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The third quarter of 2023 shows significant shifts in the performance of teams reflecting both the decline in housing sales activity and the pressure on margins occurring throughout the brokerage business, according to the Streamlined Quarterly Team Benchmarking Report, which looked at the financial performance of more than 200 teams across the nation.

This report covers the period from April 1, 2023, to June 30, 2023. In five of the six size categories of teams both gross profit margins and net income margins declined from the second quarter 2023 results.

Steamlined, based in Arizona, has a roster of hundreds of U.S. real estate teams and individual agents as clients for their accounting and bookkeeping services. The firm confirms actual financial and operational details of these businesses and assemble the data in useful benchmark studies to help their clients assess how effectively they are operating. 

“This is extremely valuable information, not only for teams but also for the brokerage firms with whom they are affiliated,” says Steve Murray, senior advisor to HW Media. “A clearer understanding of the performance of teams helps everyone understand the impact of the growth of the organization and performance of teams.”

The latest financial insights for the residential real estate teams and agents present a picture of resilience and strategic adaptability, even in the face of shifting economic landscapes.

To note, the financial data sets analyzed in Q3, 2023 are the same number of data sets in Q2, 2023. This consistency is a testament to the solid foundational practices that these businesses have established, which is crucial for long-term sustainability. 

Despite the anticipated reconfiguration in revenue streams—with a notable contraction in the number of teams closing between $800,000 to $1.5M in annualized revenue—the broader context remains one of continued activity. This realignment can be viewed as an evolution in market dynamics, with sales dispersing into lower revenue categories (Gross Commission Income), teams and agents are still running profitable companies. For those managing real estate businesses, this signals an environment ripe for strategic repositioning and diversification.

Most teams saw a decrease in gross margin

Teams in five of the six size categories saw a decrease in Gross Margin (GM), with the smallest sized teams (annualized revenues of less than $300,000) having the greatest decline from 83% to 76%. 

Teams with annualized revenue between $800,000 and $1.5 million were the only category that experienced an increase, with their GM rising from 65.1% to 67.2% from the second quarter to the third quarter.

“It is normal to have gross margin decline during the course of a calendar year,” says Steve Murray, founder to RTC Consulting and a senior advisor for HousingWire. “As agents grow their volume during the course of a year, the share of gross revenue paid to them rises under most commission plans. This is also in line with what occurs among brokerage companies, in general. The only category that saw a rise ($800,000 to $1.5 million) is also the category that had a significant decline in the number of teams in the category. 

“We suspect two things may have happened,” says Murray. “Some teams in this category suffered disproportionately from the decline in sales and dropped down in size leaving a smaller group of better run teams.”

On the other side, a number of these teams grew larger and moved into a larger category. “Weaker firms shrank and stronger teams grew faster than the market,” says Murray. “The remaining teams in the category were the strongest of the category.”

Net income declines

In five of the six categories Net Income (NI) declined with the smallest category of teams seeing the largest absolute decline from 49.3% to 40.6%.

In terms of percentage decline, however, both the smallest teams and those teams with annualized revenues of $1.5 million to $3 million had roughly the same decline of approximately 20%.

The correlation seen in the first two quarters of 2023 remains true for the third quarter. The smallest teams have the highest NI percentage while the largest teams have the smallest NI percentage.

“The combination of the decrease of gross margins and the increase in operating costs had the expected impact of lower profit margins for teams in five of the six categories. The decline in annualized existing home sales also had an impact that may have been the biggest impact. 

“The third quarter of a calendar year is normally the highest sales period of the year, but this year, we saw housing sales decline versus both Q2 2023 and Q3 2022,” adds Murray. “Given all these factors it is surprising how durable the results were.”

Shift in teams in each category

One interesting outcome of the Q3 2023 results was the significant shift of the number of teams in each category. For instance, teams in the size category of revenues between $800,000 to $1.5 million declined from 66 in the Q2 2023 to 46 in Q3 2023. Other big movements were that the number of teams with annualized revenue or $300,000 to $550,000 increased by 14, going from 30 to 44. Teams with annualized revenue of $1.5 million to $3 million also increased by eight, going from 45 to 53.

“The significant shift of a large number of teams out of medium-sized teams to both smaller and larger team categories would seem to indicate that not all teams are alike,” says Murray.

“Under the stress of declining home sales and fewer leads at the top of the funnel, some teams owners are as likely to step up their own listings and sales to generate the income to finance their team and their lifestyle. This is not unusual for teams or any real estate agent’s practice.” 

Some teams will prosper in this kind of a downturn and others will seek to optimize profit in the short run by cutting costs and increasing personal production rather than by investing scarcer dollars into growth for growth’s sake.

Teams in all six categories had an increase in their operating costs.    Teams which had the largest increases in costs were those with annualized revenues between $550,000 – $800,000 (costs up 2.8 points from 30.7% cost of operations to 33.5%) and teams with annualized revenues between $1,500,000 – $3,000,000 which saw their operating costs rise from 29.0% to 31.5%)

Strategic financial oversight at play

The trend towards decreased profitability percentages does not overshadow the evident strategic financial oversight at play. Businesses are clearly demonstrating proactive expense management, an essential skill in ensuring business health. This foresight is particularly evident in the way companies have leveraged the scalability of their variable expenses, ensuring they remain positioned to maintain profitability. This ability to pivot and adapt cost structures in response to revenue fluctuations is a hallmark of agile and forward-thinking businesses.

As presented in the data, an increase in operating expense percentages across all tiers is certainly a challenge; however, it also reflects a calculated investment in two critical growth areas: Salaries and Lead Generation.

By maintaining these areas, businesses are investing in their workforce and future sales pipelines, laying the groundwork for future growth and market share expansion.

