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Navigating Risks of Real Estate Syndication for Physicians

As a physician or medical professional, you may be considering real estate syndications as an alternative investment to diversify your portfolio and hedge against economic uncertainty. However, it is crucial to understand the risks of real estate syndication before diving in. In this comprehensive blog post, we will explore various aspects of these investments and provide insights on how to mitigate potential pitfalls.

We will delve into the importance of trust between investors and sponsors, performing due diligence checks on deals and sponsors, mitigating market volatility risks through stable cash-flowing assets, reducing exposure through diversification and property selection criteria. Additionally, we will discuss navigating legislative constraints by partnering with experienced legal teams and ensuring adequate insurance coverage.

Lastly, we’ll examine the suitability and limitations of real estate syndications for passive investors like yourself – addressing concerns such as illiquidity issues, high minimum investment requirements, and limited control over property management decisions. By understanding the risks of real estate syndication thoroughly beforehand, you can make informed decisions that align with your long-term investment goals.

Table of Contents:

  • How Real Estate Syndication Works
  • Pooling Resources for Larger Investments
  • Partnering with Experienced Syndicators
  • Why Real Estate Syndications are Safer than Direct Ownership
    • Expertise of Seasoned Operators
    • Mitigating Market Volatility Risks
  • Real Estate Syndication: Pros and Cons
    • Diversification Benefits
    • Illiquidity Concerns
    • High Minimum Investment Requirements
  • Navigating Transparency and Communication Risks
    • Open Conversations with Sponsors
    • Reviewing PPMs for Informed Decision-Making
  • Assessing Market Fluctuations Risk
    • Diverse Employment Opportunities
    • High Median Household Incomes
    • Low Crime Rates
  • Proper Debt Financing Strategies for Real Estate Syndications
  • Legal Risks in Real Estate Syndications
  • FAQs in Relation to Risks of Real Estate Syndication
    • What are the risks of syndicated real estate?
    • What is the risk of syndication?
    • Can you lose money with real estate syndication?
  • Conclusion

How Real Estate Syndication Works

Real estate syndication is a popular investment option that allows passive investors to pool their resources and invest in larger, more lucrative properties like multifamily units.

Pooling Resources for Larger Investments

Multiple passive investors come together to raise capital needed for acquiring high-quality real estate assets, enabling them to participate in deals that would otherwise be inaccessible due to high costs.

Partnering with Experienced Syndicators

Working alongside seasoned professionals within the industry maximizes returns while mitigating risks involved in the process.

  • Diversification: Participating in multiple projects spreads financial exposure across various types of properties and geographic locations.
  • Economies of Scale: Investing alongside other passive investor partners provides increased buying power and cost savings related to property management fees or maintenance expenses.
  • Professional Management: Syndicators have a team of experienced professionals who handle all aspects of property management, allowing passive investors to enjoy the benefits of real estate investment without dealing with day-to-day responsibilities.

Real estate syndications offer passive investors the opportunity to invest in real estate deals without the hassle of property management or the risks involved in direct ownership.

Despite the potential issues, like changes in market conditions, rent control and Section 8 housing impacting returns on investment, real estate syndications remain a popular option for investors aiming to diversify their portfolio and generate passive income from rental properties.

Despite these risks, real estate syndications remain a popular choice for those looking to diversify their investment portfolio and generate passive income through rental properties.

For more information on real estate syndications and the risks involved, check out these credible sources:

  • Investopedia
  • Forbes
  • Bigger Pockets

Why Real Estate Syndications are Safer than Direct Ownership

Real estate syndications are a safer investment option than direct ownership because they allow passive investors to minimize risks by relying on the expertise of seasoned operators.

Expertise of Seasoned Operators

Partnering with experienced sponsors who have a proven track record in acquiring and managing properties reduces the likelihood of costly mistakes often made by inexperienced property owners.

Mitigating Market Volatility Risks

  • Diversification: Investing in multiple properties across different markets provides diversification benefits that help protect against economic downturns or localized issues affecting one specific area.
  • Cash Flow Stability: Real estate generates consistent rental income from tenants, offering more predictable returns even during uncertain times.
  • Hedge Against Inflation: As inflation rises, so do rents – making real estate an effective hedge against rising prices over time.

Real estate syndications offer strategies that can help investors navigate economic uncertainty while still achieving their investment goals.

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Real Estate Syndication: Pros and Cons

Real estate syndication can provide a good opportunity for passive investors to expand their investment portfolio, yet there are some difficulties associated with it.

Diversification Benefits

Spreading your investment across multiple properties can reduce the impact of any single underperforming asset on your overall portfolio.

Illiquidity Concerns

Real estate syndications tend to be less liquid than stocks or bonds, but this can be mitigated by focusing on deals with shorter hold periods or partnering with sponsors who offer secondary market options for selling your shares.

High Minimum Investment Requirements

  • Raised capital: Many real estate syndications require a significant initial investment, which could deter some potential passive investors from participating.
  • Potential pitfalls: Thoroughly vet each opportunity before committing any funds, even if it means passing on a deal with a high minimum investment.

Before investing in real estate syndications, consider your investment goals, market conditions, and potential risks involved, such as rent control, rental rates, and section 8 housing.

Navigating Transparency and Communication Risks

Real estate syndications can be risky due to lack of transparency or poor communication from sponsors, so it’s crucial to engage in open conversations and review Private Placement Memorandums (PPMs) before investing.

Open Conversations with Sponsors

Ask questions about the sponsor’s experience, track record, and the specific details of the deal to establish a strong relationship and avoid potential pitfalls.

Reviewing PPMs for Informed Decision-Making

  • Analyze financial projections: Look for conservative estimates and review rental income forecasts and property management expenses.
  • Evaluate market conditions: Assess factors such as rent control policies, local employment rates, or Section 8 housing regulations that may impact future rental rates.
  • Determine investment goals alignment: Ensure that each sponsor’s strategy aligns with your personal financial objectives by comparing how raised capital will be allocated across various deals.

By taking these steps, you can mitigate transparency issues and establish proper communication channels throughout your real estate syndication journey.

