Are Traditional Real Estate Companies Bound To Fail?

traditional real estate companies

To answer this question allow us to change gears for a moment and consider what Steve Jobs had to say about Apple Computer back in 1995.

Specifically, he talked about how Apple will eventually fail.

Granted, this thought is near-blasphemy for a countless number of retail stock market investors, mutual funds, and investment gurus.

After all, the price of Apple stock recently hit an all-time high.  Warren Buffett owns nearly $45 billion of the company, and Apple accounted for an incredible 23% of the entire S&P 500’s gains in May.

How in the world could Apple possibly fail?

According to Steve Jobs, companies with a monopoly market share forget about what it means to build a great product.  There’s no difference between a good and a bad product, and no feeling in the hearts of the people who run the company about wanting to help their customers.

Other than perhaps the size of the display screen, what’s the big difference between the last several generations of iPhones . . . except for a rising price?

Eventually companies decline because of the lack of quality products and failure to adapt to the new realities of the marketplace.  Steve Job’s belief that companies must adapt or eventually die is also applicable to the real estate industry today.

Traditional real estate companies

Media as diverse as the Pew Research Center and USA Today claim that the decline in home ownership and the rise of the ‘renter class’ is due to rapidly growing home prices and an inventory shortage.  Would-be homeowners are forced to rent because they can’t find anything to buy.

But perhaps a more likely explanation for more people renting homes than buying is that consumer demand is simply changing.

As more Baby Boomers retire and sell their family homes, they are intentionally choosing to rent, or moving into assisted living or senior housing.

At the same time, the younger generation prefers to rent a home rather than own.  Factors such as the growing gig economy and 1099 employment, the lack of mobility that home ownership brings, and the rapidly growing ways to invest in real estate other than owning a home, all make home ownership much less attractive than it once was.

The traditional real estate industry still operates under a business model of new home construction and a resale market that focuses primarily on home buyers that are owner occupants.

This is in stark contrast to the changing wants and desires of the real estate consumer, and a perfect example of Steve Job’s warning to companies who focus on their own needs rather than wanting to help their customers.

Relationship Between REITs and Rising Interest Rates

reits and rising interest rates

In today’s rising interest rate environment, many real estate investors are wondering what the relationship is between REITs and rising interest rates.

Here are three factors to consider.

Asset Quality of the REIT

Experienced real estate investors understand that not all real estate assets are created equal.  That’s why a time-tested truism is that real estate is all about location, location, location.

But in a hot market with real estate prices rapidly rising year after year, it’s easy to forget about quality and focus solely on quantity.  Sometimes traditional real estate companies do this all too often.

As interest rates continue to rise, REIT managers may have a hard time refinancing if they made the mistake of buying a low-quality asset at too high of a price.

Property Loan Refinancing Timelines

Loans on commercial investment real estate and larger multi-family property are usually made for only a few years at a time.  That’s because lenders know that volatility in the real estate market can appear at any time.

Another reason for short-term real estate loans is that lenders what to ensure that the asset is being maintained and that the real estate property management is top notch.

It’s important for both residential and commercial REIT investors to understand when each individual loan becomes due and what the prospects are for refinancing.

Real Estate Assets of the REIT

Investors concerned about REITS and rising interest rates should also investigate the quality of each individual asset that the REIT owns.  This will help to identify potential problems when the time comes to refinance.

Some items to research include:

  • Uniqueness of property
  • Competitive environment
  • Occupancy and tenant types
  • Asset class – retail, office, industrial, multi-family residential
  • Economic drivers of the market area

REITs and Rising Interest Rate – The Crowdfunding Alternative

Investors who are worried about specific REITs and rising interest rates often find that crowdfunding can be a good alternative to buying a publicly-held REIT.

That’s because crowdfunding organizations such as RealtyMogul and Fundrise raise capital for one specific asset purchase at a time.  This makes it much easier for the individual real estate investors to determine whether the real estate investment makes sense for their portfolio.

 

How To Buy A Multifamily Property

buy a multifamily property

Many real estate investors decide to buy a multifamily property after owning one or two single family rental houses.