Moreover, the minimal fluctuations in general and administrative expenses reveal a tight control over the day-to-day running costs, with businesses showing they can keep a lid on the majority of their expenses despite a tougher economic climate.

Overall, the narrative here is not one of decline but of calculated adjustment and strategic realignment. The real estate businesses that are holding their ground in these times are those that are demonstrating agility, financial acumen, and a commitment to investing in their core assets—people and prospects.

With these strategies in place, there’s every reason to be optimistic about the capacity for real estate businesses to navigate current market shifts successfully and emerge even more resilient.

Streamlined, RTC Consulting and HWMedia are teaming up to share this data with our readers to help create transparency in the results of over 200 teams. We will publish these results on a quarterly basis roughly 45 days after the end of each calendar quarter.

David Pittiglio is the CEO of Streamlined Business Solutions.

Source: housingwire.com

Apache is functioning normally

A cadre of Silicon Valley elites is drawing fierce criticism from local residents and environmentalists for planning a new city on the outskirts of the Bay Area, a project dubbed “California Forever.” But the effort should be applauded for revealing a truth about California’s failed housing policies.

This group of California’s most influential wants to build one or more new towns on the urban fringes, having spent about $900 million to buy an area roughly twice the size of San Francisco some 60 miles east of the city. The project breaks with the philosophy of the state’s housing policy, which has long been focused on urban densification.

Despite the state’s efforts to encourage residential development, California’s housing markets remain among the least affordable in the country. The homeownership rate is near the nation’s lowest. To afford a house at the median price today in Southern California, a family needs an annual income of $180,000, twice the region’s median.

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Some housing advocates insist that the solution is to force growth into existing neighborhoods. Yet the state’s supposedly pro-development new housing laws have yet to produce more homes at a scale sufficient to address the affordability crisis, and recent data suggest an accelerating decline in housing production.

Over the last five years, California has consistently lagged in construction not just of single-family housing but of multifamily housing as well. Not one California metropolitan area was among the top 50 in housing growth last year; Texas had six areas on that list, Florida 11. Los Angeles, the state’s dominant metropolitan area, didn’t crack the top 200.

Clearly we need a new approach that is more aligned with market demands. A recent report by London Moeder, a San Diego real estate consultancy, noted that California regulations make it difficult to build the kinds of housing people are looking for, particularly multi-bedroom homes that can accommodate families.

Research by Jessica Trounstine at UC Merced similarly found that “preferences for single-family development are ubiquitous. Across every demographic subgroup analyzed, respondents preferred single-family home developments by a wide margin. Relative to single-family homes, apartments are viewed as decreasing property values, increasing crime rates, lowering school quality, increasing traffic and decreasing desirability.”

Opposition to densification of existing neighborhoods remains staunch in many cities, with some threatening a voter initiative to restore municipal control of zoning.

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California’s focus on increasing density in urban areas is also at odds with the national shift toward remote work and retail and office growth in more suburban, lower-density areas.

A sensible California housing policy would respond to these trends and consumer desires, much as the Bay Area project promises to do. This does not mean we will need sprawling growth.

California’s population is dropping and is not expected to increase in the next four decades, which alters projections of future housing needs. The solution lies in strategic growth. Rather than force growth in places that are declining in population and resistant to development, including Los Angeles County and San Francisco, the state needs to look at the parts of California that are growing, places such as Riverside and Yolo counties.

To encourage growth where it’s happening naturally, the state could create a “Housing Opportunity Area” comprising the Central Valley and Inland Empire, subject to more liberal rules than the coast. Land costs are far lower in the interior of the state than in metropolitan Los Angeles, San Francisco, San Diego and San José. Policies that support inland development could help stem the outbound migration of Californians.

The rise of remote work means development away from urban centers is far more plausible and less environmentally toxic than in the past. Indeed, the International Energy Agency suggests that if everybody able to work from home worldwide were to do so just one day a week, it would save around 1% of global oil consumption for road transport per year. That would prevent 24 million metric tons of annual carbon dioxide pollution, equivalent to the bulk of greater London’s emissions. And roughly 40% of California’s jobs, including 70% of its higher-paying ones, could be done at home, according to research by the California Center for Jobs and the Economy.

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Equally promising, many new suburbs are being designed in consciously more sustainable ways, as MIT professor Alan Berger suggests. Sophisticated systems for controlling energy and water use can make suburban and exurban communities more environmentally responsible. Another promising innovation is broader use of manufactured housing, which has the potential to speed construction by as much as 50%, according to a 2019 McKinsey & Co. report. A single-family subdivision is under construction by 3-D printer in suburban Austin.

There are still opportunities for innovative housing production in dense urban cores such as downtown San Francisco and Manhattan. New York Mayor Eric Adams is seeking to quickly add 20,000 housing units through office building conversions. He has also proposed a larger program to convert more than 130 million square feet of office space to residential use, though he needs state legislation to reach that goal.

More such promising opportunities may lie in old, underused retail spaces in both cities and suburbs, which have the advantage of simple floor plans, ample parking and presence across metropolitan California. A recently announced plan to replace Buena Park’s vacant Sears building with 1,100 housing units could represent one piece of our housing future. Flagging malls in Orange County and throughout California provide similar possibilities.

Such developments are critical to our increasingly diverse middle and working class. Older, overwhelmingly white Californians have achieved high rates of homeownership, but the rates among millennials, African Americans and Latinos are well below the national average.

If they don’t leave the state entirely, younger generations will tend to continue to migrate outward in search of affordable suburbs. The majority of people of color in California live in suburbs, accounting for virtually all suburban growth over the past decade. Communities could be built in the exurbs and beyond for senior citizens, too, helping to produce new housing opportunities for young families near job centers. The outer suburbs and exurbs are the future homes of most Californians.