Assessing Market Fluctuations Risk

Investing in realty may involve hazard, yet there are ways to reduce exposure to market swings.

Diverse Employment Opportunities

Target properties in regions with a variety of industries and job sectors to maintain rental demand.

High Median Household Incomes

Properties in areas with high median household incomes attract tenants who can afford higher rental rates and are less likely to default on rent payments.

Low Crime Rates

  • A safer neighborhood attracts more potential renters and increases property value over time.
  • Tenants are more inclined towards long-term leases in low-crime areas as they feel secure living there.
  • Property management costs may be lower due to reduced vandalism or theft-related expenses.

Assessing market fluctuation risks is crucial when passively investing in real estate syndications. By focusing on properties located in areas with diverse employment opportunities, high median household incomes, and low crime rates, investors can better protect their investments from potential pitfalls. Real estate syndications can be a great way to invest in real estate without the hassle of property management, but it’s important to understand the risks involved and set clear investment goals

Proper Debt Financing Strategies for Real Estate Syndications

Using debt financing through floating-rate loans can accelerate returns on equity without jeopardizing financial stability.

Investors should ensure their chosen syndicator has a proven track record of implementing value-add strategies and adhering to conservative loan-to-value ratios (LTV).

Floating-rate loans provide flexibility in managing debt payments while maximizing potential returns.

Conservative LTV ratios reduce risks involved in case market conditions change unfavorably.

Investors should look for multifamily syndications where the sponsor maintains an LTV within the range of 60-70%.

Partner with sponsors who prioritize transparency and communication throughout all stages of your investment journey.

Stay informed about any changes or updates related to your passive investor status, property management, or rent control policies affecting your rental income stream. Debt financing can be a valuable tool for real estate investors, but it’s important to understand the potential pitfalls and risks involved.

Short-term rentals, rent control policies, and Section 8 housing can all impact rental rates and potential returns.

Investors should have clear investment goals and understand the potential risks before passively investing in real estate syndications.

By partnering with experienced sponsors and carefully evaluating debt financing strategies, investors can raise capital and achieve their investment goals.

Legal Risks in Real Estate Syndications

Legislative constraints may pose risks in real estate syndications, making it crucial for investors to partner with sponsors who have experienced legal teams on staff and appropriate insurance coverage.

A strong legal team is essential when investing in real estate syndications.

Partnering with a sponsor that has an experienced legal team ensures they understand the complexities of these transactions, minimizing your exposure to potential pitfalls.

It’s vital that your chosen sponsor carries adequate insurance coverage to protect against unforeseen events such as property damage or lawsuits from tenants.

Make sure you inquire about their insurance coverage, so you’re confident they have sufficient safeguards in place.

Passive investors should educate themselves on relevant regulations governing real estate investments to better understand how these factors could impact their investment goals.

By staying informed and working with experienced professionals, you can mitigate the legal risks involved in real estate syndications and confidently pursue this lucrative investment strategy.

Real Estate Investing For Physicians

FAQs in Relation to Risks of Real Estate Syndication

What are the risks of syndicated real estate?

Investing in syndicated real estate can be risky due to illiquidity, limited control over property management decisions, reliance on sponsor’s expertise, and market volatility. It’s important to perform due diligence checks on sponsors and deals, diversify investments, and ensure value-add strategies with conservative loan-to-value ratios to mitigate these risks. source

What is the risk of syndication?

Syndication risk refers to potential losses in a pooled investment vehicle like real estate syndications, which can arise from poor property selection or management by the sponsor, economic downturns, or legislative changes impacting operations or financing options. source

Can you lose money with real estate syndication?

Yes, investors can lose money in real estate syndications if properties underperform due to market conditions or mismanagement by sponsors. To minimize this risk, it’s crucial for investors to conduct thorough research on both the deal and the track record of its sponsoring team before committing capital. source

What are 4 major real estate risk concerns?

  1. Economic Risk: Market fluctuations affecting demand for rentals and property values.
  2. Sponsor Risk: Incompetence or fraud by managing partners responsible for project execution.
  3. Leverage Risk: Overuse of debt financing leading to increased vulnerability during downturns.
  4. Liquidity Risk: Inability to quickly sell an asset without substantial loss in value.

Conclusion

Real estate syndication risks can be reduced through proper due diligence, diversification, and careful selection of sponsors and investment properties.

While some investors may worry about relinquishing control over investments, building trust with sponsors and ensuring transparency can help ease these concerns.

It’s important to consider market volatility risks and the suitability of real estate syndication as an illiquid investment option, but stable cash-flowing assets and responsible use of debt financing can provide long-term benefits.

Partnering with experienced legal teams and maintaining adequate insurance coverage can help investors navigate legislative constraints that may arise.

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Why You Should Be Thinking About Alternative Investments

In uncertain times, financial advisors often encourage investors to turn to low-risk, fixed-income investment options, such as CDs, money market funds, and high-yield savings accounts. They reason that these safe investments will preserve your assets as they provide positive returns. But do they?

Investing in the stock market and receiving a 60% loss is a no-no, so the financial advisors would rather you invest on a 10-year treasury yield, making 3.7%. While it may seem the investment is making you money, you have to consider that the annual inflation rate rose to 8.2% in September 2022. That means you are losing money (-4.5% annually).

While all investment options seem pointless at the moment, one criminally underutilized segment is viable during market downturns. Did you know you can make as much as 12% returns using alternative investing?

According to Prequin’s 2022 Global Alternatives Report, the alternatives AUM concluded at $13 trillion in 2021 and is projected to expand to 11.7% ($23 trillion) by 2026. This is a look at what alternative investing is all about.

What Are Alternative Investments?

Alternative investments have no basis on traditional financial products like stocks, bonds, or cash. Most alternative investments don’t receive as much regulation from the SEC and could be more illiquid.

Types Of Alternative Investments

As more and more alternatives become available to retail or individual investors, it pays for investors to have a solid understanding of these options. The following are some examples of alternative investments:

1. Private Equity

Private equity is a term that describes investments in businesses not traded on a public market like the New York Stock Exchange or NASDAQ.

