JF1218: Using Algorithms & Data To Find Great Deals with Daren Blomquist
Another great episode to set yourself up for success in 2018. Daren works for ATTOM Data Solutions, a company that tracks real estate data for their customers to use however they wish. The major take-away from this episode (besides knowing how to access and use their data) is that their data shows we are still in an upcycle, with high demand for more supply. Daren says that this may be a great time to sell if you have property you have been holding for some time. We’ll hear more specific market reports from Daren including which markets have great returns,and which ones have become more expensive and less attractive to investors. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Daren Blomquist Background:
– Senior Vice President of Communications at ATTOM Data Solutions (formerly RealtyTrac)
– Directs ATTOM Media, a division that publishes original real estate reports sourced from the ATTOM Data Warehouse
– ATTOM Data Warehouse, the nation’s most comprehensive property database
– Executive editor of the Housing News Report, a monthly newsletter published by ATTOM Data Solutions
– Based in Orange County, California
– Say hi to him at: https://www.attomdata.com
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluff. With us today, Daren Blomquist. How are you doing, Daren?
Daren Blomquist: I am doing great, thanks for having me on the show.
Joe Fairless: My pleasure, nice to have you on the show. Best Ever listeners, we have a special segment, because Daren has a special skillset. The skillset that he has and his company has is identifying how to use data to track the market and see what we should do at any point in time, and also to find some deals.
Daren is the senior vice-president of communications at Attom Data Solutions, which is a division that publishes original real estate reports sourced from their data warehouse. Their data warehouse is an incredibly comprehensive property database. He is based in Orange County, California, and you can learn more about their company at their website, which is in the show notes link – it’s attomdata.com.
With that being said, Daren, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Daren Blomquist: Sure. I’ve been with Attom Data Solutions, which was previously – some of your listeners may recognize the name Realty Track… We were previously known as Realty Track, since 2001. I’ve been here a long time, I’ve been here for 16 years basically, and joined answering phones for customer service, talking to real estate investors – that was my training, and it was a great training – who were using our data to find deals. That’s where I got started, and really my background education was in communication, so eventually as Realty Track started growing I was able to start taking on that role of taking this data, and — part of our mission here at Attom is to increase transparency in the real estate market.
My job is to take the data and create reports out of that that it helps to increase transparency in the real estate market. The one that we were known for for a long time was the foreclosure report, because nobody else was tracking data… Most of the data you see out there about the real estate market tends to want to always put a positive spin on real estate, in terms of “Things are always rosy, even if…” – anyway, I won’t get into that too much unless you want to, but we were willing to say, “Look, we don’t just wanna talk about the good, we wanna talk about the reality in the real estate market”, and foreclosures was a part of that.
So it’s really a fun job to be able to dig into the data, and of course, that helps me in my own personal real estate investing experience, which I do as well; that’s been a big help. But I would say a huge piece of my learning curve early on was talking to these real estate investors, and this was back in another housing boom… The market goes through cycles, and you can use data in any cycle to help you invest and find good deals, and that’s one of the things that I’ve learned over the years. But back then it was another boom cycle, there were certain strategies and data that investors were looking at to find those deals; during the down cycle it was different. Now we’re in another up cycle, but the common thread there is that there’s always deals available and there’s always ways to make money in real estate. You need to be aware of what cycle you’re in to employ the correct strategy to do that.
Joe Fairless: I’m gonna take your word for it that you all have a bunch of data, because I’m sure that some listeners are shaking their heads, “Yeah, they do. We’ve worked with them.” Okay, so you’ve got a bunch of data… We don’t have to get into the nuts and bolts of that; what I wanna know is since you have access to all this data, how do you determine what to do with it?
Daren Blomquist: It’s a massive database. Just to throw out a couple numbers, we basically have what’s called tax deed and mortgage data on 150 million properties nation-wide, which is most of the properties in the U.S.
Joe Fairless: How many?
Daren Blomquist: 150 million. That is over 90% of the country in terms of housing units and population. And we have basically all the public record data. If you went down to the county to research a property, all the data that you would pick up, looking at all the mortgages, the deeds, the tax assessor information; of course, the foreclosure information we’re tracking as well. And what we decide to do with it – that’s a great question. A lot of it comes from our customers. We listen to what our customers are looking for and what they’re interested in, and that helps us inform what we should be looking for in the data.
We have clients from real estate investors – individual real estate investor are using our data to find deals – to massive Fortune 500 companies who are ingesting our whole database in-house and giving it to their data scientists to analyze for creating algorithms and machine learning and artificial intelligence to help them inform their business, and their business may not always be directly related to real estate. We have government agencies using the data.
To be honest, that gives us a lot of information on, “Okay, what reports do we need to be publishing out into the universe that help increase real estate transparency?” And we’ll see sometimes just looking through the records of data, you see something that sparks your interest, and that a lot of times is what sets off a report.
I’m trying to think of an example… One report that we did about a year ago, but I just saw there’s still media talking about it is the gender gap in housing. Part of the data we’re able to see is whether in the tax assessor data whether a man or a woman is identified as owning the property and looking at trends in that. That’s one of the reports we did.