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We have the land for such a new vision. While other populous states have devoted as much as a third of their land to urban development, California’s developed lands constitute only 6% of the state. A “7% solution” to the California housing crisis would free up 1 million more acres to build the new communities that we largely stopped building around 2000, when we had 5 million fewer people.

Relying on billionaires to build new cities in the hinterlands isn’t a generally sustainable answer to California’s housing crisis. But the California Forever project does rightly suggest that our solutions must build on the state’s penchant for innovation, capitalism and a distinctly suburban lifestyle.

Joel Kotkin is the presidential fellow in urban futures at Chapman University. Wendell Cox is the principal of Demographia, a public policy consulting firm.

Source: latimes.com

Apache is functioning normally

Another favorable Consumer Price Index report helped to drive mortgage rates down this week, with general expectations growing that the Federal Reserve will not raise rates in December.

The Freddie Mac Primary Mortgage Market Survey for Nov. 16 put the 30-year fixed rate mortgage at 7.44, down from 7.5% a week ago but well above the 6.61% for the same time last year.

The 15-year FRM was 5 basis points lower, to 6.76% from 6.81% a week ago. A year ago, it was at 5.98%.

“For the third straight week, mortgage rates trended down, as new data indicates that inflationary pressures are receding,” said Sam Khater, Freddie Mac chief economist, in a press release. “The combination of continued economic strength, lower inflation and lower mortgage rates should likely bring more potential homebuyers into the market.”

Even though the 10-year Treasury yield had backed down from touching the 5% mark in late October, at the start of this week it had ticked up to just south of 4.7%.

But once the CPI release on Tuesday indicated slower than anticipated growth in inflation, the yields turned downward again as the market became more convinced that the Federal Open Market Committee will not raise rates.

In the aftermath of the release, the 10-year was down to 4.43% on Tuesday. Rates have stayed close to that level, but as of 11:50 Thursday morning it was at 4.47%.

While mortgage rates and the 10-year Treasury move independently of the FOMC’s actions, investors typically bake their expectations into those longer-term instruments.

Data on the Optimal Blue website put the 30-year conforming at 7.409% on Nov. 15, up from 7.338% the previous day. But on Nov. 13, the 30-year FRM was at 7.534%. On Nov. 8, it was 7.444%.

Zillow’s rate tracker had the conforming 30-year FRM at 7.09% mid-morning on Thursday, up 5 basis points from Wednesday but down from last week’s average of 7.25%.

“Federal Reserve officials’ speeches, higher than expected retail sales and inflation data signaled that an immediate Fed policy reversal may not be in the cards just yet,” a Wednesday statement from Orphe Divounguy, senior macroeconomist at Zillow Home Loans, said. “Although inflation is cooling and the market expects that the Federal Reserve may be done raising its policy rate, core inflation is still higher than the Fed’s target.”

But not all the news was bad, Divounguy said. That recent decline in the 10-year yield should ease financial and credit conditions. But increased government borrowing counters that, meaning that monetary policy has to remain in a restrictive phase.

Still, “so long as core inflation continues to move in the right direction, mortgage rates may finally start to level off,” said Divounguy. “Less rate volatility would be welcome news for prospective homebuyers.”

At a recent National Association of Realtors event, the group’s chief economist Lawrence Yun said that with a 4.4% 10-year yield, at a 200 basis point spread, the high end of historic norms, the 30-year FRM really should be at 6.4%. “The bond market is forcing the Fed to pivot.”

But Yun also believes that the Fed Funds Rate as well as mortgage rates, have peaked, but “the question is when are rates going to come down?”

He thinks the 30-year FRM will be between 6% and 7% for the spring 2024 home buying season.

Nigel Green, CEO of international asset management firm the deVere Group, does not think the Fed will raise rates in December.

“However, we believe there will be a sustained period of slower progress than we’ve seen up to this point against inflation in the flight to get it back to the 2% target,” he said in a press release. “Therefore, we except one more hike from the Fed next year to boost that progress a little.”

Redfin, in a Nov. 16 press release, not only states that the Fed is not likely to raise short-term rates this year, it is likely to start reducing them earlier than the markets expect.

The CPI for shelter, a lagging indicator, was up 0.3% from the prior month and 6.7% the previous year, noted Ksenia Potapov, an economist at First American Financial.

“As we head into 2024, rent and house price declines from the past year will increasingly drag down overall inflation,” Potapov said in a statement. “At this point, the Federal Reserve’s greatest inflation-fighting virtue will be patience.”

Marty Green, principal at the mortgage law firm of Polunsky Beitel Green, has believed for some time the Fed was done raising rates in this cycle, and “this report supports that,” he said.

“We expect the Fed to continue to keep their rhetoric about their readiness to raise rates if necessary, but believe, based on the trend of recent reports, that they will see little reason to do so,” Green wrote in an email.

Source: nationalmortgagenews.com

Apache is functioning normally

US mortgage rates are forecast to be higher than expected in the coming year, according to Goldman Sachs Research. Home prices are also projected to increase, even as borrowing costs remain elevated.

As interest rates have risen, 30-year-mortgage rates are now expected to be 7.6% at the end of 2023, up from the previous estimate of 7.1%, Goldman Sachs Research analysts Roger Ashworth and Vinay Viswanathan write in the team’s report. Similarly, the forecast for rates at the end of 2024 now stands at 7.1%, up from 6.8% previously. At the end of 2025, rates are predicted to be 6.6%.

