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- Comparison shop. Once you’ve had an offer accepted on the house of your dreams, it’s time to compare rates from multiple mortgage lenders. Be sure to compare all the costs of a mortgage, not just the interest rate.
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Source: foxbusiness.com
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The largest institutional single-family rental (SFR) operator in the country, Invitation Homes, is in the hot seat over its alleged failure to comply with building-permit requirements for rental properties it owns in California.
Another larger player in the space, Progress Residential, recently postponed a securitization transaction due to difficult market conditions. And yet another big force in the market, FirstKey Homes, is pulling collateral out of a 2021 securitization deal.
These developments—and more—can be seen as cracks in the armor of a housing-industry sector that rose out of the ashes of the Great Recession and grew to become a thriving alternative for individuals locked out the home-purchase market by rapidly rising prices.
The market stresses facing the SFR sector now include decelerating rents, a rising cost of capital and a shortage of homes available to purchase — which has slowed property acquisitions and related securitization deals that help market players regenerate capital.
David Petrosinelli, a New York-based senior trader with InspereX, a tech-driven underwriter and distributor of securities that operates multiple trading desks around the country, said he expects the securitization market for institutional SFR players to “approximate a more normal market by summertime.”
“But the caveat, of course, is that all bets are off if there’s a more meaningful contraction in lending [in the wake of recent bank failures and other economic factors] because then you’re in serious trouble,” Petrosinelli added.
Inviting an SFR lawsuit
Invitation Homes earlier this year failed to convince a judge to dismiss a pending whistleblower lawsuit filed against the company in federal court in San Diego that alleges it made improvements at scores of properties in California without first securing required building permits.
The lawsuit claims further that the company “ignored permitting laws to avoid fees and increased taxes as well as to get renovated homes on the rental market as soon as possible.” The whistleblower litigation, known as a qui tam action — which allows private parties to sue on behalf of the United States — was filed under seal in state court in California in 2020 and moved last year to federal court — where the judge’s ruling denying dismissal of the case was handed down in January of this year.
The lawsuit is filed as a false-claims action on behalf of some 18 California cities by an entity called Blackbird Special Projects LLC, which discovered the alleged violations based on its examination of public records using artificial intelligence software. If successful in the litigation, Blackbird stands to get a cut of any recoveries for the local governments.
“To support these assertions, [Blackbird] used proprietary software to scour different rental listing websites such as Zillow.com and [Invitation Home’s] website to identify homes owned by defendant,” pleadings in federal court state. “[Blackbird] then used its proprietary ‘lookback’ technology to access pre-renovation images of the homes from a multiple listing service and compare them with post-renovation images from the rental advertisements.”
Invitation Homes declined to comment on specific allegations raised in the lawsuit, but a company spokesman did say the “allegations are without merit, and we intend to vigorously defend the company.”
“Invitation Homes is currently the largest owner of single-family, rental homes in the United States, with most of its homes located in California, Florida, Georgia, Texas and other Sun Belt states,” the federal lawsuit states. “In California, as of December 31, 2019, defendant [Invitation Homes] owned 12,461 single-family homes in over 100 cities.
“… By its failure to pay or remit inspection, permit fees, penalties and interest, Invitation Homes has defrauded cities and counties in California millions of dollars.”
By “renovating thousands of homes” absent obtaining building permits, pleadings in the case allege, Invitation Homes was able to “avoid revaluations that would have happened if permits were obtained, thus evading increased property taxes on improved properties.”
The Invitation Homes’ case is being watched closely by some players in the secondary market, where large SFR operators like Invitation Homes raise funds through securitization deals backed by their rental properties.
“The reason this matters is they [Invitation Homes] make representations and warranties into their securitization trusts that all work improvements are permitted,” explained Ben Hunsaker, a portfolio manager focused on securitized credit for California-based Beach Point Capital Management. “So, there are points where they may have to refinance securitization debt if this [litigation] goes sideways for them with unsecured corporate debt, and they go from 1% or 2% cost of capital to 7% or 8% cost of capital, and they also have to worry about their ratings then.”
Invitation Homes (IH) spent about $25,000 on renovations per home for its California SFR portfolio, pleadings in the lawsuit state.
“The vast majority of IH’s renovations required permits — including for demolishing and constructing sections of single-family homes, installing and demolishing pools, and significantly altering the electrical work— but permits were not obtained,” court pleadings allege. “Once the single-family homes were renovated without the required permits, IH rented them to tenants who were unaware of the unpermitted and potentially unsafe renovations.”
The federal judge now overseeing the case earlier this year denied a motion lodged by Invitation Homes seeking to have the case dismissed. As part of that ruling, the judge made clear that he wasn’t going to entertain any arguments by the defendant seeking to shift blame to contractors for failing to secure the building permits.
The judge states in his ruling, essentially, that even if independent contractors are responsible for the alleged failure to obtain building permits, that fact alone doesn’t absolve Invitation Homes of the responsibility to “do the investigating itself” to ensure permits were issued.
Industrywide turbulence
The lawsuit against Invitation Homes is not the only dark cloud hanging over the institutional SFR sector.
The securitization market for institutional SFR companies, which collectively represent some 5% of an SFR market composed of some 17 million properties, is currently in the doldrums. That’s largely due to a lack of housing available to purchase, and consequently a lack of new assets to securitize, according to market expert L.D. Salmanson.
Salmanson is CEO of Cherre, a data-integration and insights platform that works with major players in the real estate market, including insurers, asset managers, lenders and SFR operators. The company serves as a data warehouse and deep analytics platform that integrates client data with other public and private data sources to create powerful market assessment and forecasting tools.
“First of all, there’s been a massive slowdown in the purchase rate for the large [SFR] players,” Salmanson said. “What’s been causing the slowdown is not the [flat to decelerating] rental prices, although that is affecting it.
“Rather, it’s that there are a lot less people selling because they’re not getting the [higher] prices that they’re looking for [as home prices decelerate]. But that’s temporary. That’s not going to last.”
Last year, there were a total of 15 securitization deals involving large institutional SFR players valued in total at $10.3 billion, according to data tracked by Kroll Bond Rating Agency (KBRA). This year, so far, there has been one offering, a $343 million securitization deal by Progress Residential (Progress 2023-SFR1) that closed in late February, KBRA data show.
