Weekly Housing Trends

The big story

Caroline Purser/Getty Images

When Pratik Pathapati set out to buy his first fixer-upper in Sacramento, CA, for $400,000, he knew no traditional bank would touch the property due to its run-down condition. His only hope was a hard money loan.

Pathapati started showing up at local real estate meetups, where he connected with a private lender who was willing to hand him the $15,000 he needed for a down payment. The terms: 12% interest, due in full in one year.

“It was surprisingly easy,” Pathapati recalls, and he knew why: “The only thing hard money lenders care about is the house and if it’s a good deal.”

It was: Pathapati ended up selling the property for $500,000. Since then, hard money lenders have approached him with financing for future flips, hoping to earn his business. He now says, “hard money loans are the only loans I’ll ever get.”

The benefits of hard money loans

“Hard money” may sound sketchy, but it’s really just an IOU backed by a concrete asset—say, a house—rather than your paycheck and credit score. Demand for these funds has been rising among investors seeking fast, fuss-free loans for homes that traditional banks won’t touch. Other perks: less paperwork and closing in as little as a few days or weeks, compared to the 30- to 45-day timeline it takes for conventional mortgage lenders to come through.

A need for speed is why Tiffany DaSilva decided to get her first hard money loan to buy a foreclosure at auction. Not that she wasn’t nervous. “I’d heard these loans were ‘high risk’ and only for experienced investors,” she recalls. However, the loan application process with private lender Kiavi went smoothly, closing in three weeks on a $169,400 loan at a 10% rate. DaSilva flipped the house for a profit, paid off the loan, and was so satisfied with the experience, she says, “I’ll probably never do a traditional loan again. Hard money loans have a bad rap, but I think people shouldn’t be scared of them. They’re a tool that, if used right, helps you get the job done.”

But their bad reputation didn’t come out of nowhere. Interest rates are higher than conventional mortgages, and loan terms are shorter: typically one to three years rather than the usual 15 or 30. All in all, “a hard money loan can be an expensive way to borrow money,” warns John Egan, a personal finance expert for Experian. Hard money loans also lack many of the safeguards that come with traditional mortgages, which means it’s crucial to vet hard money lenders carefully.

Because entering an agreement to borrow money always involves a level of trust between two parties, it’s important to “build the relationships before you need them,” says Pathapati. “There’s no national database for this; it’s mostly word of mouth. Contact local hard money lenders, ask what they look for—down payment expectations, appraisal requirements, photos, whatever their process is—so that when your first deal comes along, you already know exactly who to call.”

      

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What's up this week

Realty check

Source: Zillow; Designer: Andrew Blockett.

🐌 Good news for bargain hunters: Sales of starter homes have slowed, with listings up 4.5% year over year and sales down 5.4%. What’s more, one-third of starter homes have undergone price cuts in these six cities.

⚒️ Remodeling is on the rise—so are renovations that homeowners deeply regret.

🎓 This real estate fund’s first sale pulled in a surprising 65% profit. You’ll be even more shocked when you hear who runs it.

🏖️ Shopping for a vacation home? Sellers in these 15 markets are desperate to make a deal.

🔌 Installing solar panels is usually a pain requiring permits and guys on your roof. These 10 states have made DIY solar power as easy as plugging in a toaster.

🌿 These six plants can make your yard look luxurious.

😱 What’s an HOA to do if it’s running out of money? Foreclose on homeowners, of course.

🚣 Buying a house in this little-known lakeside escape requires four references. You’ll also need to follow some bizarre rules.

🚽 Check your bathroom: Interior designers say you should trash these 11 things to declutter instantly.

🏙️ A NYC apartment has hit the market for $130k. There’s just one very tiny catch: It’s only 250 square feet.

You asked, we answered

Q: What’s the ROI on a swimming pool?

The Good Brigade/Getty Images

An in-ground pool typically boosts a home’s value by 5%–8%, although that payoff hinges on how many months you can use it. Sun Belt markets with year-round swim seasons can push profits to 10%–15%, whereas colder climates where the pool is just a three-month party trick might see no bump at all (or even a dip since buyers might not relish maintaining nine months of dead weight). Plus, the installation ROI ranges from 40%–60%, which means a $60,000 pool will add only $24,000–$36,000 in value. So you’ll just have to resign yourself to throwing some epic pool parties to make up for this sunk cost.

Another option: If you’re willing to rent out your pool by the hour, pool-sharing apps like Swimply can change the math and generate around $1,000 per month, which would close roughly a third to half of that ROI gap in a single year (though actual earnings likely vary widely by market and pool type). One homeowner near Salt Lake City recently listed her house for $1,575,000—over double the local median—since her saltwater pool (plus fountain, fireplace, and grotto) was a “proven income-producing asset” that will “pay half your mortgage.”