While the asset classes are similar, there are some distinct differences between owning single family rentals and buying a multifamily property.

Before You Buy A Multifamily Property

Here are some general things to consider before you buy a multifamily property.

These are general comments.  They will vary depending on what market and what country your real estate investments are:

Exit StrategyBefore you buy, think about selling

When you invest in a single family home as a rental, selling it is easy.

That’s because you have a bigger buyer pool.  You can sell a rental house to another real estate investor, to the tenant, or to an owner-occupier who is buying the house to live in.

Selling a multifamily property is different.  Yes, you could ‘go condo’ by turning each rental unit into a property for sale.  But often times that’s easier said than done.

When the time comes to sell your multifamily real estate investment, your pool of prospective buyers is going to be other income property investors.

Unit TurnsHow quickly can a vacant unit be made rental ready?

We all know that time is money.  This is especially true when it comes to property managing and leasing multifamily property.

The term ‘unit turn’ refers to how quickly any needed repairs and updating can be done when an old tenant moves out and a new one moves in.

Some of the keys to turning a unit quickly include having the same fixtures, appliances, paint and flooring in each unit of your multifamily property.

Tenant TypesUnderstand who you are renting to and why

Knowing the type of tenant you will be renting to is key to successfully investing in multifamily property.

You will also want to have a firm understanding of the unique characteristics of your specific tenants.

For example, young professionals in an urban area will expect more amenities and stylish decor.  Other renters are just looking for a simple place to live.

Land Loans And Real Estate Financing

land loans

Land loans is a term that frequently comes up when selling real estate.

Despite the name, land loans aren’t just for selling land – although that’s how the term originated.

Other Names For Land Loans

Other names for land loans are deeds of trust, seller financing, or private equity loans.

The term ‘land loans’ comes from a type of seller financing – as opposed to traditional bank or lender financing.  A land loan is when the seller retains title to the ‘land’ until the loan is paid off.

Why Use Land Loans?

There are three ways that land loans are generally used to buy and sell real estate:

  1. An owner has a property that is difficult to sell.  Maybe it’s a buyers market or the seller doesn’t have the money to make repairs.
  2. A buyer can’t qualify for traditional bank or lender financing.  The buyer may have credit issues or wants to use the property for an unconventional use.
  3. A legal technique where a seller can defer payment of capital gains tax

Let’s Make A Deal

Land loans are a creative way to finance real estate.  There are no hard and fast rules to follow, so selling real estate using a land loan can be tailored to the specific needs of every buyer and a seller.

It’s always a good idea to have the sales contract in writing.  Many buyers and sellers using a land loan also like to have an independent third party handle all of the loan payments and disbursements as well.

Last but not least, a seller carrying a note with a land loan should always think of him or herself as a bank.  Especially if they decide they want to sell the deed of trust to an investor before the note becomes due.

Why Home Prices Keep Rising & More People Keep Renting

home prices keep rising

One reason that home prices keep rising can be found in a recent report by the Pew Research Center.  The report notes that more households are renting than anytime over the past 50 years.

Over the last 12 years the number of people who own a home has remained basically the same, while the number of people who rent where they live increased by over 25%.

Everybody Is Renting

This rise in renters is across all demographic groups:

  • All age groups have seen an increase in rental households, with 65% of people younger than 35 renting where they live
  • White, black, and Hispanic ethnic groups have all seen a rise in renters over the last 10 years
  • People of all education levels are renting more, with households holding a bachelor’s degree or higher having the largest increase in renters

The rise in home renters is a pattern that is going to continue for quite some time.  It is also a reason why the costs of condos and single family home prices keep rising.

Why Do Home Prices Keep Rising?

Since 2012 private equity has moved into the home rental market in force.  Large REITs and smaller crowdfunding groups now buy homes in quantity and rent to the people that were foreclosed on and forced into bankruptcy during the last housing crisis.  These mega-home rental organizations continue to buy both new and existing home inventory.

The shortage of skilled labor and zoning laws that constrain the supply of new construction are another reason why home prices will continue to rise.