The goal of private equity firms is to generate returns for their investors by making strategic investments in private companies with the assumption that the value of those investments will increase by a certain time. You can further break private equity down into these categories:

  • Venture capital
  • Buyouts
  • Growth equity

These asset classes typically require long-term investments of substantial capital, so only institutions and wealthy individuals can participate.

2. Hedge Funds

A hedge fund is a type of pooled investment partnership that trades liquid assets using various investment strategies to generate a high rate of return for its investors. Entrepreneurs can invest in a wider variety of securities, as hedge funds are not subject to the same regulations as mutual funds.

Compared to other alternative investments, hedge funds are notable for their high liquidity ratio. Because they have a higher concentration of liquid securities, you can liquidate the funds in minutes. Due to the high costs and risks involved, only wealthy individuals and institutional investors, like pension funds, typically invest in hedge funds.

3. Structured Products

Structured products are a type of investment that involves pairing a debt instrument (such as a bond or CDs) with one or more derivative instruments tied to an underlying asset class or a collection of assets such as stocks, market indices, currencies, or interest rates.

Despite their complexity and potential for loss, structured products allow investors to create a uniquely tailored portfolio to their needs. Typically, investment banks produce them and offer them to institutional, corporate, and individual clients.

4. Private Debt

Private debt consists of loans from sources other than traditional banks. Businesses often use private debt for expansion, working capital increases, or real estate construction and development.

Given the historically low returns on government bonds, direct lending to businesses can provide a sizable premium over the cash flows accessible from liquid fixed-income products. Private debt funds, the firms that provide the funding, make money through two main channels: interest payments and the eventual repayment of the loan.

A private debt fund may also focus on senior, junior, or mezzanine debt, among other strategies, such as direct lending, venture debt, and exceptional situations.

5. Real Estate

Many Americans already have a stake in this asset class because they are homeowners, making real estate the most viable alternative investment. Real estate investments can take the form of direct property ownership or indirect investments.

Properties like apartment buildings and shopping centers provide regular rental income to their owners, and they hope for price increases over time.

Investors who want a more hands-off approach might buy shares of private real estate investment trusts (REITs) through a broker. REITs that trade publicly do so through the stock market.

In addition to its diversification benefits, real estate offers investors a hedge against inflation and favorable tax advantages.

6. Commodities

Commodities are tradable items that have both direct and indirect economic uses. Examples of commonly traded commodities include gold, farm animals, precious metals, wool, oil, gas, wood, and uranium.

Given their relative immunity to fluctuations in the public equity market, investors often use commodities as a hedge against inflation. Commodity prices fluctuate based on supply and demand market forces; increased demand will lead to higher prices and greater returns for investors. You can invest in commodities in several ways, including:

  • Futures Contract
  • Stock
  • Physical commodities

7. Collectibles

When you invest in collectibles, you aim to generate a return on your money through long-term appreciation of the items you own. Some of the common types of collectibles include:

  • Books
  • Rare wine
  • Stamps
  • Antiques
  • Trading coins
  • Art
  • Coins
  • Baseball cards
  • Toys

To succeed in this alternative investment strategy, you need an extensive understanding of the sector and the patience to hold on to your investment for a long time. It is not easy to predict how much a work of art, or a collection will increase in value because both can decline in worth or get destroyed.

Some collectors treat their collections as investments on par with their homes or cars, and their collections make up a significant portion of their net worth. Adding collectibles to a portfolio is a great way to diversify your investment base and spread your risk.

Final Word

Many investors are increasingly looking to alternative investments to diversify their portfolios, maximize their returns, and accomplish other financial objectives. That is why it is so important for investors to have a firm grasp of the options they have to adopt alternative investments into their portfolios successfully.

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Why You Should Consider Buying Real Estate During A Recession

The inflation rate as of November 2022 is 8.202%, well above the long-term average of 3.26%. Mortgage rates are still rising, exceeding 7.44%, and there’s a good chance the Fed will increase lending rates by 50 to75 basis points in the December 14-15 FOMC meeting, and an additional 25 to 50 basis points in the January 31-Feb 2 2023 FOMC meeting. This could result in Mortgage rates close to 9% by February 2023.

All of these point to a intentional recession. If anything, TD securities think there’s a more than 50% chance the US will enter a recession within the next 18 months.

While a recession means people don’t have the money to purchase a home, it presents mouthwatering opportunities for a real estate buyer, as long as the buyer can maintain financial solvency through the 18 to 24 months of a recession. Keep reading to learn why buying real estate assets during a recession might be a good idea.

Advantages Of Buying A Real Estate During A Recession
Purchasing Real Estate during a recession has some benefits, such as:

A) Lower Prices
House prices usually fall dramatically during economic downturns. Such an economic environment means people can barely afford the bare essentials, so splashing hundreds of thousands of dollars on a home is out of the question. This has a trickle-down effect on the Multifamily real estate market and even other real estate asset classes.

A lack of interested purchasers can lead to prolonged selling times, so sellers may feel compelled to cut their asking prices to move the assets. Foreclosures also force homeowners to sell, increasing the supply of homes and further driving down prices.

While home prices have not dropped significantly as of August 2022, Moody’s Analytics forecasts that home prices in highly “overvalued” housing markets might fall by 15% to 20% should a recession hit, while nationwide home prices would decrease by roughly 5%.

B). Mortgage Is Cheaper
During a typical recession, business stagnates, so the Fed’s go-to solution to spur the economy and get people to spend is lowering interest rates. That typically leads to more affordable mortgage rates, which is your cue to hit the market in search of a home. This Fed pivot will not occur until we are firmly entrenched in a recession, and consumer confidence has severely been impacted, often seem as a reduction in the hyper liquid stock market open futures.

The National Bureau of Economic Research (NBER) still has not called this a recession despite two consecutive depressed financial quarters, which explains why the interest rates are still high.

If the economy does tip into a recession, expect mortgage rates to plummet, but only after the stock market capitulates and the average investor is running for the exits. That would be the perfect time to get a mortgage and grab a house.