Yet even Progress, which has a portfolio of some 83,000 SFR properties, appears to be caught up in the SFR securitization stagnation. Hunsaker said one major SFR player a few weeks ago postponed a securitization deal, pulling it off the market prior to pricing due to market conditions.
That player, according to industry sources, was Pretium Partners-backed Progress Residential, and the deal was Progress 2023-SFR2.
Hunsaker added that another potential drag on the institutional SFR market is the fact that some single-family rental (SFR) operators are backed by investment firms that also invest in the commercial real estate market, which he said also is facing stiff headwinds now — particularly in the office and multifamily sectors.
For example, Bridge Investment Group Holdings early last year acquired Gorelick Brothers Capital’s estimated 2,700 SFR-property portfolio spread across 14 markets concentrated in the Sunbelt and Midwest. Bridge’s portfolio also includes investments in office and multifamily properties.
Likewise, SFR operator FirstKey Homes, with a portfolio of some 45,000 SFR properties under management, is an affiliate of Cerberus Capital Management, a global investment firm with approximately $60 billion in assets across credit, private equity as well as residential and commercial real estate interests.
KBRA reported last month that FirstKey Homes exercised a so-called “excess collateral release” [ECR] feature for a securitization deal dubbed FirstKey Homes 2021-SFR1. It was the first such ECR exercised across the 12 KBRA-rated securitization deals to date that have included such a provision.
“In connection with the subject transaction … the issuer requested release [via the ECR] of 729 properties from the collateral pool of 9,218 properties,” KBRA’s report notes. “Post release, the remaining 8,489 properties will collateralize the same debt of $2.06 billion [due to increased home values].
“…The analysis indicated that the [exercise of the] ECR, in and of itself, would not result in a downgrade.”
Hunsaker said for many SFR operators facing uncertainty now, the solution is to stop buying new properties if they believe their cost of capital is rising too much — absent home prices dropping enough in the future to make the numbers work.
“I think most of these [SFR operators] are capitalized for longer-term [property] holding incentives [and] … I don’t think these structures are set up to be forced sellers,” Hunsaker said.
He added that healthy home-price appreciation to date made it possible for FirstKey Homes to release the excess collateral from the 2021 securitization deal.
“But they weren’t releasing that excess collateral to sell the houses,” he stressed. “They’re releasing that excess collateral to put it on their balance sheet and reduce the amount of encumbered debt they have.”
FirstKey Homes does not share financial details about its operations for competitive reasons, a company spokesman said when asked to comment on the ECR transaction.
“What’s vital to remember is that across the SFR sector, investors are still active, albeit a bit more selective, with the belief SFR provides durable cash flows and stable occupancies,” the FirstKey spokesman added. “Additionally, with household formations significantly outpacing the decades-long low housing supply, it bodes well for continued strong demand for the high-quality single-family rental homes we provide our family of residents.”
Source: housingwire.com
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Mr. Cooper Group‘s profits strongly increased in the first quarter of 2023, as forecasted by its executives. The servicing portfolio again propelled the quarterly performance, but this time, the origination segment also contributed to the results by returning to profitability.
The company reported on Wednesday that it delivered $37 million in net income from January to March, compared to $1 million in the fourth quarter. The result included a mark-to-market of $63 million, a $1 million severance charge and $10 million losses with equity investments.
Mr. Cooper’s chairman and CEO Jay Bray said the operating results are due to a “balanced business model” between servicing and origination, according to a news release. He added executives are “positioning the company to navigate a volatile environment.”
The company’s servicing portfolio ended the quarter with a pretax operating income of $157 million, compared to $159 million in the previous quarter.
Mr. Cooper had 4.1 million customers and $853 billion in unpaid principal balance (UPB) at the end of March, compared to $870 billion at the end of December. The reduction resulted from a client that decided to take the portfolio in-house, executives said during a call with analysts.
But the servicing portfolio is expected to grow. Mr. Cooper announced it agreed to acquire Rushmore Loan Management Services‘s special servicing platform, which has $37 billion in sub-servicing contracts. The platform has 244,500 loans and will be combined with RightPath, bringing several hundred employees to Mr. Cooper.
Regarding its origination business, which focuses on acquiring loans through the correspondent channel and refinancing existing loans through the direct-to-consumer channel, Mr. Cooper had a $23 million pretax operating income, compared to a $2 million loss in the previous quarter.
Mr. Cooper’s funded volume declined to $2.7 billion in the first quarter of 2023 from $3.2 billion in the previous quarter. Direct-to-consumer comprised $1.4 billion and correspondent was responsible for $1.3 billion.
“Servicing continued to produce consistent stable predictable results, while originations outperformed on strong DTC execution,” Chris Marshall, vice chairman and president, said in a statement. “We continue to see exciting opportunities to grow our customer base, while our focus on positive operating leverage will help us generate higher returns.”
According to a team of equity analysts at Jefferies, the first quarter earnings “showed stability of servicing performance in a higher-rate environment.” Meanwhile, performance in the originations segment “was a welcome surprise to the upside after several quarters of tightening gain-on-sale margins and declining volumes.”
Acquisition mode for Mr. Cooper
Bray told analysts that Mr. Cooper expects to increase its servicing portfolio. Despite the reduction in the unpaid principal balance in the first quarter of 2023, Mr. Cooper won deals that will include $57 billion in MSRs in the next few months, the executive said.
“You’re familiar with our strategic target of growing the portfolio to $1 trillion, but I’d share with you that we think of that as an absolute minimum for where we can go,” Bray said.
The recent banking crisis adds some opportunities to acquire MSRs, but the market is still in a “state of transition as everybody digests what has happened in the last month or two,” according to Bray. “But we expect more to come from the banks. And we expect to be active there.”
Regarding the appetite of bidders in the MSR market, executives said it’s smaller for Ginnie Mae’s portfolio than for the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac.
Overall, “there’s not a significant number of bidders, but it’s competitive,” Bray said. Marshall added, “As the pools get larger, certainly as they get above $10 or $20 billion, there’s a handful of potential buyers.”
To support its acquisition mode, Mr. Cooper said it has strong liquidity. The company had $2.4 billion in liquidity at the end of April, including $534 million in unrestricted cash.
