Month: February 2022

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Invest In Large Multifamily Property

10 Reasons Why You Should Invest In Large Multifamily Property

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Now is one of the best times to become a multifamily landlord because apartment vacancies and interest rates remain low compared to a few years back. Private equity investors can also access a pool of lucrative debt capital.

What’s more, the White House notes that there’s a thirst for decent housing coupled with a chronic undersupply, leading to skyrocketing housing prices, as seen in the table below:

Statistics show that investors should expect a 6% net increase in their income for the coming year. All this signals that multifamily properties are a lucrative investment ripe for purchasing.

Suppose you are new to Commercial Property Investment and do not understand why you should invest in multifamily property. In that case, these are the reasons why this kind of property must be a part of your investment portfolio.

1. Increased Cash Flow

A higher cash flow is one of the biggest reasons to invest in multifamily property. Such properties are always in demand by rookies and seasoned investors alike.

You can expect a high occupancy rate if your property is in a strategic location. With time, this leads to increased monthly revenue.

One way to ensure you rake in good profits is to invest in different geographical locations. Doing so allows you to have multiple income streams from the same type of investment.

2. Easy To Manage

Managing 12 units in one multifamily property is more manageable than 12 single-family units spread out across the city. With the former, you can manage it or hire a property manager instead.

It is impractical and costly to hire 12 managers to manage single-family units. On the other hand, hiring a manager for a multifamily property makes sense because of the number of tenants you are dealing with under one roof.

3. Enjoy Tax Breaks

A multifamily property makes you eligible to enjoy tax breaks as a reward from the government for providing housing for city residents. The kind of tax breaks you enjoy depends on the property classification.

That’s because you can write off expenses from taxable income. In short, you can deduct repair, maintenance, and management expenses from the taxable income produced by the multifamily property.

4. Lower Investment Risk

This is not to say that multifamily properties do not come with risks–they carry some risks like any other investment. The only difference is that the risks associated with this kind of property are lower than single-family units, as the table below illustrates:

One of the risks you may encounter is the vacancy rate. Because you are dealing with several tenants at a time, the possibility of 0% occupancy is slim to none.

Suppose you have a well-maintained property with fair rental rates. In that case, a low occupancy is something you will rarely worry about.

Also, ensure you research the property beforehand, choose a good location, and market it well. Doing this will guarantee you a high occupancy rate.

5. Short-Term Leases Are Advantageous

Five years and more is the standard term for most commercial and retail leases. If the market changes, you are stuck with properties whose rent you cannot increase. With multifamily properties, the leases are shorter, typically lasting a year.

This means that you can raise rents quickly depending on market conditions and inflation. Shorter leases ensure your property stays lucrative in the long run.

6. Quickly Build An Investment Portfolio

If you want to delve into real estate full-time, this is one of the best ways to boost a portfolio quickly. Multifamily properties offer the chance to invest in multiple units without the hassle of managing several separate housing units.

Think about all the research, planning, permits, and cost it takes to invest in one property. Now multiply that by several units, and you know why a multifamily property is the best option.

Moreover, you’ll find it easier to purchase a multifamily property than buying a single-family unit.

7. Strong Rental Demand From Millennials

Data from the U.S Census Bureau shows that renting is the most common form of housing for millennials. Currently, the millennial generation is the largest in the U.S.

One reason why they find leasing a favourable option is the increasing cost of median home prices. This places homeownership out of reach for many. Also, millennials value flexibility and mobility over owning property.

Combined, all these reasons make millennials more likely to rent than own, spelling good news for multifamily property investors.

8. High Appreciation Rate/Value Retention

Multifamily properties continue to hold value even if you do not get immediate cash flow. The general rule for real estate is that it appreciates over time. With multifamily property, the appreciation rate is higher.

Sure, this is not set in stone. But the best way to ensure the property retains its value is to maintain and repair it often. Check for broken or damaged areas, mold, and more issues between tenants, and it will hold its value with time.

9. Better Financing Options

Data shows that multifamily investments have better funding terms overall than other real estate types. Understand that this investment type costs more initially, but it is easier to maintain than other property types.

Expect lower interest rates if you opt for a mortgage loan for a multifamily property. This is a relatively risk-free investment for first-time investors. Because of the high occupancy rates, financing institutes view multifamily properties as having lower risk.