C) Low Competition
In 2020 and 2021, homes were flying off the shelf, some site-unseen. Homes found buyers in as little as one week. A depressed economy, however, means people don’t have purchasing power, so expect little competition for home listings.

The high mortgage rates and exorbitant home prices also mean supply will increase, so you will have plenty of homes to pick from, if you can afford it.

Tips For Buying A Real Estate In A Recession

Here are some tips if you want to purchase a home during a recession:

1. Do Your Homework
Sure, property will generally be cheaper, but that doesn’t mean you can’t get a better deal. Scour the internet and visit local listings. You might net the bargain of the century and maximize profits if you decide to sell the home later.

2. Know When To Walk Away
Just because it’s your dream doesn’t mean you should compromise everything to get the deal over the line. If you find an asset that meets all your requirements but is too expensive, ask the seller to lower the price. If they can’t, walk away. There are plenty of gems like that waiting to be discovered. Take your time to negotiate.

3. Get Your Finances In Order
First, you need a budget, a limit of what you can afford to purchase any property. That will act as a guide whenever you’re conflicted about how much you should spend.

That also means ensuring you have a good credit score to secure a mortgage, pay all the taxes, and have enough savings to stump up the down payment.

4. Shop Around For A Mortgage Deal
Yes, mortgage rates are lower than usual, but you can still get a better deal than most people. Considering mortgages involve vast sums of money, you’d be surprised how much money a few changes in decimal numbers will save you.

Go around looking at the deals mortgage providers offer to find one that suits you best. That would also be a good time to enlist a mortgage broker as they know the best places you can land a mortgage deal after considering your financial circumstances.

5. Hire A Real Estate Agent
Hiring a real estate agent is a great way to expand your reach in the real estate market. Agents have access to more properties than you could find by yourself and know where to strike a deal. They can also provide valuable advice, offer guidance, and negotiate on your behalf.

6. Obtain Concessions
Due to the market downturn, you should take advantage of all the rebates and real estate deals that come your way. Owners are under pressure to sell their properties as quickly as possible due to the drop in prices. Consult with your real estate agent to request concessions from the seller, but keep in mind the agents goal is to generate a commission, their incentive is to generate a sale.

7. Avoid A Bidding War
One benefit of purchasing in a down market is obtaining a reasonable price. Don’t let your emotions get you into a bidding war, as that will mean spending more than you had anticipated. An excellent way to go about this is to set a budget and adhere to it.

8. Realign Your Investment Strategy
As you’ve probably noticed, it is a down market, so properties aren’t moving fast. Therefore, you should approach a purchase knowing that you may not offload for a long time. It would be best if you reassessed your investment strategy.

If your strategy is flipping property, that may not work in a down market, its akin to catching a falling knife. It would help if you thought of long-term strategies, such as renting the property. That entails gauging the viability of the property as a rental unit before deciding to purchase.

Therefore, don’t spend your last dollar on a property hoping to get instant returns. Since you’ll be holding onto the property for some time, you should also ensure you have the finances to take care of maintenance and taxes.

Final Words

For the right investor, purchasing real estate during a recession makes sense. While mortgage rates are forced up to control inflation and create unemployment, they typically fall during the recession; once unemployment skyrockets up and the stock market tanks. Further, there are a lot of listings to choose from as there’s little competition.

I recommend you use the stock market as an early indicator of economic duress, the housing market as a less volatile marker, and the multifamily market as a lagging indicator; unless of course, a black swan happens to swim by and we have major demographic changes.

If you have the financial liquidity, you can grab a once-in-a-lifetime deal, especially if you enlist the services of experienced guides who have navigated a few economic cycles. However, you may have to keep the asset for some time since it may be a prolonged down market.

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How Real Estate Investors Can Prepare For Turbulent Economic Future

Investing in the future is the smartest thing you can do now, considering the economy contracted for two consecutive quarters, the typical textbook definition of a recession. Although, the US is still not technically in a recession, as the National Bureau of Economic Research is the only body allowed to make that call (and they haven’t, yet…), the warning signs are there.

What can’t be ignored is that the economy is contracting while productivity is declining, so it’s best to prepare for the harsh economic days ahead. Because of the unpredictable economic behavior, this article will discuss how to invest in your future so you can ride through the hard times.

1. Create An Investment Plan

The first step to building a financially secure future is to create an investment plan. With such a volatile market, you need a guiding star to help you commit to the master plan and avoid panicked decisions. An investment plan lays down a strategy after gauging all the market variables. That way, you can recognize and weigh all the risks when investing, enabling you to fulfill all your obligations still. The plan should help you realize the best investment vehicles.

The key to creating a plan is to be realistic about what you can achieve. Note that creating an entire financial strategy for the future in one sitting isn’t going to work. Instead, break down each piece into smaller steps that are manageable and achievable. Once you’ve figured out the steps, write them down, so they’re easy to refer back to when needed.

2. Diversify Your Investments

As is often said, never place all your eggs in one basket. Diversifying is an excellent way to get the most out of your money, even in the most troubling economic slumps. It means spreading the investments across different asset classes so that if one class tanks, another will likely thrive. Markets you can try your hand at include:

A) Invest In REITs

Real estate investment trusts (REITs) are a great way to invest in real estate without owning any property. They’re publicly traded on stock exchanges and often pay out dividends from their rental income. In a risk-off environment such as the current one, REITs are typically the oasis of hope, and it’s easy to see why. REITs offer relative inflation protection and high dividends but bear a low correlation to the stock market and have low transaction fees.

REITs are excellent investment vehicles for the long term, typically outperforming bonds and stocks in some periods. If anything, REIT’s average yield is over 3%, more than double what you would earn from S&P 500 stocks. What’s more, REITs are liquid, so you can get your cash as soon as the market opens.

B) Home Flipping 

You don’t have to own an entire rental property to reap the benefits of investing in properties. A neat trick to try is home flipping, which involves buying distressed properties at discounts, renovating them, and selling them for a profit.