“Since the year-end, we’ve upsized several of our MSR line facilities, increasing aggregate capacity by $1.5 billion,” Kurt Johnson, the company’s CFO, told analysts. “Given the turmoil in the financial markets, we’re very pleased that our banking partners continue to see us as a sound counterparty with strong capital, risk management, and controls and were eager to support our growth throughout the quarter.”
Looking forward, Mr. Cooper continues to provide a forecast of $600 million EBIT for 2023.
Source: housingwire.com
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Out of 72 million Millennials in America, roughly 600,000 are already millionaires according to Coldwell Banker.
Like the generation they represent, Gen Y’s own one-percenters come from diverse backgrounds and share a bootstrapping attitude to building wealth and success. Their paths to riches range from the tried-and-true to the clever and lucky; some of their methods are merely admirable, while others are easily repeatable.
So who are the Millennial millionaires? How did they build their fortunes, and what can we learn from them?
Let’s investigate six Millennial millionaires, their paths to wealth, and extract one takeaway from each journey.
What’s Ahead:
Jeremy Gardner: crypto
In 2013, at age 21, Jeremy Gardner bought some bitcoins from a friend purely out of curiosity.
At the time, all he really knew about “crypto” was that it was the preferred currency of Silk Road, a darknet eBay for drugs and illegal activity. Shady traders on Silk Road liked Bitcoin because it was unregulated and difficult for authorities to trace.
The FBI shut down Silk Road in 2013 but Bitcoin lived on – and soon, Gardner began to see its true merit.
“There was this realization that I could — with just an internet connection— exchange value with anyone in the world who also has an internet connection,” he told Business Insider. “No longer did I have to rely on a centralized intermediary, a troll under the bridge, such as a bank or a government.”
Gardner converted all of his cash and holdings into Bitcoin and dedicated his life to evangelizing cryptocurrency. He won’t share his net worth publicly, but considering Bitcoin traded for as low as $50 in 2013 and now hovers around $50,000, it’s safe to say he’s beyond mere “millionaire” status.
So what does a crypto millionaire do all day?
At the time of his Business Insider interview, Gardner lived in a three-story townhome in San Francisco dubbed “The Crypto Castle.” He claims that most of the other tenants who have rotated in and out of the Castle have become millionaires as a result of cryptocurrency investing.
Despite residing in one of the most expensive cities on earth, Gardner’s biggest living expense was apparently “alcohol.” That’s because he loves taking people out to party, wax poetic about crypto, and pick up the tab.
During the day, Gardner worked “fairly full-time” at venture capital firm Blockchain Capital, which focuses on seeding crypto-based startups, for a salary of $0. He’s since moved to Miami for the lower cost of living.
Even at the time of his interview in 2017, Gardner acknowledged the possibility of a bubble popping – it may be at $60,000, $100,000, or $500,000 – so to protect his wealth, he has plenty of cash on reserve. That cash will continue to pay for his living expenses and, of course, be used to scoop up more Bitcoin after the bubble bursts.
What we can learn from Jeremy Gardner’s millions
An investment in cryptocurrency can provide generous returns, but it’s not without risk or challenges. Cryptocurrency investments are not FDIC-insured, for example, and the regulatory landscape is still unfolding.
Still, crypto can lend some high-risk, high-reward diversity to your portfolio. I’ll be covering crypto in more detail in the coming months, so stay tuned.
Shan Shan Fu: pandemic-based startup
Chinese-American immigrant Shan Shan Fu, 33, was already working hard enough when the pandemic hit in Q1 2020. Her mother and father had been an engineer and a doctor back in China, respectively, but since their degrees weren’t recognized in America they had to work in grocery stores to make ends meet. Their salaries plummeted but their work ethic stayed the same.
Inspired by her folks, Fu took on a second role in addition to her hard-enough nine-five consulting job. As soon as the pandemic hit, she saw an immediate need for high-quality, breathable face masks. So from five to one each night for seven months, she built and launched Millennials In Motion, a boutique mask and fashion vendor.
Her income from Millennials In Motion soon surpassed her consulting salary, so she left her steady gig to focus on growing her startup.
Shan Shan Fu’s financial success is doubly impressive considering everything working against her during the pandemic. She already had a full-time job, the economy was tanking, and she was an Asian woman, suffering from increased judgment and discrimination due to increasing anti-AAPI bias.
“When you immigrate from China, it’s already so difficult because you’re judged based on how you look, your accent. Your education isn’t valued as much as if [it were from the U.S.],” she told CNBC. “It’s tough to go through so much adversity and be hated on for [a pandemic] that has nothing to do with you…”
Launching Millennials In Motion wasn’t Shan Shan Fu’s first financial success. Fu briefly lived in Vancouver, where she spotted a beautiful condo for an affordable price. She called it “the Millennial dream” and sensed it would be a good investment. It was – since she bought it for $500,000 in 2015, the condo has more than doubled in value.
Technically speaking, Ms. Fu is barely a millionaire – in fact, I’d estimate that after being hammered by self-employment taxes, her net worth might have lost a digit. But I have no doubt that she’ll rebound immediately; if she can launch a successful one-woman startup during a pandemic, the sky’s the limit.
What we can learn from Shan Shan Fu’s (eventual) millions
There are four traditional paths to becoming a millionaire in this country: earning, investing, launching a successful business, and inheritance. Most rich Americans got that way by picking one, maybe two lanes at max so they can work less and stay focused.
Ms. Fu is unique in that she built wealth equally between lanes one, two, and three throughout 2020. But even someone with a work ethic as incredible as Ms. Fu realized that 17-hour days aren’t worth it for any amount of money, and focusing on two lanes is just fine.
Keith Gill: high-risk stock trading
Keith Gill is the only person on this list that I can provide an almost precise net worth for, down to the penny.
That’s because Gill is the de facto leader of the infamous amateur investing subreddit r/wallstreetbets where he posts his portfolio on a semi-regular basis. Gill’s “GME YOLO” updates show how he’s turned a $53,000 investment in GameStop stock into $25+ million, peaking at $50 million in February.