The new forecast for mortgage rates reflects a steeper yield curve (longer-maturity Treasury yields are rising, which tends to increase mortgage rates) and Treasury yield volatility that remains “stubbornly high,” according to Goldman Sachs Research. The latter is keeping spreads (the extra interest a security yields relative to risk-free Treasuries) for mortgage-backed securities wide and is raising funding costs for mortgage originators. Over the past six months, the secondary market for MBS has begun to price in mortgage rates that stay “higher for longer.”

US home prices are forecast to climb

Meanwhile homes have appreciated despite the rise in borrowing costs: Prices grew in August by 0.9% month-over-month, reflecting an annualized 11% pace, according to Case-Shiller data. “The continued strength of the data surprised us,” Ashworth and Viswanathan write. Goldman Sachs Research expects home prices, adjusted seasonally and accounting for the full year, to appreciate 2% in 2023, 1.9% in 2024, and 2.8% in 2025.

Home prices have been buoyant amid tight supply. When it comes to existing homes, the inventory available for sale is historically low. New listings are being added at the slowest pace on record. And while new home inventory continues to rise statistically, most of this new inventory is still under construction.

Persistently higher interest rates are expected to dampen mortgage origination. Our analysts forecast $1.5 trillion in mortgages will be originated in 2024 — a figure similar to their full-year projection for 2023 — before rising slightly to $1.8 trillion in 2025. Meanwhile homeowners looking to sell their houses and buy new ones face the daunting prospect of having to prepay their current mortgages and take out fresh mortgages at today’s higher rates. This “lock-in” effect is projected to depress sales of existing homes to 3.8 million in 2024, the lowest level since the early 1990s, according to a separate report from Goldman Sachs Research.

US housing has become much less affordable

“An unfriendly byproduct of our forecasts for resilient home prices and limited rates relief is enduringly poor housing affordability,” Ashworth and Viswanathan write. The Goldman Sachs Housing Affordability Index touched a record low in late 2023, and is expected to improve only gradually over the next three years.

Affordability issues could explain why rent growth has been stronger than home price growth over the past 12 months, based on Zillow estimates. The payment gap between new mortgages and new rental leases has grown considerably across geographies (largely a function of mortgage rates), potentially encouraging first-time homebuyers to hold off purchasing a home.

“While rental affordability is also challenging in absolute terms, the stark deterioration in mortgage affordability has made renting more compelling for potential homeowners,” Viswanathan writes in a separate report.

This article is being provided for educational purposes only. The information contained in this article does not constitute a recommendation from any Goldman Sachs entity to the recipient, and Goldman Sachs is not providing any financial, economic, legal, investment, accounting, or tax advice through this article or to its recipient. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the statements or any information contained in this article and any liability therefore (including in respect of direct, indirect, or consequential loss or damage) is expressly disclaimed.

Source: goldmansachs.com

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Mortgage Q&A: “Is now a good time to refinance my home?”

If you’re one of the few people asking this question right now, the short answer is most likely no.

And the reason it’s a no is because mortgage rates have skyrocketed over the past 18 months or so.

But like everything else in the mortgage world, the answer does depend on the situation.

Not everyone has the same mortgage rate, nor do they have the loan product, or the same needs.

Very Few Homeowners Benefit from a Refinance Right Now

  • A refinance typically only makes sense if you can obtain a lower mortgage rate in the process
  • This is very difficult to accomplish at the moment with rates averaging 7%+
  • Most homeowners already refinanced a couple years ago when rates were priced around 3%
  • Refinancing will make sense again once rates fall and/or more borrowers take out mortgages at today’s higher rates (giving them a future refinance opportunity)

First things first, there are two main mortgage refinance options available to homeowners, including the rate and term refinance and the cash out refinance.

There is also the streamline refinance, which is a fast-tracked type of rate and term refinance.

For simplicity sake, a rate and term refinance allows a borrower to lower their interest rate, change their loan term, and/or switch loan products.

The cash out refinance allows a borrow to tap their home equity and perhaps change their rate, term, and loan product as well.

At the moment, very few borrowers are applying for rate and term refinances because interest rates aren’t favorable.

Conversely, everyone and their mother was applying for one back in 2020 and 2021, when mortgage rates hit record lows.

This made perfect sense because you could swap your existing 4-6% mortgage rate for one in the 2-3% range, or even in the 1% range if it was a 15-year fixed mortgage.

Rate and Term Refinances Are Virtually Nonexistent

Times have changed, and now that mortgage rates are closer to 7%, there’s very little reason to pursue a rate and term refinance.

A new report from ICE revealed that only about 5,500 rate and term refinances have been originated per month, on average, over the past year industrywide.

To put that in perspective, there have been roughly 650,000 rate and term refis funded each quarter going back 15 years.

Today, it’s closer to 16,500 per quarter, which is record low territory. It’s also a pretty clear sign that a rate and term refinance doesn’t make sense for most people.

As a rule of thumb, if you can’t lower your existing mortgage rate by say 1% or more, it doesn’t make sense given the closing costs, the time, and the hassle.

And resetting the clock on your mortgage in the process. So unless your current mortgage rate is say 8.5% or higher, it likely doesn’t make sense.

The one caveat is someone who is removing a co-borrower or spouse from their loan out of necessity. But even this is being avoided if at all possible due to the great rate disparity today.

The bulk of these types of refinances is coming from legacy vintages, aka older home loans.

Eventually when interest rates fall, those with today’s 7-8% mortgages will make up the bulk of rate and term refis.

[When to refinance a home mortgage]

The Cash Out Refinance Share Is Nearly 100%

On the other side of the coin, we’ve got a cash out refinance share that has hit record highs lately.

Per ICE, it grabbed a staggering 96% market share in the fourth quarter of 2022, the highest level on record, and hasn’t really changed much since then.