C) Sandwich Lease

In this arrangement, you enter a rent-to-own agreement with a landlord, then lease it to a tenant. It’s one of the most cost-effective ways to enter into real estate, as the tenant will allow you to purchase the property after several years.

3. Concentrate On Marketing

Investing in your marketing strategy is one of the best ways to create a sustainable business. Marketing will boost sales and build your reputation, increase your relevance and demand, and cements your place among customers, creating a loyal customer base.

One of the most potent forms of marketing is digital marketing. The main way of doing this is through search engine optimization (SEO) using keywords. You target a range of words potential clients use when searching for real estate properties for Google to drive traffic to your online sites.

Digital marketing could take many forms, such as email marketing, blogging—which 56% of marketers say is effective, and social media. Posting content on social media is exceptionally effective considering 82% of Americans use social platforms.

Whichever form of marketing you settle on, you should try videos. According to Wyzowl’s research, 86% of marketers said videos helped increase traffic and generate leads, while 81% said they directly helped increase sales.

4. Automate Your Savings

Automating savings is a great way to ensure you always have money available for whatever comes up. The best part is you won’t even have to think about it as it works in the background.

It’s also a great way to start investing in the future. You can set up automated transfers from checking to savings and then start saving with every dollar. It’s easy, painless, and will save you money in the long run.

To automate your savings, use an app like Acorns or Qapital. These apps allow you to set up automatic savings plans, plan, and invest without making withdrawals at specific times as traditional banks do.

5. Start Investing In Yourself

Another great way to prepare for the future is by investing in yourself. There are many ways to invest in yourself, such as:

  • Go to class: There are many courses available online or at local community colleges that can help you learn more about real estate and expand your knowledge in readiness for the future. Most of these courses have classes on various aspects of real estate, including how to market yourself, use social media, and manage your finances.
  • Subscribe to emails from industry leaders: By signing up for newsletters from real estate professionals or companies, you’ll stay up-to-date on changes in the industry and what you can do to adjust.
  • Listen to niche podcasts: Podcasts are another great way to learn about topics related to your industry—not just real estate. There’s a ton of valuable information on marketing, management skills, and more.

The Bottom Line – Invest In Your Future, No One Else Has More Of An Incentive

Just because the economy is tanking doesn’t mean you must sink with it. Since business is low, now is the best time to invest in the future and realign your business so you can reap big when the market turns hot again.

Some of the best tactics you can employ include concentrating on marketing, investing in your knowledge, diversifying your investment portfolio, and automating your savings. Before you set out, you must create an investment master plan to guide you through turbulent times.

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Creating Cornerstone Content That Converts Leads Into Clients For Real Estate

Real estate investors often get stuck in a rut of creating text ads, which, while effective at generating leads, rarely convert them into partners.

You should consider cornerstone content to build your brand and turn leads into partners.

Write cornerstone articles to make the potential customers’ decision-making easier. The cornerstone content should be the go-to resource for information about your industry and business that people can hold onto for reference and use as they look for more information about your services.

For instance, the return on investment (ROI) on commercial real estate is reportedly 9.5% per annum. Use cornerstone content to show how much experience you have in helping people purchase or sell such property at an even higher markup. So, here’s how you can use cornerstone content to convert leads into clients.

What Is Cornerstone Content?

Cornerstone content is a post that provides in-depth and valuable information for your clients. It could be a series of your best articles that you intend to rank highest on search engines.

Since they provide exhaustive content that includes comprehensive information rather than sell products, they tend to be longer and more complex. It could be simple blog addition or a stand-on page.

Cornerstone content is vital because it’s ideal for building trust and credibility since the foundational content helps build traffic and brand awareness by establishing you as an authority in the industry. That is crucial to showing potential customers what you can do, making them interested in your services.

The goal of the cornerstone content is to create a positive first impression, making them more likely to convert into paying customers. For best results, create cornerstone content once or twice every month, depending on how often you publish new content on your site.

How To Create Valuable Cornerstone Content

Here are sure-fire tips for creating cornerstone content that will help your real estate agency grow:

1. Choose The Right Topic

It may seem mundane, but this is perhaps the most crucial step of the cornerstone content.

Before settling on the topic, you have to ask yourself a series of questions, chief among them is the major pain points or problems the target audience faces. Next, find out what hasn’t been answered sufficiently on other websites, then determine which issues you can answer competently.

It helps to ask members of your team if there are common questions they face. In addition, ask real customers too. That should allow you to formulate cornerstone content containing unique insight that addresses burning issues.

2. Keywords And SEO Optimization Strategies

It’s not just the real estate industry; the first page of Google is where all the action is. As 95% of web visitors rely on the first-page result, ensuring your website makes the cut and appears on the first page is essential.

One of the best ways to do that is through keyword optimization. It involves using words and phrases relevant to what you’re selling and what clients are searching for and answering the potential customers’ most pressing needs.

For example, if you’re selling a house in San Francisco, you might want to put “San Francisco” and “Bay Area” in your title tag and Meta description. You might also include those phrases in the body text of your page so that search engines will pick up on them.

Another strategy is ensuring your site is easily crawlable by search engines using proper coding standards and following web design best practices.

3. Be Consistent With Formatting And Style

Your clients will recognize your brand more efficiently if your content follows a similar pattern and uses familiar language and branding. Engaging, high-quality, consistent content impacts a potential customer’s decision-making more than any other technique.

4. Internal Linking

Send the most internal links to your cornerstone posts as this signals to search engines that they are the most important, allowing them to rank higher. It helps to use text links, that is, the keywords as the anchor text for links and then link within the text itself. Ensure you’re linking from pages with related content.

5. Call To Action

Considering you’re creating the cornerstone content aiming to convert them into clients, it helps to insert a call to action (CTA) at the end of the article. A CTA instructs the reader to take a course of action. You can do this by using call-to-action buttons at the end of your post.