10. Insurance Simplicity

Buying insurance for a multifamily property is relatively easy. Like financing, getting insurance is a simple process compared to other real estate types. Several factors affect how much a policy will cost.

However, the number of units in the building, amenities like a pool or rooftop terrace will raise the insurance cost. This is because tenants or visitors are more likely to injure themselves on the property. It would help if you also understood that insurance premiums for multifamily homes are rising.

Despite this, most insurance companies know how to cover multifamily properties in a way that favors you. Further, if you have several such properties, some insurance companies will grant you a “blanket” cover, insuring all the properties under one provider.

Final Word

Investing in a multifamily property is one of the best decisions you can make today. You can look forward to better cash flow, lowered risk, tax breaks, easier management, and a higher appreciation rate. Taking help of a property investment company can prove to be of greater help in terms of huge capital gains to fill up your pockets. Despite stiff competition and an initial high investment cost, a multifamily property is still an excellent investment opportunity.

www.redpillkapital.com

If you simply need more information. have questions, or want to discuss a specific deal, I’m always excited to help. Reach out to me at info@redpillkapital.com

If you are ready to start your journey to financial freedom but want specific additional educational materials, we have a course designed for physicians.

Categories
Real Estate

Tokenization of Real estate in 2022

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As a technology enthusiast, I have always been into innovation that could change the world. That’s when I heard about the fund-raising campaign from the group called UGro that has recently been into real estate tokenization with the motive to bring this technology into our day to day lives. The interview by Mr. Neal Bawa from UGRO started with a brief introduction that eventually was directed towards how the real estate market and financial management would collaborate in coming times.

To begin with, I am Dr. Gurpreet Padda, born in Punjab, India. While I was in my early childhood, I relocated to the US with my family. Being the only brown kid with a turban in an all-Black school, I have known the word discrimination. However, this allowed me to think out of the box, be curious about things happening around and learn the process. This curiosity to know everything took me into science and computers.

As a teenager, I was generally active in doing repair work at home. When things started happening on a larger scale, I took help and ultimately started hiring people for doing some construction work; that’s when I fell in love with real estate. I wanted to earn freedom and co-invest with people, for I had found out.

“A Lone-Wolf isn’t an alpha without its pack!

How Did I Become Interested In Blockchain, Real Estate, Crypto, And Tokenization?

Well, my academic background is pretty self-explanatory. Being a computer geek and having an MBA degree majoring in International Finance justifies my passion for technology and finances at a global level. I have always wanted to know how transactions occur, and this has a rather serious story behind it.

I have known that about 5.5% of international transactions, which is for the general public, are secured into middle mens’ pockets. I wanted to find out how these transactions happen, why they happen, and what can be done to stop this wastage of capital? Why can’t families live across nations transfer money without involving any mediator?

My findings gave me hints about cryptocurrency, which indeed is fascinating. So I learned about fiat currency which can be used for tokenization to bring liquidity into the entire real estate market. In my opinion, we’re at the beginning of a new revolution where complete computer systems are upgrading the ability to make transactions where the transferring value to one another is tokenized.

How To Avail Tokenized Contracts For Cost-Effective Transactions?

With these questions in mind, I tried to figure out contract languages to make them cost-effective, and quicker to share the assets with others. Not to forget the low-risk profiling that is to be maintained. Hence, I invested in this fund-raising contract with UGRO for the sole purpose of getting into tokenization.

For people newly introduced to the term, Neal explains that tokenization is the conversion of real estate into stocks or stock-like qualities.

In the case of the general share market, if someone talks about a particular stock with the potential to go bullish shortly, we tend to take positions real quick in the matter of a few clicks, affecting the financial market. However, that’s not the case with Real Estate Investment. It’s more complex than it looks.

Real estate is three times larger than the share market. Moreover, the market is highly illiquid, and now the solutions have been revealed. People in the field say that blockchain can be used to find a much faster and more secure way to demonstrate real estate so that anyone around the globe can take a position in the US Real Estate Market. The best part is that US real estate is the topmost blue-chip real estate in the world.

The fact that tokenization is already being done by many makes it all the way more special. But this needs to be done with the right process as follows:

The first component is to take ownership of something and put that ownership into a token that can be described precisely.

The tokenized property will represent a fragmental possession of real estate that can be demonstrated in your social groups and families concerning returns. “Token Represents A Real Thing”, is where it all starts.