Ultimately, the only reason to refinance a mortgage right now is to tap equity, often because the homeowner needs cash.

This explains why virtually every refinance originated today includes cash back to the borrower.

Because most homeowners have very low mortgage rates, often locked in for the next 30 years, there has to be a compelling reason to give that up.

And that reason is a dire need for cash, even if it means losing their ultra-low mortgage rate in the process.

But while the cash out share is extremely high, the volume of cash out refinances remains low relative to prior years.

Despite tappable equity being close to its 2022 highs, less than $8B was withdrawn from the housing market via a cash-out refinance in August.

While it might sound like a large number, it’s about 70% below the highs seen last year, a consequence of those higher interest rates.

In other words, the overall volume of cash out refis is also way lower than it has been in past years, again because of the high mortgage rates available.

Instead, those who need money are likely opening a second mortgage, such as a HELOC or home equity loan.

Both options allow the homeowner to keep their first mortgage untouched, meaning they don’t lose the low fixed rate.

[How to Lower Your Mortgage Rate Without Refinancing]

Who Would Refinance Their Mortgage Today?

So let’s walk through some different scenarios to see who, if anyone, could benefit from a refinance right now.

Imagine a homeowner who purchased a $500,000 property in 2021 when 30-year fixed mortgage rates were 2.75%.

The property is now worth $600,000 and they want cash to pay for other expenses.

There’s basically no way they’re going to give up their 2.75% rate, so a second mortgage would be the only deal that made sense.

Now imagine a homeowner who purchased a property for $300,000 in 2004 that is now worth $650,000. They need cash and their remaining mortgage balance is only around $130,000.

They might consider refinancing and pulling out cash because their existing loan is small and their old rate may have been 6% anyway.

It might not be ideal, since they were only a decade from being free and clear, but at least they aren’t giving up a low rate on a big loan balance. And again, they need cash.

When it comes to a rate and term refinance, we’ll likely need mortgage rates to come down a bit more from current levels to appeal to recent home buyers.

If these buyers have been taking out mortgages with rates in the 7-8% range, it’s possible they’ll be able to save money by swapping the old loan for a new one at say 6%.

In the meantime, homeowners can pay extra each month to reduce the interest expense, assuming they have the means to do so.

Read more: Alternatives to Refinancing a Mortgage

Source: thetruthaboutmortgage.com

Apache is functioning normally

Screening tenants, especially their financial situation, is the most critical part of operating a rental property. To make sure tenants can pay their rent on time each month, you should run an employment and credit check. Then, you might have to decide whether you’re open to renting to tenants with bad credit.

As a rental property owner, you expect tenants to pay their rent on time each month. Even if a tenant doesn’t have a stellar credit score, that doesn’t necessarily mean you shouldn’t rent to them, particularly if other aspects of their application are a good fit. Here are a few things to remember when renting to tenants with bad credit.

Do I have to rent to someone with bad credit?

It’s up to property owners to pick their tenants. So, you may want to require tenants have a minimum credit score. In many ways, a good credit score signals that an individual is creditworthy and financially responsible, which likely means they can afford to pay rent. However, you might not want to completely avoid renting to a tenant with bad credit.

People have bad credit for many reasons. It doesn’t always mean they haven’t paid their bills in the past or that they’re irresponsible with money. If the renter applicant otherwise looks perfectly suited for your home, you can require a higher deposit or a co-signer to compensate for the poor credit score.

Do most landlords do credit checks?

As part of the tenant screening process, it’s essential to run a credit check. The reports offer a glimpse into the individual’s financial history, including their bill-paying past and whether there are any financial judgments against them.

If someone has a good credit history, they’ll likely consistently pay their rent on time. If someone has a history of late or missed payments, this behavior may continue. In these cases, property owners should dig a little deeper before renting to tenants with bad credit.

What is the lowest credit score to rent a house?

Credit scores range from 300 to 850, according to the credit bureau Experian. Here’s what’s considered a good and bad credit score:

  • Exceptional: 800-850
  • Very good: 740-799
  • Good: 670-739
  • Fair: 580-669
  • Poor: 300-579

It’s up to you to decide the minimum credit score that’s acceptable to you. But many landlords set 600 as the lowest score to rent a house.

Things to remember when renting to tenants with bad credit

Even if an applicant has a negative credit score, that doesn’t always mean you shouldn’t rent to them. Here are some things to remember when renting to tenants with bad credit:

1. Understand the reason for the bad credit score

Credit scores come from various factors, including payment history, account balances, length of credit, types of credit accounts and recent activity on these accounts. But, many different things affect these elements.

For example, if someone is a recent graduate or just moving out on their own, they likely haven’t built up a solid credit history, which could show up on their credit report as a low score. Financial changes from getting a divorce, incurring large medical bills or being a victim of identity theft can also ding someone’s credit.

Communicating with the applicant about why their credit score is low is crucial. It will help you understand their situation and build a trusting relationship. The more information you have, the more informed decision you can make.

2. Get proof of income

The screening process should include verifying the applicant’s income. If someone has a steady job with a decent salary, it could overshadow their poor credit score and set your mind at ease about their ability to pay rent.

Ask for pay stubs and contact information for their employer to find out how long the person has worked there and to verify their salary. Make sure their income is at least three times the monthly rent to ensure they can afford it.

3. Check rental history

An applicant’s behavior with previous landlords are a telling sign of how they’ll be with you. If the individual is renting somewhere else, ask for rent receipts showing that they’ve paid on time each month.

Contact previous landlords, as well, to learn more about their rental history. Find out what type of tenant they were, whether they followed the lease, paid rent on time and if they got evicted. If past landlords don’t have good things to say, it’s a good idea to move on to another renter.