Granted, Gill’s “GME YOLO” updates only reflect his GameStop holdings, not his entire net worth. Still, it’s pretty safe to say they represent the majority of his net assets now, and that he’s definitely a Millennial millionaire several times over.
Gill, 34, got his Reddit username from the investing term “deep value.” Deep value investing involves building a diverse portfolio of cheap, undervalued stocks.
Calling upon his experience as a Chartered Financial Analyst (CFA), Gill noticed that GameStop stock (GME) had become severely undervalued in 2019, so he bought up 50,000 shares plus 500 call options. He didn’t just “YOLO” his cash into the wind, either, justifying his move with trends and data in a video he posted to his YouTube channel under the pseudonym Roaring Kitty. Critically, he never said he was sharing advice – just educational material.
Gill’s early investment in GameStop, and frequent posts justifying his positions, are credited with stimulating the now-famous GameStop short squeeze of Q1 2021. The movement got so serious that Gill was called in to testify to Congress on February 18th alongside Robinhood co-founder Vladimir Tenev. His two most famous quotes arising from his testimony are “I am not a cat” and “I like the stock.” To date, no legal action has been taken against Gill, and the day after his testimony he doubled his position in GameStop to 100,000 shares.
In many ways, Keith Gill was the hero Reddit needed in 2021. By all accounts, he’s just a normal guy who wants to promote financial literacy, notably the deep value investing strategy of seeking out undervalued stocks. He lives in a normal house in Brockton, Mass with a wife and young daughter, and despite their best efforts, the hedge funds have failed to charge, muzzle, or discredit him. He’s also made a lot of normal people a lot of money during a crippling pandemic.
What we can learn from Keith Gill’s millions
While Keith Gill’s gambit certainly paid off, it’s important to remember that r/wallstreetbets is full of terrible advice, too. Tons of people lose their livelihoods chasing meme stocks and trends, so it’s better to get your lols from WSB and investing guidance from a professional wealth advisor.
A better takeaway from Gill’s millions (that’s fun to say) is that financial literacy pays off. Even though he’s the figurehead of a subreddit that celebrates badly-researched trades, Gill did do his research on GameStop and it paid off. So if you’re looking to build wealth as an amateur investor, be like Gill – not like WSB.
Amandla Stenberg: entertainment
Remember Rue from The Hunger Games movies? Yeah, she’s crushing it now.
Born in 1998 to an African-American mother and Danish father, Amandla Stenberg got her name from the Zulu word for “strength.” Living up to her namesake, she followed her global debut in The Hunger Games by starring in Everything, Everything as Maddy, a young woman homebound by a debilitating medical condition.
Although her portrayal of Maddy won her universal acclaim and further propelled her to stardom (and millionaire status), Steinberg has garnered more well-deserved attention for her outspoken philosophies and political views.
Steinberg identifies as non-binary, preferring the pronouns “she/her” or “them/they,” and has used her newfound stardom to spread pro-acceptance and feminist messaging. In 2015 she published a five-minute YouTube video titled Don’t Cash Crop My Cornrows, directly confronting the disconnect between cultural appropriation and cultural acceptance of black Americans.
On a smaller but similarly profound note, Steinberg announced in 2017 that she’d stopped using a smartphone in favor of a “dumb phone.”
“I’m legitimately concerned about my generation and how phones are going to affect us psychologically.” she told Bust in an interview. “I think [social media] is a very important tool. But at the same time, I think it can create some serious effects on our mental health.”
Amandla Steinberg, who straddles the line between Millennial and Gen Z, evokes the best possible definition of “woke.” She carries a torch of acceptance and critical thinking for both generations, using her wealth and stardom to propel society forward in the right direction.
What we can learn from Amandla Steinberg’s millions
As a “Millennial millionaire,” Steinberg exemplifies how wealth, power, and influence can absolutely be forces for good. She may not give us a clear path to riches, since acting isn’t exactly a reliable cash cow – but she sure as hell shows us how to use it.
Whitney Wolfe Herd: dating apps
Are billionaires still millionaires? Asking for a friend.
Whitney Wolfe Herd was a millionaire, at least, before the Bumble IPO in February 2021. Then, in the ring of a bell, 31-year-old Wolfe became a bonafide billionaire and the youngest woman to take a company public ever.
Unlike Kylie Jenner, nobody dispute’s Whitney Wolfe Herd’s wealth or authenticity. Wolfe launched her first business in college when she began selling bamboo tote bags to benefit victims of the BP oil spill. Two years later, she joined an incubator where she became the third employee of a new Millennial-focused dating app. The app was all about immediate sparks, so she came up with the name Tinder.
Despite Tinder’s explosive growth, Wolfe Herd resigned just two years later and sued her former partners for sexual harassment. The whole nasty episode inspired her to move to Austin and launch a female-friendly dating app called Moxie. The name was taken, unfortunately, so her second choice was Bumble.
Between 2015 and 2019, Wolfe Herd swept awards and collected accolades for her unstoppable momentum in the male-dominated tech industry. In September 2019, she even testified before the Texas House Criminal Jurisprudence Committee on the topic of explicit images sent within dating apps, further championing efforts to protect women from sexual harassment online: all before her 29th birthday.
When Bumble finally launched a successful IPO, Wolfe Herd’s hefty stake in the company reached an estimated value of $1.5 billion. But despite her 10-figure wealth and barrier-shattering success, Whitney Wolfe Herd’s path to riches is actually pretty old school.
What we can learn from Whitney Wolfe Herd’s (many) millions
If you work in a startup environment, ask for stock options. 10 years of startup salaries probably represent less than 0.05% of Herd’s net worth; the rest is entirely stock.
I myself have a few friends who were the 9th or 17th or 31st employees of no-name companies that have since become big-name companies. Even those that didn’t become Pinterest or Bumble were often bought out, resulting in massive capital gains for early employees and seed round investors. So just a few years of hard work in the right startup can make you a millionaire: as long as you get that stock!
Todd and Angela Baldwin: just save and invest
Todd Baldwin, 28, started out shoveling manure for $3 an hour. Today, his annual income exceeds $600,000. His wife Angela makes six figures also, which the couple can afford to put entirely into savings.
Todd and Angela began their relationship with a combined household income well under $100k. They couldn’t afford to live alone in Seattle, so they bought a $500k home with a small $19,000 down payment and rented out the other rooms to make their mortgage payments.