The next step is to liquify these tokens. Since commercial real estate investing is an illiquid capital diversification, turning this into a liquid asset and putting it on 24*7 markets require real work.

However, there are problems associated with being a limited partner in real estate. First, one needs to keep the investment the entire time, which would dramatically change as soon as tokenization enroots in the scenario.

Finally, assigning value to these tokens.

A commercial real estate investment company’s management team is an independent figure regulating and managing these real estate tokens. With this, one would be able to stake the token and get a loan or even sell some part of it, which will lead to a decentralized and tech-savvy Financing System or as said Defi, which would further be utilized to generate revenue streams out of it. Therefore, the leverage position improves gradually. This is because an asset will hold its value; people would be willing to lend you even on the underlying asset value.

As Neal mentioned, tokenization is the opportunity to open the gates of a new era worth $10-100 trillion. However, here comes the pain point- not everybody will believe in this initiative. Yet one needs to pick the right team in the argument.

But, how do we pick the right team and the right management? After all, it’s the management that will manage and develop the property we want in terms of valuation!

Your ideal team would be the one with an excessive understanding and experience of both the financial and Real Estate world. They would first need to answer the question- Why would people want to go for tokenization?

Once you know how to access a token, how to keep it safe? how to transfer these tokens safely and cost-effectively? Then, you automatically cut out the middlemen and will be able to make any real estate NFT transactions in a few clicks.

And that is the reason UGRO’s fund-raising campaign for tokenization caught my eye. The management understands technology and its integration with the real estate market, making them the right team to pick for a complete Proptech System. I have experience working in several domains, and as per my observation, a team needs to have three things to be able to create a decentralized financial system for investors;

  • Financial background.
  • Technical background.
  • Property management background.

Neal says that UGRO is planning on tokenizing individual luxury fourplexes with small shares of the company. However, the plan doesn’t just end here. The thing that surprised me was that these people were much ahead of what they could imagine as the future of the real estate market. With a $70 million fund, they envision creating a metaverse; creating digitally twin buildings to put them on metaverse would open up the data to any buyer in the world who would wish to invest in US real estate. Hence, the sale that is supposed to take place in around 6-7 months would eventually happen in 10-15 days.

That’s quite interesting, for it serves the vision: Entire Real Estate Tokenized. Yet the process needs to be followed accurately, and it’s the management that will demonstrate the beginning of this revolution. Not just us; in reality, many monopolies are already headed in this direction.

Hence, all in all, to be a successful investor in the field, always choose the right group to invest with- and that’s what UGRO believes in.

www.redpillkapital.com

If you simply need more information. have questions, or want to discuss a specific deal, I’m always excited to help. Reach out to me at info@redpillkapital.com

If you are ready to start your journey to financial freedom but want specific additional educational materials, we have a course designed for physicians.

Categories
Real Estate

Commercial Real Estate Investments: Understand The Risk And Reward

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Every seasoned commercial real estate investor knows that all investments are prone to risks. While real estate investing is not as risky as penny stocks, options, and futures, the sheer amounts involved mean that if things go belly up, you stand to lose a lot.

That’s why it pays to identify the kind of risks attached to each real estate investment vehicle before you ink a deal. Industry leaders created categorization labels to help investors identify the amount of risk each investment poses.

According to Tal Peri, head of U.S. East Coast and Latin America for Germany’s largest open-ended fund, Union Investment Real Estate, these labels help him focus on the losses spectrum that matches parameters for the fund he is deploying capital.

If you’re a new investor to the game, you might want to pay attention to the labels—they indicate under what category an investment falls. That might be the difference between scoring a great deal and losing money.

As usual, the higher the risk, the higher the investors’ returns. This article helps you understand the risk and returns involved in Commercial Real Estate Investments (CREIs).

Risk Vs. Return

Before discussing the different categories of CREI’s, it’s first necessary to define what risk and return are and their relationship to each other in building an investment portfolio.
Risk refers to the possibility of financial loss or some other adverse outcome. It’s wise as an investor to put strategies in place to help you recognize and manage risk better.
Return is the amount of income or profit made on an investment. In real estate, returns usually come in rental income, property appreciation, beneficial tax treatment, or some combination of all three.