4. Charge a higher deposit

Banks often charge people with lower credit scores a higher interest rate to protect themselves against the risk. So, you might want to consider doing something similar.

Increasing the deposit amount could lower your risk of tenants defaulting on their rent payments. If your typical deposit is one month’s rent and a security deposit, increase it to two months’ rent and a security deposit. Make sure whatever you charge aligns with local landlord-tenant laws, which may set caps on security deposits or other fees.

5. Require a co-signer or guarantor

Another option for renting to tenants with bad credit is to ask them to have someone with good credit to co-sign or act as a guarantor on their lease. If you’re not sure of the difference between a co-signer and guarantor, here’s an overview:

  • A guarantor is usually a family member or friend who agrees to take on the responsibility of paying rent or covering property damage if the tenant can’t. Guarantors sign the lease but usually don’t live in the home.
  • A co-signer is often a roommate and signs the lease with the right to occupy the home. The co-signer agrees to share the responsibility for the rent, fees and damage. They may contribute to the monthly rent and are responsible for paying when the tenant can’t.

If you allow a co-signer or guarantor, you’ll need to check that person’s credit history and proof of income, as well.

6. Use a shorter lease

The term for most rental lease agreements is one year. Offering a shorter lease term, such as three or six months, is an option for renting to tenants with bad credit. A shorter lease gives the tenant the opportunity to prove they can pay rent on time and protects you in case they can’t by ending the tenancy within a short timeframe.

If everything works out after the shortened lease ends, you can ask the renter to sign a year-long lease.

Renting to tenants with bad credit

Renting to tenants with bad credit is risky. You’re not sure of their financial situation and whether they’ll pay rent. But automatically discounting these tenants because of their poor credit might be a mistake.

If the individual meets all your other requirements and seems like a good fit, consider charging a higher deposit or relying more on proof of income. The tenant will appreciate your willingness to work with them since renting a home with bad credit is challenging.

Categories: Landlords

Source: rent.com

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When you’re planning a trip, looking at travel insurance is usually a good idea. That said, Global Rescue isn’t really travel insurance in a traditional sense. It doesn’t require you to file a claim, pay a deductible or request a reimbursement of upfront costs. The services provided are covered once you pay the membership fee, so you don’t need to pay anything upfront in case of an emergency.

If you’re traveling to a place with fewer medical facilities, less infrastructure or a chance for civil unrest, a travel insurance policy from Global Rescue could provide help. Here’s a look at Global Rescue travel insurance, how it works and what’s covered if you become a member.

What is Global Rescue?

Since 2004, Global Rescue has provided medical, security and crisis management services to travelers, including things like field rescue, medical evacuation and 24/7 emergency assistance. Services are provided in the field by health care and security professionals. They also include a pre-departure destination report, which includes entry requirements, health and security assessments and required immunizations.

There are some positives and negatives to this type of coverage. Here’s an overview:

Pros

  • Short-term and annual coverage available.

  • COVID-19 emergencies are covered.

  • No activity restrictions.

  • Exclusive partnership with Johns Hopkins Department of Emergency Medical Division.

Cons

  • Security evacuations aren’t included in countries on the Do Not Travel list.

  • High cost.

  • Standard travel insurance benefits such as trip cancellation, baggage loss and rental car coverage cost extra.

What does Global Rescue membership cover?

Traditional travel insurance covers you financially if something unexpected — like an overnight delay, lost luggage or a medical emergency — disrupts your trip. This is typically done in the form of a reimbursement after the fact. Global Rescue provides boots-on-the-ground help in case of an emergency, instead of reimbursing you for the cost.

For example, if you have a scuba diving accident in Fiji, contract malaria in Nigeria or break your ankle on a hike in Peru, you’ll be rescued by a highly skilled team. Lose your passport or run out of prescription medication? You’re covered as well.

Global Rescue provides the following services to its members:

  • Worldwide field rescue.

  • Evacuation and advisory services.

  • Pre-departure destination reports.

  • Real-time safety notifications.

  • No activity restrictions.

  • No mileage requirements.

  • No COVID-19 restrictions.

  • Security upgrade (optional).

  • High-altitude evacuation upgrade (optional).

  • Emergency assistance 24/7/365.

“Field rescue” means Global Rescue will send help if you’re injured, in danger or unable to get to a hospital. This doesn’t necessarily mean the closest hospital, either. If you need to go home to your preferred medical facility, it can be arranged.

“No activity restrictions” means that you can participate in high-risk sports, such as hang gliding or BASE jumping — which are usually excluded from most travel insurance plans — and still be covered. Unlike most travel insurance policies, you don’t have to be more than 100 miles from home for the coverage to kick in.

If you choose to add on the security package, Global Rescue has experienced nurses, paramedics and veterans of military special operations on staff. They will bring you to safety in case of civil unrest, a natural disaster or a war if there is risk of bodily harm. High-altitude evacuation is another optional add-on that provides services to members who require medical attention above 15,000 feet.

Because Global Rescue isn’t a travel insurance provider, self-arranged medical treatment or rescue services won’t be reimbursed. However, you do have the option to purchase Global Rescue’s travel insurance add-on, which is available through IMG. This policy provides traditional travel insurance benefits, such as trip cancellation, trip interruption, baggage delays and rental car damage and theft. It also covers medical expenses up to $100,000.

Global Rescue membership types

Global Rescue is available to residents of any country, and you can purchase it for short-term coverage or annually.

Short-term plans cover periods of seven, 14 or 30 days. To purchase an annual plan, you’ll be asked for the duration of your longest trip in the coming year. Options range from 45, 90, 180 or 365 days.

Additionally, you can cover yourself or your whole family. Family memberships are extended to the primary member, their spouse or domestic partner and up to six children younger than 26.