CTA’s are highly effective, but the best performing is personalized, which HubSpot found to be 202% more effective than their basic equivalents. For instance, ContentVerve turned the phrasing in their CTA into the first-person point of view. Instead of writing “start Your 30-day…,” they wrote “Start My 30-day…” and realized a 90% rise in the click-through rate (CTR). So, how do you ensure your call to action is clear and compelling?

  • Tell Your Readers Exactly What You Want Them To Do Next: Make it clear what they need to do next. Use action-oriented writing instructing them to take action, such as clicking a link to another page on your site or even asking them to leave a comment with their thoughts. The key is to be specific, so there’s no room for confusion.
  • Ensure The CTA Is Visible And Eye-Catching: If your readers can’t see the button clearly, it won’t matter how good your copy is—they won’t click on it. Make sure that whatever design element you use for your CTA is highly visible, accessible, and super apparent where to find it. The goal of any call-to-action is getting people excited about taking action—and for that excitement to translate into clicks.

6. Promote The Content

You can create the best cornerstone content, but it will be pointless if your target audience doesn’t read it. Since it takes time for new content to rank organically, make a splash by promoting the content in the meantime.

Email promotion is one of the most impressive ways of doing it, with 4 billion daily users. It’s telling that 59% of respondents said email marketing influenced their purchasing decision.

Social media is another potent outlet considering 72% of Americans use social media daily. Focus on platforms that work best for real estate, personalize text and images for each platform, and share more than once.

7. Maintenance

Finally, you must maintain the cornerstone content’s health to remain evergreen. Monitor the performance, update information regularly, improve loading speeds, and give it a style refresh every few years to keep it looking up-to-date.

Final Word

If you’re a real estate investor, cornerstone content might provide the tipping point of turning leads into clients. You can do that effectively by researching suitable topics, conducting keyword research, and creating content with plenty of internal links and a personalized call to action.

Ensure you maintain consistent messaging and branding across the cornerstone content, promote the posts, and keep updating the content to keep them evergreen.

Categories
Blogs Invest In Large Multifamily Property Real Estate

How To Be A Successful, First-Time Homebuyer In 2022

Mid-2022 is probably the worst time to buy a home. Median home prices hit an all-time high of $440,000 in July, and mortgage rates are at 5.5%, almost double what they were last year.

While buying a home now may seem a terrible idea, there are ways to bag yourself a good deal. So, these are some tactics you can employ to ensure your purchase doesn’t become a financial nightmare.

1. Do Your Research
Before looking for a home, you must understand the market to know what’s within your budget. Sure, most home prices have skyrocketed over the past few months, but there are some places where it’s coming down.

For instance, according to Redfin, Salt Lake City, Boise, and Denver all witnessed at least 50% cuts in asking prices. Seven more cities, including Tampa and Sacramento, saw asking prices slashed by more than 44%.

So yes, you can still bag yourself a deal in the current environment, as long as you are willing to do the legwork and compromise on the places you wish to live in.

2. Build Your Credit History
It helps to build your credit history if you’re a first-time homebuyer. A poor credit score makes qualifying for a mortgage loan challenging or attracts high premium rates because financial institutions will view you as a risk.

If you have little or no credit history, you may need to take steps to build up your score. Here are some tips for doing so:

Pay all your bills in full and on time: Even if you don’t have any credit cards or loans yet, you should make sure that any bills you pay regularly (such as rent or utilities) are paid on time and in full. It will help establish your payment history and show lenders that you’re reliable with money.
Don’t open too many credit cards at once: If you decide to apply for a credit card, make sure that you only use one at a time so that it doesn’t hurt your credit score too much if the application gets denied (or approved but with a low limit).
Minimize utilization rate: Your balance-to-limit ratio (utilization rate) is just as important as payment history. It refers to the total balances racked up on all your credit cards divided by the total credit limit of all the credit cards. Aim to keep this figure below 30%.
3. Make A Sizeable Down Payment
Making a sizable down payment toward buying your home is vital. The down payment is typically between 3% and 20% of the home’s purchase price.

You want to make a large down payment because it will lower your monthly mortgage payments, saving money in the long run. Additionally, making a large down payment means avoiding paying private mortgage insurance (PMI).

PMI is an additional fee that many lenders require as part of their mortgage loan package. It protects them if you default on your loan—but it can add hundreds or even thousands of dollars to your monthly mortgage payment.

You can avoid PMI by paying more than 20% of the home’s purchase price as a down payment. Alternatively, you can avoid a down payment by getting a piggyback or 80-10-10 loan, which covers 10% of the deposit while you deposit the other 10% from your savings.

4. Get Pre-Approved For A Mortgage
When you’re a first-time homebuyer, getting pre-approved for a mortgage is one of the most important steps to ensure you find the right home.

Getting pre-approved means that a lender has reviewed your finances and determined that you can afford a home at a certain price range. Your agent will know how much house you can afford, so they don’t waste time showing you homes that are beyond your means.

5. Try Out For First-Time Home Buyer Grants And Programs
First-time homebuyers have several financial assistance programs that will soften the sting of the hefty payments needed to purchase a home.

A first-time homebuyer’s grant refers to financial assistance you may receive to purchase your first home. It typically covers a percentage of the down payment and closing costs. Since it’s a grant, you may not have to repay the amount. Examples include:

Downpayment Toward Equity Act
Good Neighbor Next Door program
Bank of America’s Home Grant
Chase Bank Homebuyer Grant
On the other hand, first-time home buyer programs usually come from federal, local, or state governments and take the form of tax credits, forgivable mortgages and closing costs, and down payment assistance.

You may qualify for the Housing Choice Voucher if you face financial challenges due to a low income and receive minimum earnings as stipulated by your local public housing authority. A clever way to use the voucher is to fund a rent-to-own program.

Similarly, you can apply for an FHA loan. These are Federal Housing Administration-insured loans made by private lenders, usually featuring zero-interest loans and deferred payment loans. Moreover, they typically have lower down payments and require lower credit scores than most other mortgage loans.

6. Use A Mortgage Broker And Agent
It pays to consult a mortgage broker in such a tight financial environment. They know the ins and outs of the mortgage industry, so they can find you a mortgage with lower fees, great rates, and financial perks and help you overcome borrowing challenges.