As mentioned above, the relationship between risk and return is the higher the risk an investment poses, the higher the potential profits. The reverse is also true.

Risk-Reward Categories For Commercial Real Estate Investments

There are four categories for real estate investment strategies as highlighted in the diagram. These contain the factors to consider when investing in real estate:

Strategy 1: Investing In Core Real Estate Assets

Many consider this a low risk real estate investment, and it rightfully takes its place near the low risk-low return spectrum.
Core real estate assets investment often consists of established high-rise office towers and apartment buildings. You will find them downtown in major cities like New York City, Chicago, and San Francisco.

Tenants in this category have excellent credits and commit to long-term leases. As a result, investors are guaranteed reliable cash flow, making it a risk-free investment.
The characteristics of core investments are:

● The buildings are relatively new, efficient, and well-maintained.
● Bears attractive and functional design.
● Has top-quality building finishes.
● The property is in an accessible and highly desirable location.
● Relatively low degree of leverage since they might range from 0-50% of the asset’s value, but rarely higher.
● Properties are fully or mostly leased (close to 90% occupation).

Suppose your primary investment objective is to protect your assets from a decrease in purchasing power while at the same time securing long-term wealth for your family. In that case, this is the investment strategy for your needs.

Core investments have a low risk of principal loss and generally provide returns in the 4% to 8% range. However, that also means they have a low chance for significant price appreciation.
In addition, the major reward to such investments is that a slowdown in economic activities won’t affect them since their tenants are financially stable and unlikely to face unemployment.

Strategy 2: Investing In Core-Plus Real Estate Assets

Think of core-plus as those in the second place, a step higher than core assets, in the risk ladder. That means it’s slightly riskier but offers better returns.
There’s increased opportunity since investors can renovate the properties and, in turn, hike the rent. However, there may be a risk and opportunity since the property may be in the suburbs and not fully leased.
The characteristics of such projects are:

● Historic building rather than new construction.
● Building in relatively poor condition.
● It faces a dip in tenant credit.
● The property is in a not-so-great location.
● There’s a slender opportunity for price growth.

Annualized leveraged returns on these assets generally range from 10% – 14%.

Strategy 3: Investing In Value-Add Real Estate Assets

Value investments pose a mid-level risk since they generally have a problem that needs fixing.

Value-add real estate projects incur a higher level of risk alongside the greater potential for driving operating revenue growth and capital value appreciation.

The potential for rental growth in such assets could be discovered by:

● doing moderate renovations to attract higher-paying tenants
● higher rental rates in the immediate neighborhood
● brilliant business plan to reposition the anchor space/tenant
● adding additional square footage
● upgrading building systems
● improved finishes and installing new amenities
● changing of property managers

Remember, the goal is to give the property a refreshed look and, in turn, attract quality tenants who would afford higher rent rates.

Since you put in more effort to execute this business plan successfully, these investments typically provide leveraged returns between 15–19%.

Leverage with value-add: 65% – 85% of asset value/cost. Unleveraged returns on value-add assets are high enough to entice further use of leverage to enhance leveraged returns further.

Strategy 4: Investing In Opportunistic Real Estate Assets

It’s the riskiest investment strategy. Most of the projects in this category are new developments that you have to build from the ground up. In other instances, it necessitates a total turnaround.

These projects can include significant design, engineering, construction costs, legal fees to navigate repositioning and obtain entitlements, and brokerage fees to market and lease space or sell units.

In addition, the major downside to opportunistic real estate assets is that investors could go months or years before receiving any income.

However, opportunistic investments offer more than 20% in returns due to the value-addition renovations or new constructions to a vacant lot.

Conclusion

Investors need to understand the risk and return relationship when scrutinizing a potential real estate purchase. The level of the return should be proportional to the amount of risk taken.

If you’re a risk-taker, and investing in commercial real estate makes you tick, it’s advisable to implement these investment strategies labels.

According to real estate gurus like Tal Peri, you should actively mark all potential investments using the labels to alleviate risk. Thankfully, the label strategies real estate investment risk analysis doesn’t require experience, expertise, and full-time focus to accomplish.

www.redpillkapital.com

If you simply need more information. have questions, or want to discuss a specific deal, I’m always excited to help. Reach out to me at info@redpillkapital.com

If you are ready to start your journey to financial freedom but want specific additional educational materials, we have a course designed for physicians.