But by keeping their costs low and crushing it at work, the Baldwins were able to earn more, save more, and buy more. Within a year they invested in a second property. Now they have six.
Three factors enabled the Baldwins to keep purchasing property and build their real estate portfolio:
- Their increased earnings at work.
- Rent payments from tenants.
- Their dedication to frugality and simple living.
Interestingly, Todd credits number three as their primary factor for success. For example, in college he couldn’t afford to take his soon-to-be-wife out for fancy meals, so he took a side gig as a mystery shopper. Now, instead of paying $60 for a nice meal, he’s paid $60 to take his wife out and report his experience. She doesn’t mind and enjoys their “free dates.”
Todd and Angela now live in a much nicer $900,000 duplex, but they still rent out their spare bedrooms, even their converted garage to cover 100% of their mortgage. The couple shares a 2009 Ford Focus, and Todd wears a $12 wedding band made of rubber.
Personally, I admire the Baldwins’ dedication to frugality – but if you find their lean lifestyle to be a bit… restricting, know this: as a result of cost-cutting, they’re able to save 80% of his income and 100% of hers. Even if they bought a pair of matching Mercedes and gave their roommates the boot, they’d likely still save more than half of both of their salaries.
The couple’s ultimate goal is to own 6,000 apartments by the time Todd turns 60, which would bring in $9 million a month in rent. If they pull it off, they’d be fast on their way to becoming a billionaire power couple: too recognizable to keep power shopping.
What we can learn from Todd and Angela Baldwin’s millions
The Baldwins aren’t startup heroes, lottery winners, or crypto zillionaires. Their path to riches didn’t even involve luck or months of 17-hour days. All they did was save and invest, save and invest.
The single most common path to becoming a millionaire in America is to invest 20% of your income for 30 years. The Baldwins were just a bit more aggressive (to say the least), investing 80% of their income for five years and counting. But the core principle still stands – you don’t need a six-figure salary, a massive inheritance, or an early stake in Bumble to get rich; just patience and the most fundamental investing knowledge.
Summary
The Millennial millionaires range from sage opportunists to Hollywood activists; glass ceiling-smashers to frugal investors. Their pathways to wealth are as diverse as the generation they represent, but each of the one-percenters on this list shares one thing in common: a plan.
When it comes to building wealth, luck plays a surprisingly tiny role, if it even factors in at all. Nobody on this list waited for luck; instead, they did their research, executed upon an opportunity, and worked hard for that second comma in their bank statement.
Read more:
Source: moneyunder30.com
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In general, the movements of stocks and bonds and commodities and real estate are not strongly correlated. Just because the stock market is down doesn’t mean the real estate market will be down. In general, the returns on these investment classes are independent of each other. By putting some money into each class, you’re able to reduce your risk while theoretically maintaining your return on investment.
This might sound complicated, but it’s not. Think of it this way: If I ask you to bet $100 on the flip of a coin, and promise to give you $220 if you make the right call, but I get to keep the $100 if you lose, you would probably refuse. The risk is too high. But if I asked you to agree to stake $100 on each of ten similar coin tosses, would you do it? I suspect you might. Your expected rate of return is still the same (10%), but your risk is significantly reduced.
That is the power of diversification. Each coin flip is like owning an individual stock. Buy owning more stocks, you can maintain a similar rate of return while decreasing your risk. (Note that you also reduce your potential gains, however.)
You can diversify your investments simply by adding a couple funds to your portfolio. You might put 10% of your money into a bond fund, for example, and 10% into a real estate investment trust (which is like a mutual fund for real estate). In the same way that it’s better to own more than one stock, it’s also better to own more than just stocks.
The two best discussions of diversification I’ve found are in:
These are both great books for beginning investors. They’re not technical, and they approach the subject with the average person in mind. Both of them note that there are several ways to approach diversification, including:
- Diversification among stocks. “If you want to take some extra money and gamble it on some high-flying biotech stock, go ahead,” Malkiel writes. “But for your serious retirement money, don’t buy individual stocks — buy mutual funds.” In particular, he recommends a portfolio of index funds.
- Diversification among asset classes. In Investing 101, Kristof spends 32 pages discussing the importance of diversification, exploring different asset classes in detail. She discusses investing for safety (with cash or cash equivalents), investing for income (with certificates of deposit, Treasury bonds, REITs, etc.), investing for growth (with stocks and mutual funds), and investments that protect you from inflation (such as precious metals). She discusses the pros and cons of each class, and explains why the ideal portfolio has a little of each.
- Diversification over time. Many investors practice dollar-cost averaging as a means to mitigate risk. (Though most of us dollar-cost average because we don’t have huge lump sums to invest.) Malkiel writes, “Periodic investments of equal dollar amounts in common stocks can reduce (but not avoid) the risks of equity investment by ensuring that the entire portfolio of stocks will not be purchased at temporarily inflated prices.” (Please note that dollar-cost averaging has critics with valid points.)
Some investors also diversify internationally, or within asset classes (owning both CDs and Treasury bonds, for example).
How much should you diversify? And which investments should you choose? There’s no one right answer. The answer depends on you and your financial goals. The U.S. Government Securities and Exchange Commission has an excellent beginners’ guide to asset allocation, diversification, and rebalancing. If you’d like to learn more about this subject, it’s a great place to start. (I also found an asset allocation calculator, but I wouldn’t take the results as gospel. Use them as a starting point, but make your own decisions.)
If you had to choose just three types of assets that should be in a well-diversified, long-term investment portfolio, what would they be? If we polled the Get Rich Slowly audience, we’d get a range of responses to that question. However, I think plenty of folks would have answered “bonds, U.S. stocks, and international stocks.” Which is perfect, because those are the investments in the demonstration of asset allocation that I’m about to embark upon.
Let’s look at the returns of three mutual funds from 30 June 1989 to 30 June 2009: The Fidelity Intermediate Bond Fund (FTHRX), which holds bonds that mature in five or so years; the Vanguard 500 (VFINX), which very closely mimics the performance of the Standard & Poor’s 500 index of large U.S. stocks; and the T. Rowe Price International Discovery Fund (PRIDX), which invests in small companies from all over the world.