One of our most popular reports now is home flipping, and that arose out of — a lot of our customers were flipping homes, and they wanted insight into the trends, not just their local market or their local experience in flipping homes, but what was the higher level trends, and that’s become a very popular report for us, as well.
Joe Fairless: What are some of the components of that report, the house flipping one?
Daren Blomquist: Home flipping report – we look at just trends in the number of homes being flipped, the home flipping rate as a share of all sales, how saturated that market is with home flippers, the number of actual flippers, if you’re looking at your competition… The gross yield – we don’t know how much flippers are spending on rehab, but we know what they bought it for and what they sold it for, so that kind of gross yield they’re getting out of the home and what markets have the highest opportunity for gross yields.
Then actually an increasingly important component for certain of our clients is how flippers are getting their financing, if they’re paying with cash when they buy these homes; we are seeing an increasing trend in flippers utilizing financing to buy the homes that they’re flipping.
Joe Fairless: And when you look at, say, the number of actual flippers, do you compare that to previous reports and then have a trend for increase/decrease or staying the same?
Daren Blomquist: Absolutely. That’s part of the story of [unintelligible [00:09:18].23] looking at data to help understand what part of the housing market cycle you’re in, and flipping is one component of that… And yes, we compare it to previous years.
We’re in a place where home flipping in 2016 was at a 10-year high, but it was still dwarfed by the number of home flips we saw back in 2004, 2005, 2006. There’s still a lot more. So we are in an up cycle, but we’re not in a frenzied cycle, the crazy Wild West frenzy that we were seeing back in 2004, 2005, 2006. We’re seeing great profits in home flipping; because the market is going up, it’s a great time to flip.
When the market was going down, we saw flippers pull back. They didn’t wanna be catching a falling knife in terms of trying to project what that home would sell for in six months when home prices were going down. That’s something important to understand it can be done, but it’s a lot tougher, so we’ve gotta definitely look at that.
In a down cycle, the upside for investors is there’s a lot of deals available, there’s a lot of distressed inventory a lot of times available to purchase, but home flipping becomes a tougher strategy for sure in that down market. Buy and hold may be a better way to go.
Joe Fairless: As buy and hold investor – not fix and flippers, but let’s just say we’re a buy and hold investor… If my market where I am investing is on your list in your report as one of the markets that have a high gross yield, what are the implications for me as a buy and hold investor?
Daren Blomquist: I think the implications there that that market is going up quickly and there’s a lot of demand for homes that have been rehabbed and in good condition – what that means for you is, well, it may be a good time to sell; if you’ve been holding that property for a long time, it may be a good time to liquidate. That market is becoming more frothy, I guess, for lack of a better word. But in general, I would say it’s a positive sign that that market is in high demand, and for you as a buy and hold investor that could be a good sign that you’re in a good location for that.
The other piece there I think is that as a buy and hold investor if you see a high gross flipping profit, a lot of times, especially when you get down to the neighborhood level, that neighborhood is gentrifying and it’s improving, the nature of that neighborhood is changing in a positive way, probably, at least from your perspective, and the value of that home… So you’re gonna get that icing on the cake of faster appreciation for that home in addition to the cashflow that you’re getting from the rentals.
Joe Fairless: Do you all look at total dollars on gross yield and then also percent? Because total dollars I imagine would be different than percent of profit, or difference there… Since California and North-East probably larger dollars, but you might not be making as much of a percent profit.
Daren Blomquist: Yeah, that’s correct. We do both of those. We look at the dollar amount, and yeah, there’s a lot of markets in California and the North-East – you pin-pointed it exactly – and maybe some places like Seattle that we see $100,000 gross profits, and that’s just average (or more) on a flip, but then you look at the percentages, and the percentages are higher in what we’d call the more blue-collar [unintelligible [00:12:51].05] markets, like Pittsburgh is near the top often in terms of percentage return. Places like Cleveland and spots like that can float to the top when we look at that metric.
Joe Fairless: Are there certain markets that you have seen on that report on a consistent basis over the last handful of years?
Daren Blomquist: Yes, you mean that are–
Joe Fairless: Yeah, the gross yield.
Daren Blomquist: The gross yield piece. Early on – we started publishing that in 2012, and early on the low-hanging fruit markets that were destined to come back quickly from the downturn, because 2012 was really the absolute bottom in terms of home prices… So places like Phoenix, Atlanta, parts of Florida would have been high on the list at that point. We have seen that shift… There’s still South-East markets, places like Memphis in there, but it’s shifted I would say North to the [unintelligible [00:13:44].05] where you see the Pittsburghs and the Clevelands and the Cincinnatis, I think where you are, that are floating more to the top of that list… As places like Phoenix and Atlanta and many parts of Florida have become quite expensive, and the low-hanging fruit has already been picked there during this particular cycle.
So that’s one thing, as a real estate investor looking at data, you need to be aware that different things are happening in different markets at the same time, and so not everything hits at the same time. There was great opportunity for finding deals in some markets a few years ago that’s not there, and now it’s shifted to other markets for both flipping, and I would even say the buy and hold has shifted as well in a similar direction.