Special memberships are also offered for students and older adults. Student memberships are available to full-time students younger than 35. Extended Travel memberships are available to travelers from 75 to 84 years old, and TotalCare Silver memberships are available for those ages 85 to 99.

Global Rescue membership cost and coverage

Here’s how much Global Rescue membership costs based on various parameters, such as number of travelers (individual or family), length of trip and add-ons.

The example below is how much a Global Rescue membership would cost for a single traveler or a family without adding a security package or high-altitude evacuation upgrade.

Length of a trip

Single traveler

7 days (short-term).

14 days (short-term).

30 days (short-term).

45 days (annual).

90 days (annual).

180 days (annual).

365 days (annual).

Here’s how much a membership costs for a single traveler or a family with a security package and high-altitude evacuation upgrade included.

Length of a trip

Single traveler

7 days (short-term).

14 days (short-term).

30 days (short-term).

45 days (annual).

90 days (annual).

180 days (annual).

365 days (annual).

Who is Global Rescue membership for?

Although Global Rescue advertises to leisure travelers and extreme adventurers, a membership most likely best suits adventure travelers — those who visit off-the-beaten-path destinations, participate in high-adrenaline activities and need more coverage than regular travel insurance provides. It can also be for travelers who are heading to countries that are politically unstable or lacking basic infrastructure.

But its price tag might deter casual travelers, especially families, from enrolling.

How to get a Global Rescue membership quote online

You’ll need to visit the Global Rescue website to get a price estimate. On the home page, there is a form to fill out for a price estimate. Make your selections to receive a quote.

Select who the membership is for — yourself or family. Decide if you want an annual or short-term membership. Then, select the trip duration and whether you’d like to add the security package or high-altitude evacuation upgrade. After you’re done, the estimate will appear immediately.

What isn’t covered by Global Rescue travel insurance?

A standard Global Rescue membership doesn’t include usual travel insurance benefits, such as:

However, you can get this coverage by purchasing an IMG Signature Travel Insurance plan.

Is a Global Rescue membership worth it?

Seeing that you’d have to pay a premium for a Global Rescue membership, only you can decide whether it’s worth it for you and your family.

It’s certainly nice to have medical professionals and former military members in your corner when things go wrong, but you’ll likely have to purchase both traditional travel insurance coverage and a Global Rescue membership to cover all the bases. In any case, it could be worth looking into, especially if your travels take you to extreme destinations.

How to maximize your rewards

You want a travel credit card that prioritizes what’s important to you. Here are our picks for the best travel credit cards of 2023, including those best for:

Source: nerdwallet.com

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The decision whether to seek debt forgiveness can have serious consequences for taxes and credit standing. This article is not intended as legal advice for your specific circumstances and does not create an attorney-client relationship with Lexington Law.

Debt forgiveness occurs when a lender forgives either a portion of or the entire debt owed by a borrower from a loan or credit account.

Debt forgiveness occurs when a portion of a loan or the entire remaining amount of a loan or credit line is canceled, relieving the borrower from the obligation of repayment. Before moving forward with debt forgiveness, it’s important to consider the potential benefits and drawbacks so that you’re fully prepared.

It’s also important to note that debt forgiveness differs from debt relief, which involves reorganizing debt to facilitate repayment—but doesn’t cancel the debt.

Continue reading to learn more about debt forgiveness and explore different options that you may qualify for.

Debt forgiveness benefits

Debt forgiveness can provide relief to those who are struggling to make payments, and it has the following benefits:

  • You can avoid filing for bankruptcy: Debt forgiveness can prevent the need to file for bankruptcy, which would severely damage your credit for up to seven to 10 years.
  • You can pay less than your original obligation: While the amount you’ll pay varies depending on the program you choose, it is typically much less than the amount you originally owed.
  • You can pay your debts quicker: Through debt forgiveness, you can significantly reduce your debt in a much shorter time frame than you initially expected.

Debt forgiveness drawbacks

On the other hand, debt forgiveness has the following downsides that you should be aware of:

  • You may owe taxes on the amount that’s forgiven: In general, canceled debt is considered taxable income that you may be responsible to cover.
  • You could owe more than your original obligation: Many debt relief companies charge excessive fees that could equal or exceed the amount you originally owed. Additionally, it’s important to change your financial habits so you don’t continue to rack up debt.
  • Your credit may take a hit: Depending on the type of debt that’s forgiven, you could notice a negative effect on your credit. However, this will likely not be the case if the debt in question is student loans or medical bills.

Because of these drawbacks, you may want to consider other debt management options.

Debt forgiveness vs. debt consolidation

An alternative to debt forgiveness that you may want to consider is debt consolidation. While this method doesn’t cancel the debt, it can help you pay it off faster and accrue fewer interest charges.

One of the most common debt consolidation methods is a balance transfer, which involves moving debt to a new credit card that offers 0% APR for a few months. During this time, you can work to pay off your debt without racking up interest.

Other options include taking out a personal loan or home equity loan to pay off your debt. The strategy here is that your new loan would have a lower rate than that of your current debt, allowing you to save on interest

Just be wary of for-profit companies that promise debt relief via consolidation, as they’re often pricey. Instead, look to nonprofits such as the National Foundation for Credit Counseling.

How to get debt forgiveness

If you’re moving forward with debt forgiveness, you have a few options depending on loan type and your overall personal and financial situation.