We can make a few observations about these returns:
- Compounding is cool. Even by just earning approximately 6% a year, the initial investment more than tripled over two decades. Earn a bit over 9%, and you could almost sextuple your investment (and have fun saying “sextuple” to your friends).
- Higher return comes with higher risk. Yes, the T. Rowe Price fund posted the best long-term performance, but its worst years were really worse.
- You don’t always get that higher return. While the Vanguard 500 beat the Fidelity bond fund, that was due to the extraordinary returns of stocks in the 1990s. Over the past decade, U.S. large-company stocks actually have lost to bonds. (In fact, as I wrote over at The Motley Fool, the return on such stocks from 1999-2008 was even worse than the 10-year returns during the Depression.)
- Earning a little bit more can lead to big bucks. The annualized return of the Vanguard 500 was just 1.52% more than the annualized return on the Fidelity bond fund. Yet the difference in the amount $100,000 grew to after 20 years was huge; the Vanguard 500 earned an extra $108,568, 33% more than what an investor earned in the bond fund. I’ve said it before, and I’ll say it again: That’s the power of earning a little bit more — or paying a little bit less — over the long term. (It is pure coincidence that the difference between the returns of the two funds, or 1.52%, is very close to the average expense ratio charged by actively managed mutual funds. But it’s a telling illustration: If you’re paying that much annually to invest in a mutual fund, but not getting superior results in return, you could be giving up tens of thousands of dollars.)
Let’s say you are given these three investment choices for the next 20 years. How would you allocate your portfolio? If you’re an aggressive investor, you might put all your money in the T. Rowe Price International Fund. But could you stand such large declines? And what if international small companies don’t do as well over the next 20 years?
If you’re a conservative investor, however, you might go the opposite direction and put all your money in the bond fund. Your portfolio would be nice and steady, likely avoiding sleep-disrupting double-digit annual declines. But, if the future is anything like the past, you could potentially be passing up $100,000 to $200,000 in gains. Perhaps that’s playing it too safe.
Let’s try a simple solution: Investing one-third of the portfolio into each of those funds and rebalancing annually. What do you think the annual return would be?
You might pick a number that is the average of the annualized returns on those funds, which would be 7.67%. But here are the actual numbers:
Well, looky there. You got a return that beat the arithmetic average of the three returns. It significantly outperformed the S&P 500, and it did so with a lot less volatility (as indicated by its worst years not being as bad). By owning assets that move in different directions at different degrees and at different times, along with some regular rebalancing, you get a return that beats the average returns of the investments in the portfolio. The whole is greater than the sum of its parts.
Sure, that extra return is less than 1% a year. But we’ve already demonstrated how earning a little for a long time really adds up. And that return beat the return of two of the portfolio’s three components. As I wrote in May, asset allocation means you don’t have to predict which type of investment will do best — which can be dangerous, because you could be wrong.
A well-diversified portfolio provides a respectable return, with lower volatility than a portfolio of just one type of stocks. Not a bad deal at all.
Source: getrichslowly.org
Apache is functioning normally
The number of mortgage defaults filed during the third quarter fell 10.3 percent compared to a quarter earlier, according to real estate information service DataQuick.
A total of 111,689 default notices were sent between July and September, an 18.5 percent increase from a year earlier when 94,240 hit homeowners’ mailboxes.
“It may well be that lenders have intentionally slowed down the pace of formal foreclosure proceedings, said John Walsh, DataQuick president, in a release. “If so, it’s not out of the goodness of their hearts.”
“It’s because they’ve concluded that flooding the market with cheap foreclosures in this economic environment may not be in their best financial interest. Trying to keep motivated, employed homeowners in their homes might be the most cost-efficient way to stem losses.”
Defaults peaked in the first quarter of this year at 135,431, a number DataQuick believes was inflated due to deferred activity from various foreclosure moratoria.
The median loan origination month of last quarter’s defaulted loans was July 2006; a year ago it was June 2006, so the foreclosure process has moved forward just one month over a year.
“There’s a batch of truly nasty loans that were made in mid 2006. There’s another batch made in late 2006. These are worse than the mortgages before and after, and it’s taking a long time to process them,” Walsh added.
Countrywide originated the most defaulted loans with 7,583, followed by WaMu at 5,146, and Wells Fargo at 4,425.
However, smaller subprime lenders had much higher default rates; ResMAE Mortgage was at 73.9 percent, followed by Ownit Mortgage at 69.5 percent, and BNC Mortgage at 61.4 percent.
Mortgages were most likely to go into default in Merced, San Joaquin, and Riverside counties, and least likely in San Francisco, Marin and Santa Cruz counties.
California homeowners were a median five months behind on payments, or $12,665 on a median $343,200 mortgage, when the mortgage lender filed a default notice.
Trustees Deeds recorded, or the actual loss of a home due to foreclosure, climbed 9.5 percent to 50,013 from the prior quarter, but were down 37.1 percent from the third quarter of 2008, which was the all-time high.
Source: thetruthaboutmortgage.com
Apache is functioning normally
Financial markets are still grappling with the resignation of the White House’s top economic adviser, Gary Cohn. A strong reading in the ADP employment report is also making the rounds. Right now, though, mortgage rates are down a little as we approach the halfway point of the week. Read on for more details.
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Market Outlook 3.5.18 from Total Mortgage on Vimeo.
Where are mortgage rates going?
Mortgage rates move lower
We’re hunkering down here in CT as another snow storm takes hold, but there’s still a lot of news out today that could impact the direction of current mortgage rates.
Gary Cohn Resigns from White House
The rumors were true, as President Trump’s top economic adviser, Gary Cohn, resigned yesterday after losing the battle on aluminum and steel tariffs.
The departure for Cohn has left many financial market participants concerned that the likelihood of a trade war has now jumped. Cohn, who was a former Goldman Sachs executive, was fairly well liked by investors and gave them a certain amount of confidence with the positions he would take on taxes and regulations.
With him gone, the markets are now left to deal with the possibility of more protectionist policies from President Trump.
Labor Market Heating Up?
The ADP employment report for February is showing a very strong headline reading of 235,000. That’s 30,000 above the consensus reading that analysts came up with.