Joe Fairless: Let’s take a step back and let’s pretend – and there’s gonna be a gasp on your end – that we don’t use your services. You can do the gasp — “Oh, no…!” So we don’t use your services, but we’re just looking to identify the best markets to invest in the long-run for the next couple decades, as buy and hold investors. Where should we go to gather data and what should we look for?
Daren Blomquist: There’s a couple levels of this. Many investors know their local markets and they’re gonna stick to that, but even within their local market, real estate is local – that’s the maxim, right? And I think that’s true; so even within, say, a Cincinnati, you’re gonna start looking at the data at the neighborhood zip code level at the very least, if not further down, and… It’s not always about looking at markets that are a 100 or 1,000 or 5,000 miles away, it’s sometimes looking at markets within a very small area… And local investors who stick to the same area do have the advantage of — they may not need to use our data, to be honest; they may know that market so well themselves, they have it dialed in and they know once they start seeing certain signs…
And I think some of the key signs – the first domino is the number of sales that are happening. If you start to see the number of sales consistently trend downward, that could be a sign of weakening demand; that a lot of times is the first sign. And following that, a few months later you would see home prices start to weaken. Tied in with that – and this is where personal data from your own… I would encourage investors to keep their own data, because that can be valuable. The time it takes for them to flip a property, if they’re flipping – if that time, particularly the time that the property is on the market, is starting to get longer, that’s a sign that the market may be weakening. At the market level, days on market is a sign that demand is weakening… Or strengthening, if all of these numbers are going the opposite way – then that could be strengthening in the market.
A lagging indicator that we look at is foreclosures. A lot of times if you see a huge foreclosure start to spike, it kind of may be too late; that market has already experienced a downturn, for some reason.
One of the best pieces of advice I’ve heard recently on real estate is real estate is relatively slow moving, so there’s time… If you see some of these indicators, even foreclosures that tend to be a lagging indicator, there’s usually time, unless you are a massive investor who has hundreds of deals going at a given point, you have time to react to the market once you start seeing that data. It’s just paying attention, and it’s trusting the data too, I think, as opposed to thinking that everything is gonna keep going the way it has been going, and believing “I’m making money doing this, so I’m gonna keep making money doing it this way”, and trusting that the data can point you in the right direction.
So those would be a few key things – the number of sales (the basics), the days on market, the prices and foreclosure activity starts to come in as a real sign, if that’s going up, that that market could be weakening.
Joe Fairless: How do you gather that?
Daren Blomquist: Well, a lot of that data is pretty accessible and free. It’s out there through web portals that are providing trend data, including ours; we provide a lot of that basic information for free, and places like Zillow and others will have a number of sales, a number of prices… Now, foreclosures – you can get foreclosures for free on our site… The foreclosure trends, not the specific foreclosures. We run RealtyTrack.com/trends. You can dig [unintelligible [00:18:35].09] zip code level, and there’s other places you could probably get that as well to keep your eye on the trends.
Now, some of the data, when you start seeing — if you really wanna get granular and look at specific deals that are happening within a market, which may be important at a highly localized level to see how people are doing… Not just how you’re doing, but how other flippers or other real estate investors are doing – that is public record data that you can license from us or from other folks, and be looking at specific deals to really dig into the nitty-gritty of a given market.
Joe Fairless: Anything else that we haven’t talked about as it relates to using data to identify what we should do in a market that you wanted to discuss?
Daren Blomquist: There’s so many things, but I think we’ve covered the basics of it. It’s not rocket science to track the data, but I think a lot of investors do put the blinders on, and it’s just… Keeping the head up and taking some time to keep an eye on that. It also becomes important when you’re doing specific deals to know the data for that specific property as well, and all the information about that property that impacts the value, that’s a huge piece, too… Not so much at the trend level, but the specific deal level, gathering all the data on that property so you really can at the end of the day assess its true value.
Joe Fairless: How can the Best Ever listeners get in touch with you or learn more about your company?
Daren Blomquist: They can go to AttomData.com. There’s a lot of information there, our data and our products and services. Also, we run RealtyTrack.com; it’s a great source, as I’ve mentioned earlier, for finding trend data, and also looking at finding specific properties.
The best way to reach me, I would say, by e-mail is to send an e-mail to email@example.com. That goes to me, as well as other people, so my assistant who can help make sure you get in contact with me.
Joe Fairless: Sweet. Well, this has been an informative conversation, and one that can help us, as you said, get ahead of — well, you didn’t say this, get ahead of the trends… But what you did say is real estate is a relatively slow-moving industry, and it’s true; if we’re aware of our surroundings and we know what to look for, then we can make moves prior to whatever is coming up, and some of the things that you’ve mentioned, the different ways to look at a market to identify if there is a growth or regression happening, looking at the sales trends, looking at how long the days on the market are, and then also with the approach for… You’re just making sense of it all having the approach of “Okay, we’ve got these different reports that we can go look at, but what do these numbers actually mean and what are the implications?”, so how do we take that information and then have actionable action from that.
Thanks for being on the show. I hope you have a best ever day, Daren, and we’ll talk to you soon.
Daren Blomquist: Thank you so much, Joe.