Federal programs

One of the few ways to get true debt forgiveness without consequences is to see if you’re eligible for a special program. Typically, these are only offered for student loan debt and home mortgages:

  • Student loan forgiveness: In mid-2023, student loans totaled $1.7 trillion. To help alleviate this, the Public Service Loan Forgiveness (PSLF) program provides Direct Loan forgiveness for full-time workers of U.S.-based or non-profit organizations who have made 120 qualified monthly payments. Another type of student loan forgiveness is income-driven repayment plans, which forgive the remaining loan balance at the end of a repayment period. Thirdly, if you’re a teacher, you may be eligible for a Teacher Loan Forgiveness program.
  • Mortgage debt forgiveness: The Mortgage Forgiveness and Debt Relief Act, enacted in 2007, lets eligible borrowers exclude up to two million dollars in forgiven mortgage debt from their taxable income. This allows forgiven mortgage debt and foreclosure balances to be truly penalty-free.

You may be eligible for other federal programs to help manage debt. To explore your options further, the Federal Trade Commission has guidelines for getting out of debt.

Settlement

Settlement is by far the most common form of debt forgiveness. It’s the process of negotiating your debt to only repay a portion of your outstanding balance. The rest is forgiven, meaning repayment is not necessary.

Borrowers tend to choose debt settlement if they can’t afford expensive and persistent debt payments. They may also choose this route as an alternative to declaring bankruptcy, since debt settlement should only stay on your credit report for seven years.

However, it’s important to watch out for hefty fees from these companies. If hiring a debt settlement agent is beyond your means, keep in mind that negotiating on your own is an option. First, you’ll need to determine your outstanding balance and what monthly payment you can afford. Next, contact your creditor. You’ll need to explain why you can no longer afford the loan and then negotiate a lump sum. If they agree, ask for a written letter so you have legal proof of the settlement.

Statute of limitations

If you’re seeking debt forgiveness for credit card debt, you may be able to leverage the statute of limitations (SOL) in your state. The SOL is applicable once a certain amount of time has passed (typically three to 15 years depending on what state you live in) and your debt collector hasn’t pursued debt collection in court. After this time frame, they have no legal claim to your money, and they should no longer be able to successfully sue you to collect the debt. However, this approach is risky for a number of reasons.

SOL start to accrue after the date of last activity, which includes payments and charges. After your SOL expires, a lawsuit can still be filed against you—but you can use the SOL as a defense in court.

Bankruptcy

Filing for bankruptcy is an option and that decision will remain on your credit report from seven to ten years. That said, it may help forgive some of your debt.

If you file for Chapter 7 bankruptcy, your debt is forgiven and some of your assets remain with you subject to certain state and federal exemptions.

If you file for Chapter 13 bankruptcy, you’re still required to pay off your debts. However, the court will assign you a payment plan spanning anywhere from three to five years, and they may reduce your outstanding balance to lessen the financial burden.

What are the consequences of debt forgiveness?

After you have a portion of your debt forgiven, you may feel like you’re out of the woods—and for the most part, that’s true. However, there are a few circumstances you’ll need to be aware of so that you’re prepared for the effects debt forgiveness may have on your finances.

Taxes

No matter which debt forgiveness route you take (with the exception of bankruptcy), you’ll likely end up with a higher taxable income. If the amount of forgiven debt exceeds $600, you’ll receive a 1099-C form titled “Cancellation of Debt” from the creditor.

With this form, you report the amount of your forgiven debt to the IRS and pay income tax on it. When you first take out a loan or borrow money, you’re not charged taxes on it because there’s the assumption that you’ll pay it back. But after debt forgiveness, that assumption no longer applies, which is why this essentially “free money” is now considered taxable income.

The upside is that the income tax you owe on the forgiven debt amount is less than what you would have to pay if you still owed the debt. Make sure to plan for this expense so that it doesn’t surprise you, especially if the forgiven amount is sizable.

Consider contacting a qualified tax professional for help accurately filing your taxes. Then, once you properly report your debt forgiveness to the IRS, you’ll want to check your credit report.

Credit score

The unfortunate reality is that debt forgiveness may negatively affect your credit score. Of course, there is no way to say for sure. What will improve is your debt to income ratio.  The effect to which debt forgiveness impacts your credit largely depends on how you choose to seek debt forgiveness.

Bankruptcy can be the most devastating option for your credit score. According to Debt.org, a FICO score of 780 could take a 240-point dip, and a score of 680 could take a hit of 130 – 150 points. If your credit score is much lower than 680, you may not see as large of a dip. However, if you have no late payments or charge off on your credit report prior to filing bankruptcy, your score dip is far less.

Debt forgiveness provides a much-needed solution for borrowers struggling to make payments. However, it also comes with conditions. When considering which debt management plan is right for you, a little careful planning can go a long way.

If overwhelming debt has caused your credit to dip below where you’d like it to be, see if we could help. We can take a look at your credit report and assist you with moving forward.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Reviewed By

Nature Lewis

Associate Attorney

Before joining Lexington Law as an Associate Attorney, Nature Lewis managed a successful practice representing tenants in Maricopa County.

Through her representation of tenants, Nature gained experience in Federal law, Family law, Probate, Consumer protection and Civil law. She received numerous accolades for her dedication to Tenant Protection in Arizona, including, John P. Frank Advocate for Justice Award in 2016, Top 50 Pro Bono Attorney of 2015, New Tenant Attorney of the Year in 2015 and Maricopa County Attorney of the Month in March 2015. Nature continued her dedication to pro bono work while volunteering at Community Legal Services’ Volunteer Lawyer’s Program and assisting victims of Domestic Violence at the local shelter. Nature is passionate about providing free knowledge to the underserved community and continues to hold free seminars about tenant rights and plans to incorporate consumer rights in her free seminars. Nature is a wife and mother of 5 children. She and her husband have been married for 24 years and enjoy traveling internationally, watching movies and promoting their indie published comic books!

Source: lexingtonlaw.com