Although home appraisals factor in a pool’s value, they do not include poolside side hustles. Still, as a marketing stunt, this Salt Lake owner’s sales pitch seemed to work: The house is currently pending sale. Might be worth asking whether your pool is pulling its weight.

Got a question about real estate? Ask it here, and we’ll answer it in a future issue.

Real talk

Ryan Duffy/OMG Developers

When Ryan Duffy quit his job as a firefighter to flip short-term rentals around the Ozarks in Arkansas and Missouri, he eventually got bored updating cookie-cutter rentals and wanted a bigger challenge. So when Airbnb put out a call for unique stays, he decided to try building a home out of four shipping containers. How hard could it be? Here’s a blow-by-blow, plus a peek at what else his company, OMG Developers, has in the works, from 30-foot tower houses to a home tucked in an underground cave.

Q: What inspired you to start building unusual properties rather than regular rentals? “Around 2022, when Airbnb rolled out their unique categories, I was fascinated and tried to figure out something I could build. Since lumber prices were through the roof, shipping containers came to mind because they cost $8,000 apiece new. All in, we spent $300,000 and six months putting it together.”

Q: What was the biggest challenge? “Financing. I took my plans to numerous banks who thought it was too risky without comps. I ended up arranging a shared equity agreement with two partners where I own 25%. Another challenge is that people think a container house goes up fast and cheap, but once you’ve got the steel shell, you still need to insulate it, build interior walls, run plumbing and electrical; you’re effectively framing the house twice. Steel also holds and loses heat way faster than wood: Our electric bill on 1,300 square feet with a heated pool and hot tub is $350 a month, compared to just $200 for the 3,500-square-foot regular house we renovated across the street. It also turned out that in high wind, the metal railing on the roof would resonate like a boat motor. Thankfully, we figured out an easy fix, using zip ties to hold the railings together.”

Q: What advice would you give other investors thinking about a unique build? “It’s not cheaper, it’s not easier, but I’d honestly just get bored building the same cookie-cutter McMansion over and over again. Be patient, and be flexible with your budget. If you hear a number, add two or three months to the timeline and at least 10% to 20% to the budget. But we’ve almost always gotten a great return. The container house pulls in over $100k in income per year and is currently listed for $675,000. The real edge, though, is the tax side with cost segregation and forced depreciation. That’s been a game changer for us not to have to write a check to the IRS for $50,000 a year, and being able to pull equity out with a line of credit to fund the next project.”

Q: What properties are next? “We’re finishing three tower houses right now: 30-foot steel structures with two-bedroom cabins on top and floor-to-ceiling windows overlooking the lake. We’ve also got an octagon-shaped house designed to look like one of those geodesic domes, with smart glass that goes from clear to opaque with a switch. And we just bought an 85-acre property outside the Buffalo National River in Arkansas with a house already built into the side of a cave. We’re planning to turn that into an off-grid luxury experience with a spa and grotto pool.”

Click here to see more of Ryan Duffy’s wild properties.

      

Housing market of the week

Alex Wright/Airbnb (home); Sanghwan Kim/Getty Images (sign).

Yellowstone National Park attracts over 4 million tourists per year. Alex Wright at DealForge has turned that seasonal stampede into a winning real estate strategy.

How he got started: Wright bought a duplex in Bozeman, MT, for $420,000. “My mortgage was $1,900 per month, and the other unit rented for about $1,850, so it gave me an affordable way to live in a growing mountain market,” he explains. Wright eventually sold it for $850,000 and funneled $375,000 into a house in Cody, WY. “It was originally my primary residence,” he says. “I now operate it as a short-term rental.”

His market’s pros: Cody is a primary gateway into Yellowstone. “This creates strong demand for short-term rentals,” he says. At least, when the park is open…

The cons: During winter, when most of Yellowstone’s roads close to regular vehicle traffic, Airbnb hosts may struggle to fill rooms. “Another challenge is scale: Cody is a small market with a population of around 10,000,” Wright explains. “That means fewer transactions and opportunities than you’d find in a larger city.” 

His advice: During the winter, turn your empty short-term rental into a mid-term rental open to month-long stays. “Travel nurses, contractors, and other professionals often need furnished housing,” Wright points out. “The investors who do best here usually aren’t relying on a single strategy; they buy properties that can adapt if the market changes.”

Got a home or housing market you want to highlight in The Playbook? Tell us more about it here, and we’ll consider featuring it in an upcoming issue.