Similarly, procure the services of a real estate agent. Using an agent is one of the best ways to ensure a smooth process and a successful outcome. No wonder 87% of homebuyers used an agent in their home purchase.

Real estate agents or brokers know the market and can help you find your dream home at your price range. Ensure that the agent knows your unique needs so they can find the ideal property that fits your lifestyle.

7. Consider Variable-Rate Mortgage
A variable-rate mortgage can be a good choice at this point. You don’t want to go for a fixed-rate mortgage with fixed interest rate monthly payments throughout its lifespan, as the current mortgage rates are very high.

An adjustable-rate mortgage will have fluctuating mortgage rate payments, so you will pay lower fees when the interest rate is eventually lower. Further, an adjustable rate payment allows you to make higher monthly mortgage payments without penalty. That means there’s a chance you might pay much less than a fixed rate arrangement.

Additionally, variable-rate mortgages typically have lower initial interest rates than fixed-rate mortgages, which means they’re cheaper upfront. That could buy you some time until the interest rates finally dip.

Finally, you could refinance the variable-rate mortgage and exchange it with a fixed-rate mortgage when the interest rates eventually drop to reasonable levels and it makes financial sense to do so.

Final Word
Many potential first-time home buyers are postponing the purchase because of the hostile economic environment that has rendered homebuying virtually impossible.

Home prices have reached historical highs, and mortgage rates are double what they used to be in January 2022, with more hikes in the pipeline as the Fed is threatening more interest rate hikes.

If you must buy a home, try looking for one in states that have lowered their asking prices, utilize a mortgage broker and real estate agent to find deals for houses and mortgage rates, and build your credit history to score favorable loan terms.

Similarly, consider a variable-rate mortgage, make a sizable mortgage down payment to reduce your monthly mortgage payments, and try to secure a first-time home buyer grant or similar program.

Categories
Blogs Property Investors Real Estate

9 Things Help Investors Thrive During Real Estate Recessions

There is a concern among many investors in real estate about the possibility of a recession in light of recent economic uncertainties and how that will affect the real estate market.

In most economic downturns, people lose jobs, and mortgage rates typically go higher than most can afford, crippling their ability to purchase properties. But that doesn’t always spell doom for real estate, so here’s a look at how a real estate investor can survive, or even thrive, during a recession.

1. Branding And Marketing

The best way to survive a recession is to keep marketing your brand. It’s about building a brand that stands out from the crowd.

Branding isn’t just about getting customers to recognize your business; it’s about getting customers to keep coming back for more business as you have established yourself as a reputable brand. One of the best ways to achieve this is through positive marketing.

While most businesses would understandably cut down on marketing during an economic downturn, that’s the perfect time to rump up your marketing efforts, as it has healthy returns. For instance, the return on investment (ROI) for email marketing is $36 for every $1 spent. Here’s what you stand to benefit from good marketing and branding:

  • Gaining a larger audience
  • Increased cash flow
  • Help you take some of your competitors’ clients

2. Learn More About The Real Estate Market And The Recession

You need to have a working knowledge of the economy and how it will impact the real estate industry to stand a chance of surviving a recession. Get to know the causes of the recession and where the money is headed.

In a recession, not all economic sectors will slump; some might perform better than others. Use this knowledge to pivot your business to cater to those sectors that are doing better during the downturn.

Take the 2020 recession, for instance: while shopping in malls dipped by 70% and the office industry slumped due to work-from-home initiatives, the booming ecommerce industry led to a steep increase in demand for warehouses.

3. Invest In Technology

Investing in a customer relationship management (CRM) tool during a recession is one of the smartest moves you could make, as it has an average ROI of $8.71 for every dollar spent.

As a real estate brand, you can use CRM to track client information and make follow-ups. A sound CRM system should have features that enable you to access information about potential buyers and sellers easily and communicate with them using various channels.

Similarly, you can use social media sites and real estate apps to showcase your listings and increase your reach.

Consider technologies such as virtual tours and virtual staging to cut down on costs of staging an open day and staging a listing.

4. Work On Customer Retention Of Your Current Clientele

Keeping your already existing clients should be a major priority. When you work hard to maintain good relationships with your clients, they’ll appreciate it and return the favor. That makes them feel special goes a long way toward building trust. Try some of these customer service strategies:

  • Maintain a customer feedback loop
  • Provide personalized customer service
  • Start a customer education program
  • Give offers and discounts
  • Provide incentives

5. Grow Your Network

Never underrate the power of networking, as it can help your business stay afloat during recessions. You can build relationships with friends and associates to expand your business’s reach and abilities.

A more extensive network will help in acquiring new business leads, which you can work towards closing to improve sales. Additionally, it will help you keep abreast of the latest trends in the market and identify best practices.

Further, networking will increase your connections and opportunities to explore new markets.

6. Cut Expenses

Tough times call for tough measures. Everyone has to make sacrifices to ensure the firm makes it through an economic downturn, which means cutting costs. Reducing expenses is a brilliant idea even in good times.

Lower your expenditure by eliminating items that don’t offer much to the business, such as a cable subscription in the office. Alternatively, realign your financial spending by reviewing your insurance providers to get a better deal, consolidating bank accounts, and avoiding unnecessary debt.

Improving efficiency will also help in cutting down costs as it minimizes wastage. Purchase the right tools, go paperless, and improve time and project management.

7. Stick To Your Business Plan

Economic recession is part and parcel of every business cycle. You don’t need to panic and sell everything. Just stick to your original business plan with just a few adjustments. To stay focused on the big picture, make it a point to refer to your long-term objectives and plans regularly.

Moreover, set short-term weekly and monthly goals, and tweak where necessary as long as they tally with the master plan. You may need to restructure the business plan as recessions can be unpredictable.

8. Re-Evaluate The Business

A recession is the perfect time to take a step back and take a long hard look at the business. Since there’s plenty of time on your hands, use the time to evaluate the company and find any weak points that need fixing.