Investors always keep their eye on the ADP employment report as it’s kind of the appetizer to the main course meal of the Labor Department’s Employment Situation report on Friday morning.
You can never really have to much confidence that the ADP and Labor Department’s readings will match up, though, as they often come in with fairly disparate readings. Still, today’s report has bolstered investor interest in Friday’s report.
Treasury Yields Down
The yield on the 10-year Treasury note (which is the best market indicator of where mortgage rates are going) is down almost four basis points today.
Mortgage rates typically move in the same direction as the 10-year yield, so rates are on the decline today. For the majority of 2018, we’ve seen the 10-year yield steadily rise, but it’s been holding between a fairly tight range of 2.85%-2.90% for the past couple of weeks.
The average rate on the 30-year fixed rate mortgage (according to the Freddie Mac Primary Mortgage Market Survey), has continued to rise every week this year. The pace has slowed in recent weeks, but it has risen. This week’s report will get released tomorrow at 10:00am sharp.
Rate/Float Recommendation
Take action soon to try and get the best rate
Mortgage rates are on the rise–it’s no secret. If we get a strong headline reading in the monthly jobs report on Friday, that would almost certainly cause rates to jump. Even if we don’t, the long-term projection remains for mortgage rates to move significantly higher.
Learn what you can do to get the best interest rate possible.
We’re talking about potentially another fifty basis points by the time 2018 is all said and done. If you want to reduce your risk of paying more with a higher interest rate, then you should try to lock in a mortgage rate sooner rather than later. At the very least, you should contact a mortgage professional and figure out how your personal factors impact what you should do.
Today’s economic data:
Fedspeak
- New York Fed President William Dudley at 7:30am and 8:20am
- Atlanta Fed President Raphael Bostic at 8:00am
ADP Employment Report
- The ADP employment report showed that 235,000 jobs were added to the U.S. economy in February.
International Trade
- The nation’s trade deficit widened to $56.6 billion in January.
Productivity and Costs
- Productivity got bumped up slightly in the fourth quarter from a tenth of a point decline to no change. Unit labor costs are now at 2.5%.
EIA Petroleum Status Report
Beige Book
- The Federal Reserve’s Beige Book, which gives anecdotal evidence about the state of the economy in the various Fed regions, will get released today at 2:00pm.
Notable events this week:
Monday:
- PMI Services Index
- ISM Non-Mfg Index
- Fedspeak
Tuesday:
- Fedspeak
- Factory Orders
Wednesday:
- Fedspeak
- ADP Employment Report
- International Trade
- Productivity and Costs
- EIA Petroleum Status Report
- Beige Book
Thursday:
- Jobless Claims
Friday:
- Employment Situation for February
- Fedspeak
*Terms and conditions apply.
Source: totalmortgage.com
Apache is functioning normally
You are probably used to tapping and swiping your debit card as you go through your day, whether to grab a salad for lunch or pay for a new bottle of shampoo. Debit cards are welcome at most of the places where you can use a credit card, and that includes online retailers as well. This can be a welcome way for some people to spend when shopping online as it can help with budgeting (you only spend what’s in your bank account) and allow you to avoid those credit card interest charges.
However, paying online by debit card isn’t exactly the same as using a credit card, and it’s important to understand the impact, both positive (avoiding a hefty credit card interest rate) and negative (you may not earn rewards nor have fraud protection).
Here, you’ll learn how to use your debit card safely and wisely when purchasing online.
Can You Use A Debit Card Online?
Generally, if a website accepts a credit card for online purchases, it also will accept a debit card.
You may not see debit cards listed specifically as a payment option on a merchant’s website. But if the front of your debit card has a credit network logo (such as Visa or Mastercard) and the business accepts credit cards from that network, you should be able to use it.
To use a debit card for an online purchase, you’ll want to check “credit card” as the payment method and then enter your debit card’s account number, expiration date, and three-digit security code (CCV) to make the purchase.
Unlike debit purchases you make in-person, you won’t need to provide your PIN when purchasing something online. The reason is that the transaction will be treated as a “credit” transaction, which means that the transaction is pending (meaning waiting to be authorized, cleared, and settled).
The money will be deducted from your checking account around two to four days later.
Before an online debit transaction clears, you may see a difference between your checking account’s “current” balance, which includes only deposits and deductions that have actually cleared, and your “available” balance, which includes authorized transactions that haven’t yet cleared.
What Are Some Pros to Using a Debit Card Online?
There are a few advantages to using a debit card as opposed to a credit card for online purchases that consumers may want to consider. These include:
Reducing Credit Card Debt
Using a debit card to make online purchases may help reduce credit card use (and debt).
When you shop with a credit card vs. a debit card, you’re borrowing money you’ll have to pay back later. If you don’t pay the debt back within a designated period of time, the lender is going to charge interest.
And, if you only pay only the minimum required to carry your balance each month, that debt could grow into a hard-to-get-rid-of burden.
Sign-up bonuses, discounts, unlimited cash-back offers, and travel points can make it tempting to use a credit card for every purchase. But shoppers need to be careful about paying off those purchases on time, or they could end up spending more on interest payments than they receive in rewards.
When you use a debit card, you can’t spend more than you have at the moment. And because there’s no debt, there’s no interest to worry about.
Some Debit Cards Come with Rewards
While rewards and perks for spending are mostly associated with credit cards, many debit cards are now offering rewards programs as well, including cash back, points, or miles every time you swipe your card.
Lower Fees
Debit cards typically don’t have any associated fees unless users spend more than they have in their account and incur an overdraft charge.
By contrast, how credit cards work typically involves fees. Credit cards may come with an annual fee, over-limit fees (if a purchase pushes their account balance over their credit limit), and late-payment fees, in addition to monthly interest on the card’s outstanding balance.
There is also typically no fee for withdrawing cash using your debit card at your bank’s ATM. If you use a credit card to get cash, on the other hand, you may incur a significant cash advance fee. You may also have to pay interest on the advance amount, which often starts accruing the day of the advance, not at the end of the statement period as with regular charges.
Recommended: ATM Withdrawal Limits – What You Need To Know
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Is There a Downside to Using a Debit Card Online?
There are some advantages to using a credit card over a debit card. Here are a couple of things to consider when making the choice to use a debit card online.