In 2011 only 13% of the members of the National Association of Home Builders cited labor costs as a concern.  Now 82% of home builders say rising labor costs are their biggest concern.  Both immigration policy and the increase in natural disasters such as Hurricane Harvey in Houston cause labor shortages in the construction sector.

Lumber futures have increased by more than 57% since President Trump imposed tariffs on Canadian lumber.  While that’s good for people in the lumber business, it is a disaster for single- and multi-family home builders who use lumber for framing.

In Summary

An increasing amount of new home construction and existing inventory is being purchased in bulk and turned into rental property.

At the same time the supply of new housing is limited by rising labor and materials costs and well-intentioned NIMBY governmental zoning policies that cause a shortage of buildable land.

Should You Sell Real Estate Full Time?

sell real estate full time

Many people consider giving up their day job to sell real estate full time.

Getting that first or second sale isn’t that difficult.  But what is difficult is working in the real estate business full time.

Here are a few things that will help you decide if it’s a good idea for you to sell real estate full time.

Have A Real Estate Business Plan

Putting together a realistic real estate business plan will help you decide whether or not selling real estate full time is right for you.

When putting your business plan together for your new real estate career, remember that it’s always better to be safe than sorry.

Be overly pessimistic about your projected income and expenses for the first several years.  Many business planning experts suggest that after you have what you think is a conservative business plan you should cut the revenues in half and double the expenses!

If You Sell Real Estate Full Time, Treat It Like A Business

Realize that business – just like nature – does not move in a straight line.

One very successful quarter or year doesn’t mean that the trend is your friend.  Smart real estate entrepreneurs know that there are always peaks & valleys . . . and some valleys can be deep for a very long time.

Consider Having A Real Estate Business Partner

Some people like having a business partner while others prefer to go it alone.  Having a partner or a mentor is one way to achieve a good work/life balance in real estate.

Advantages to having a business partner are the sharing of risk and having access to extra start-up capital.

If you have a real estate business partner, just be sure to clearly define the responsibilities of each person involved.  This will help to avoid conflict down the line.

How To Make Your Real Estate Business Plan Better

real estate business plan

Having a real estate business plan – or a property management business plan  is crucial if you want to succeed in the business of real estate.

That’s because real estate is about much more than just buying & selling, leasing & managing.

Here are the top two ways to make your real estate business plan better.

Rainmakers Should Make Rain Not Train

Some real estate brokers are rainmakers.  They’re the ones who bring in the majority of the business and are great in dealing with clients.

If that’s the case, bring in a partner or key employee to recruit, train and manage the newly-hired real estate agents.

New agents will be attracted by the broker-rainmaker’s outstanding success stories.  But new real estate agents usually lack experience, skill or motivation.

They won’t be able to perform  and produce without having a lot of hands-on guidance – at least to begin with.  The broker-rainmaker won’t be able to give new agents the attention they deserve because they’re out there making rain and bringing in new business.

A Great Real Estate Business Plan Is Niche Specific

Focusing on a specific asset class for your real estate business is much easier than trying to be all things to all people.

A real estate asset class isn’t just commercial or residential real estate.  A asset class is a specific category – or niche – within those sectors.

If you have a residential real estate brokerage, concentrating on specific zip codes or neighborhoods is one example of a niche.  Another is focusing on a certain product type such as small multifamily or fix-n-flips.

Commercial real estate brokers could identify high-tech industrial property, medical office buildings, or STEM tenants as their niche.  Or they could concentrate on finding replacement property for 1031 tax deferred exchanges.

Great Marketing Tips For Property Managers

marketing tips property managers

RentTrack recently reached out to me for an article on marketing tips for property managers.

Here are a couple of great ideas that property managers can use for marketing any type of property.

Know Your Target Market

One of the most important tips for property managers and leasing agents is to know your target market.

And it isn’t just people who want to rent a place to live.

Some properties are better suited for singles or working professionals.  Others for couples just starting out, and some rentals are great for families.

