Georgia office of Bay Equity Home Loans. Lenders often insist that the investor have the financial wherewithal to pay the expenses on the property for several months, Bullard said, and will require the investor take out a renovation loan that can later be rolled into a mortgage. e renovation loans are smaller, have higher interest rates, and shorter payment terms. Whether the buyer is an individual seeking to flip a single property once in a while or an institutional investor that fixes and flips numerous properties annually, the rules are the same, according to Adham Sbeih, CEO of Socotra Capital, a residential and commercial lending and investment firm. "You need to get to know the specific market that you are working in," Sbeih said. "You need to get to know every single house in the area. at means walking or driving through the area; using tools like Google Earth, Zillow, Redfin; looking at appraisal reports; title searches; and working with local real estate agents who know the area." Google Earth provides users with exterior photos not only of one or multiple properties in an area but also with photographic detail that can show businesses and residential development ,as well as other indicators of economic activity. Zillow and Redfin provide prices, MLS details, and other data. Both have gained some notice recently for different reasons. Zillow has an "instant offer" feature for buyers who want to bid immediately, while Redfin recently completed an initial public offering. Veteran real estate agents will know about local developments and can steer buyers away from poorly built homes, which some local and national builders are notorious for, says Aaron Norris, VP of e Norris Group. "You can't just show up and buy; you have to work with a local pro," Norris said. "You need to go granular, and you need to go local." When applying for financing for one or multiple properties, it's also important to know if a lender is at or near its capacity for a particular type of loan, according to Dean Sioukas, Co-founder and CTO of Magilla Loans, a search engine for loans. A lender might be near its capacity for 15-year single- family loans or multifamily loans, but it may have capacity for others, so an investor needs to consider multiple potential lending partners. Different lenders will also be more competitive during different times of the year, depending on the composition of their portfolios, Sioukas says. ough the market has largely evaporated, there are also some jumbo loans available from some lenders for the right opportunities, according to Sioukas. Lenders typically won't issue jumbo loans for investors planning to flip a property quickly—only for those who plan to use it for themselves or a long-term investment. Even in the latter two scenarios, the lender will want extremely detailed information before making the loan. MULTIFAMILY RENTALS With the cost of homeownership continuing to rise, owners of rental properties will likely be able to raise rents and still keep strong occupancy rates, but the multifamily rental market peaked a couple of years ago, according to Mohtashami. e single-family rental market tends to offer better investment values today. To uncover the best multifamily opportunities, Mohtashami recommends delving into bankruptcy records, liens, and other legal actions filed against property management companies, as well as working with local property inspectors to determine if there are any structural or other costly issues with a property. "Landlords need to be diligent about inspections," said Matt Birdseye, SVP of Equity Markets at Bay Equity Home Loans. He also recommends working with local real estate agents who specialize in rental properties. Investors need to be careful about evaluating landlords and property management companies, according to Norris. "Look at the landlord's experience," Norris said. "Does he have tenants that have been there for a long time? Or does he have people moving in and out? e steadier the rental base, the less risky the investment." Figuring out your long-term goal is also crucial, Norris said. "You need to determine what your goal is," he said. "Is it to have an income stream and build some equity over time? Or are you looking to make improvements and sell the property? You need to buy the right properties for the right reasons—that's the strength of working with someone—inspectors, real estate agents—who knows the local marketplace." A potential investor should also examine the property management company's budget, with a keen eye on its payment and receivable delinquencies, Mohtashami says. "ere's a notable difference between property management companies that are well run and those that aren't," he said. CHOOSE CAREFULLY Experts agree there are still plenty of good mortgage-related investment opportunities in today's market, but to maximize the return, investors must use a combination of strategies. Calling on experienced industry professionals, leveraging new technology, and doing a little old-fashioned legwork and due diligence, such as calling local real estate agents and property managers, reviewing appraisals, and perusing property inspection reports, can shed light on the best opportunities available. COVER STORY INDUSTRY INSIGHT INDUSTRY INSIGHT INDUSTRY INSIGHT 61

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