Using a Debit Card Online Won’t Build Your Credit History
Have you ever heard someone complain that they couldn’t get a loan or credit card because they’ve never borrowed money? They thought they were being financially responsible, but the bank didn’t want to risk lending money to someone who didn’t have a history of making payments on a loan or line of credit.
That catch-22 extends to purchases made with a debit card. Even though your goal may be to stay fiscally responsible by making only debit (i.e., cash) purchases to avoid debt, you’re not helping your FICO® score, which represents how responsible you are with borrowed money.
And even though you may have marked the “credit” payment option when paying online, the money is still coming directly from your account, so it won’t directly impact your score.
Less Fraud Protection
You may have heard that it isn’t as safe to use a debit card online because federal laws don’t offer the same consumer protections that credit cards get.
It’s true that there is a difference.
Credit card use is covered by the Fair Credit Billing Act which provides a set procedure for settling “billing errors,” including unauthorized charges. If someone uses your stolen credit card account number to make online purchases, you generally aren’t responsible for those charges and can dispute those charges.
Debit card use is protected by the Electronic Fund Transfer Act , which also gives consumers the right to challenge fraudulent debit card charges. Your liability depends on how quickly you report the problem, though, so you need to act relatively fast to get that federal protection.
If someone makes unauthorized charges with your debit card number and you didn’t lose your card, you aren’t liable for those transactions as long as you report the charges within 60 days of receiving your statement.
You also could have zero liability if your card was lost or stolen and you report it before any unauthorized charges occur. If you report the lost or stolen card after it’s been used, the amount you owe will be determined by how quickly you report the loss. Within two days, your liability will be $50; within 60 days, $500.
However, if you wait more than 60 calendar days after you receive your statement to make a report, and the thief goes on a shopping spree, you could lose all the money in any account linked to your debit card.
Some debit card issuers now offer “zero liability” protections that go beyond what federal laws provide. If your debit card is backed by Visa or Mastercard, for example, you may find you have the same protections they offer their credit card users. (You may want to check with your financial institution to verify this coverage.)
Less Purchase Protection
Many credit cards offer purchase or damage protection, which means that if the item you buy is damaged or stolen within a specified period of time, you can get your money refunded. Credit cards may also offer extended warranties on electronic purchases, as well as travel perks, such as rental car insurance.
Debit cards are less likely to offer these perks.
Recommended: Does Applying For a Credit Card Hurt Your Credit Score
How to Use Your Debit Card Safely Online
To protect your identity while shopping online with your debit card, you may want to follow these simple precautions.
• Looking for the lock. When making purchases with your debit card online, it’s a good idea to make sure you’re shopping with a reputable company and on a secure website, especially when it’s time to enter your card number. A good safeguard is to look for the locked padlock icon in your browser. It can also be a good habit to log out of a site as soon as you finish shopping.
• Monitoring your statements. It can be wise to regularly check your checking account and scan for any debit charges you don’t recognize. That’s because the faster you report a problem, the less trouble you should have recovering from any fraudulent activity.
• Using a secured network at home. You may want to avoid shopping or paying bills when you’re using public WiFi. Even secured public networks have some risk. And you never know who might be watching over your shoulder when you enter a password or other personal information.
• Keeping your card, and your account number, to yourself. Giving your card or account number to a friend or family member could lead to trouble down the road, including charges you didn’t expect. And, it may be difficult to recover any lost funds because the usage may not be considered unauthorized. If you want to allow someone you trust to use your account on a regular basis, consider adding them officially as an authorized user.
The Takeaway
Debit cards can be used online for most purchases and can be a great way to manage your spending.
Debit cards generally don’t come with the annual fee and other fees found with some credit cards. Plus, they don’t allow you to rack up debt because you aren’t offered a credit limit that’s higher than your checking account balance.
However, credit cards often come with more perks and purchase protections than debit cards. And, responsible use of a credit card can be a good way to build your credit score.
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Source: sofi.com
Apache is functioning normally
Joe Buglewicz/Bloomberg
KeyBank on Thursday unveiled a new program aimed at helping potential homeowners in underserved areas cover as much as $5,000 of closing costs and related charges.
It is the Cleveland bank’s third program under a provision of the federal Equal Credit Opportunity Act that is designed to increase credit to disadvantaged groups.
Banks have expanded so-called special-purpose credit programs in recent years, using them to address racial inequities in credit access. For decades before the recent wave of adoption, financial institutions had shied away from establishing such programs, concerned that they would face charges of discrimination for lending to one racial group over another.
“You don’t need a special-purpose credit program to increase lending in majority-minority areas, but it’s one way to do it,” said Richard Andreano Jr., leader of the mortgage banking group at the law firm Ballard Spahr.
Initiatives that address the rising cost of buying a home are among the most popular types of special-purpose credit programs. Last week, JPMorgan Chase announced that residents of more Black-majority and Hispanic-majority census tracts will be eligible for up to $5,000 in grants that are meant to help with down payments and closing costs.
For more than a year, steep increases in mortgage rates have made home purchases less affordable for a wide range of Americans. The average rate on a 30-year fixed-rate mortgage increased this week to 6.81%, its highest mark this year.
“At KeyBank, helping all residents have equal access to homeownership is a priority,” said Dale Baker, president of the bank’s home lending segment.
Earlier this year, fair-lending advocacy groups called out KeyBank, a unit of the $197 billion-asset KeyCorp, for its lack of mortgages issued to Black borrowers. About 2.2% of the bank’s mortgages in 2021 were issued to Black borrowers. That was the lowest rate among the 12 large banks studied by the National Community Reinvestment Coalition, an advocacy group.
In April, more than 80 community groups signed a letter asking regulators to examine whether Key executed community benefits commitments made during its 2016 acquisition of First Niagara Financial Group.
Over the past year, Key has launched two other special-purpose credit programs related to homeownership.
The latest program will provide new homeowners with up to $5,000 to cover homebuying-related expenses including closing costs, insurance, taxes and escrow deposits. To be eligible, buyers must get a mortgage from Key, plan to live in the house they are purchasing, and reside in designated majority-minority or low-to-moderate income communities across the bank’s footprint.
Source: nationalmortgagenews.com