With 2021 set to offer unprecedented opportunities for savvy real estate investors, here’s why instant property condition assessments could separate this year’s biggest winners from the also-rans.
On the one hand, low interest rates have fueled record home sales as legions of remote workers flee condos and apartments looking for deals on bigger digs in Zoom towns like Truckee, CA and Sandpoint, ID. According to the National Association of Realtors, home sales could jump another 10% or more this year.
At the same time, distressed loans are proliferating. As of last month, as much as 5.2% of all mortgages were in forbearance, impacting more than $547 billion in loans, according to real estate data firm Black Knight.
In the coming months, these convergent dynamics could play out in any number of ways. Rising home prices and higher mortgage rates are likely to put a squeeze on the Millennials propelling the current home buying surge. In turn, this likely to further bolster rental prices for single-family homes.
Meanwhile, an inevitable end to mortgage relief measures could create investment opportunities not seen since the financial crisis. And those with the best intelligence stand to win big.
The problem: real estate, mortgage companies, and other investors spend trillions of dollars a year on antiquated valuation approaches that either miss key data elements or are subject to human error. Whatever 2021 has in store, these and other collateral stakeholders will need to make real-time transaction decisions with trading-quality accuracy.
And that’s where instant property condition assessments could be a real game-changer.
Property Condition Assessments in the Blink of AI
Remote property inspections have gained new urgency due to the pandemic. But the limits of smartphone photos and drive-by inspections have served to turbocharge the adoption of modern property intelligence solutions powered by AI and geospatial analytics.
Our own solution, for example, leverages high-resolution geospatial imagery and applies computer vision to extract structured data from the visuals. Think the size of the property, type of roof construction and its condition, the presence of solar panels, whether there are overhanging trees, and whether the property has a pool, yard debris, and much more.
Through modern machine learning and advanced analytics, the solution provides instant access to property condition data on 110 million buildings across the US with a level of accuracy and detail that otherwise require a fastidious onsite inspection. And it delivers it with the speed and coverage of traditional property record data.
Given the combustible mix of market conditions that have to be factored into investment, underwriting, and loan trading decisions this year, one thing seems clear. Technologies that are able to produce instant property condition assessments could help tech-forward investors and others transform three key facets of real estate investment in 2021.
Loan Investment, Origination, and Underwriting
Technologies that enable access to instant property condition assessments, delivered via API and integrated with existing workflows, augment traditional data with additional condition variables that can bring significant lift to valuation and pricing models for better-informed decisions on loan investments, origination and underwriting, and more.
But that’s only if that information is accurate. The geospatial imagery available from most public sources is outdated and comparatively low-res—typically in the neighborhood of 50 cm Ground Sampling Distance (GSD).
General property information such as house footprint and vegetation coverage may be identifiable using this kind of imagery. But in our experience, far higher resolution imagery is essential to identifying more granular details—driveway cracks, landscaping, roof condition, and more. And advanced analytics and deep learning capabilities are needed to evaluate each property in a couple of seconds instead of days.
What’s more, technical advances from leading imagery providers are likely to blow past what’s currently possible in the very near future. As the number of satellites and planes continues to rise and camera technology continues to advance, so too will the profound benefits aerial imagery brings to decisioning in the world of real estate.
Investing in Single-Family Rentals (SFR)
Billions in capital invested over the past year reflects a growing consensus that demographic trends and the persistent housing crunch favor continued growth in the SFR market. According to the Urban Institute, there will be five new renters for every three homeowners through 2030.
Whether investors are exploring a single property or shopping citywide, regionally, or even nationally, instant property condition assessments can help them dramatically improve the valuation and selection of real estate investments and increase investor upside.
Returning to Cape Analytics again as an example, our infrastructure can provide address-level data instantly and at scale, as well as aggregations, up to the census tract, zip code, or CBSA to help zero-in on promising investments and uncover trends that may otherwise go unnoticed—or get plucked up by nimbler competitors. Without geospatial AI working at scale and across time, it’s nearly impossible to understand condition trends at the neighborhood-level.
Distressed Loan Trading
The nascent Biden administration has directed federal agencies to extend forbearance protections for their mortgage borrowers through June. There’s little doubt that will be extended again, but the likely phasing out of such measures later in the year has the market preparing for a substantial increase in distressed loan trading.
To optimize earnings, traders will need to find ways to improve their ability to make buy/sell decisions quickly—effectively remove outlier properties in due diligence, and choose the best disposition path for each loan. Appraisals and broker price opinions (BPOs) won’t cut it on either front.
As we wrote about recently, the greater the credit risk of a given mortgage, the more critical the value of the collateral behind a loan. When it comes to non-performing assets, property condition isn’t just a core consideration—it’s foundational.
Banking on Uncertainty
Investors have always had a keen appreciation for the fact that with crisis comes opportunity. But they’ve never seen a year quite like the last, nor like the one ahead.
With their ability to convert aerial imagery into structured data, modern AI and computer vision technologies are turning otherwise hard to attain intelligence into actionable insights that can give the upper hand to investors who harness their power.
Indeed, for certain segments of the market, “instant image insight” reports are likely to prove pivotal, no matter what twists and turns 2021 throws our way.
To learn more about instant property condition assessments and how solutions from Cape Analytics can enhance your internal real estate and mortgage analytics, click here.