You don’t want to accidentally discriminate in your marketing copy.  But do spend some time thinking about what type of renter is going to be attracted to your rental house or condo.

Make A Simple Website

Having an online presence is pretty much a given in today’s competitive real estate market.

But it’s important not to give too much information to people who want to rent your property.  Instead, focus on gathering info on the tenant and capturing leads.

Make it easy for the prospective tenant to learn more about the rental property by having a short description, map and pictures.

Be sure to provide a rental application for easy download, along with instructions on how to submit it, and what your employment and tenant income qualifications are.

More Marketing Tips For Property Managers

Here are four more great marketing tips for property managers include:

  • Reach out to as many prospective renters as quickly as possible in as many ways as possible
  • Don’t negotiate on the rental amount, deposit, or your tenant application requirements
  • Make it easy for prospective tenants to get in touch with you
  • Include links to your profile on social media sites such as LinkedIn and Facebook

Experienced real estate investors, leasing agents & property managers know that it’s always better to find and keep great tenants than having to go through a costly and time-consuming eviction if the tenant decides not to pay its rent!

The Most Important Part Of A Property Management Business Plan

property management business plan

The people over as Hostfully were nice enough to include my thoughts about the most important part of a property management business plan.

As you’ll see from their article, there’s a lot that goes into creating a good property management business plan  as well as the overall real estate business plan for your company or investment portfolio.

But time after time I’ve seen new property managers overlook this key point when putting together their business plan.

Key Factor In A Property Management Business Plan

Here’s what I told Hostfully:

Jeff Rohde, author at JScottDigital.com says one of the most important things when developing your property management business plan is the focus on a “specific real estate asset class, and then ‘drill down’ to a specific sub-class.”

A residential example would be to decide if you’re doing for a single or multi-family homes. After that, narrow it down by price range, geographic area, and a number of units. A commercial example would be deciding on multi-tenant retail or office type of property. “After you chose that, focusing on the class of property (A, B or C), and the property size in terms of square footage.”

This is how you’d develop your niche, because, as Rohde puts it, “tenant personalities and issues, wants and needs, will be similar. Owner personalities and investment goals will be similar. And the skill set that the property manager develops will easily transfer to similar properties to manage.”

Getting Started In Real Estate Property Management

If you’re a new real estate agent or thinking about getting into real estate property management, consider going to work first for a firm that is already in the business.

It’s a good way to learn the ropes, so to speak, and to find out if property management is really what you want to do.  You’ll also discover some of the key ways to spot a problem property owner.

If it is, you’ll be able to hit the ground running.  Just remember, there are a lot of ways to make money in real estate property management!

Sample Real Estate Profile For LinkedIn

real estate profile for linkedin

Here’s an example of a real estate profile for LinkedIn . . . or for any other social media platform that you’re using to building your online real estate presence.

It can be used whether you work in residential or commercial real estate.  This sample real estate profile for LinkedIn is also good for both companies and individual real estate agents as a lead-in for your professional bio.

Real Estate Profile For LinkedIn

[Your company name] is a full-service brokerage serving the Greater [Your city] area.

Our brokers specialize in all asset classes of real estate including: single family, multifamily, mixed-use, retail, office, industrial, special use, property valuations, property management, fix-n-flips, JV equity sourcing, and note sales.

[Company] works with real estate investors of all sizes – from experienced private investors to beginning real estate investors.

We know from our years of experience in the business and successfully closing hundreds of transactions that maximizing the return on your real estate investment in [City or Market]’s competitive real estate market takes more than just one person.

That’s why [Company] utilizes a unique, integrated team approach when buying or selling real estate on behalf of our clients.

While other real estate brokerages in [City or Market] limit the opportunities that their clients see, [Company] thinks outside of the box. We understand the power of team work and cross-marketing.

Our proprietary global network of over 150,000 active investors allows us to reach as many qualified buyers and sellers as possible, as quickly as possible.

[Company] combines today’s high-technology with an old school, hands-on approach.

We’ve built our solid reputation in the [City or Market] real estate market the old fashioned way . . . one client at a time.

[Broker-specific copy goes here]