Maybe business is low because you’re not marketing right, your pricing doesn’t make sense, or you don’t understand prospects. Go over your data, try to work where problems are, and implement potential solutions.

9. Create A Unique Value Proposition

Creating a unique value proposition is one of the best ways to thrive in any market. In real estate, this means differentiating yourself from the competition. That means providing something the others don’t offer.

That could mean anything that offers extras to clients, like diversifying your business by partnering with a mortgage broker, so you offer mortgage provision services in-house.

Final Word

One of the key lessons to surviving a recession is never to stop marketing. That will help build your brand as well as bring in new business. Alternatively, create a unique value proposition, invest in technology, and grow your network to improve sales.

On the other hand, save money by cutting back on expenditure, sticking to the business plan, and retaining your current clients. It also helps to keep abreast of the current economic environment to find opportunities you had not considered before.

Despite the macroeconomic headwinds of recession, your individual economic success could be amazing, as long  as you can navigate and anticipate this crisis.  What outwardly appears to be chaos may be an historic opportunity.

Categories
Blogs Real Estate

How The Unemployment Rates Impact The Looming Recession

In the face of higher interest rates and rampant inflation, the jobs market is somehow still going strong. For instance, the economy added an estimated 390,000 jobs in May 2022 and 528,000 in July.

Many businesses have “hiring” signs up, proving that although the current global economic crisis is slowing down the U.S. economy, we are not quite in a recession yet. So, here’s a look at how a recession affects unemployment rates.

Unemployment Rate Measures

To better understand the job market and unemployment rates, it’s essential to know the different categories of ‘unemployed.’ To calculate the unemployment rate, the U.S. Bureau of Labor Statistics (BLS) uses six measurements ranging from U1 to U6.

  • U1 refers to the percentage of people who’ve been unemployed for more than 15 weeks.
  • U2 is the percentage of people who have lost their jobs or finished temporary work.
  • U3 is the official unemployment rate for people without jobs who actively sought work within the past four weeks.
  • U4 encompasses U3 individuals plus those who are discouraged. They stopped looking for work because they believed that current economic conditions were unfavorable.
  • These include individuals described in U4 in addition to marginally attached workers. U5 also includes individuals who would like to work but haven’t looked for work recently.
  • These include people described in U5 plus part-time workers who want to work full-time but economic conditions do not allow it.

The different measures of unemployment can be better understood using the table below.

U3 is the most commonly reported of the six measurements, with U6 being a better depiction of the current unemployment rate. Despite the BLS focusing on U3 as the official unemployment rate, many economists feel U6 is more meaningful because it factors in a more significant percentage of unemployed people.

The current rate for U3 is 3.6%. However, this only takes into account unemployed people actively looking for work. So, if unemployed people stop looking for a job, they no longer form a part of the U3.

This “discouraged” person decreases the unemployment rate since they no longer count as unemployed. What this leads to is a false rate of unemployment.

The U6 unemployment rate as of June 2022 stands at 6.7%. One of the best indicators of the employment market is the temporary help penetration rate. June saw an increase in the temp help employment rate to 2.07% of the total labor market, and the trend is likely to continue.

Another issue affecting employment is the number of workers re-entering the job market as there is increased selectivity in looking for new opportunities.

Typically, one of the indicators of a looming recession is high unemployment. Indeed, apart from scrutinizing factors such as income, manufacturing activity, output, and business sales, the National Bureau of Economic Research (NBER) also factors in the employment levels.

While the GDP has contracted two consecutive quarters, a traditional indicator of a recession, the strong employment market is a real head-scratcher. Staffing companies report finding it difficult to fill the number of open jobs available.

But the NBER is on to something because the common denominator in all recessions seems to be jobs. Take 1960, for example. Household incomes rose if you adjusted them for inflation, but that was a recession. In 2001, the GDP didn’t contract for two consecutive quarters, yet the NBER called it a recession.

Through all the recessions, be it the 1960 or 2020 recession, the unemployment rate always stood higher than 6.1%. With the current figure of 3.6%, it’s perhaps easy to see why the NBER is slow to call this a recession.

Besides, payrolls keep expanding, hitting 1.6% between December 2021 and May 2022. Labor is scarce, with the BLS reporting more than 10.7 million job openings as of June 2022. Those are hardly the signs of recession.

Or maybe the job market is slow to react to the downturn. After all, sales and manufacturing have weakened. Whatever the case, recession or not, it’s a long shot to expect unemployment to rise to the ‘normal’ levels witnessed during a typical recession.

With that, some experts expect a shallow recession, and the jobs market will help cushion against severe dips. That employment growth should also assist in productivity. Most corporates also raked in exceptional profits, which should cushion them further.

President Biden lamented that oil and gas companies made profits at the expense of consumers. He famously quipped that “Exxon made more money than God” after the company posted a first-quarter profit of more than $5.48 billion.

Strong Job Seeker’s Market

Despite fears of a looming recession, the current job market favors job seekers. Job openings are high, while layoffs are extremely low. Daniel Zhao, a senior economist at Glassdoor, agrees that this doesn’t look like a job market headed into a recession, as labor demand is still red-hot.

The uptick in hiring works out for the Federal Reserve’s plan to slow the rising inflation rate. In May, the Federal Reserve increased interest rates by 50 basis points; a move meant to slow down consumer demand without tipping the economy into a recession.

Despite higher interest rates and inflation, the labor market continued going strong in May. A LinkedIn survey showed that hiring went up by 9.8% in May 2022, a figure 10% higher than pre-COVID. Industries with the most significant increase in hiring include accommodation, healthcare, and construction.

Final Word – Recession Threats Have Little Impact On Employment

Despite fears of a recession, the job market is not showing any signs of slowing down. This will continue to positively impact the unemployment rate as job openings remain high and employees continue to select the jobs they want.

A critical element that is often overlooked is not just simply the overall employment rate, the quantity of jobs; but the income associated with the job, the quality of the job.  Despite returning overall employment to pre-pandemic levels, global wage growth has not kept pace with real inflation, and actual productivity has fallen off of a cliff.

At a macro level, I suspect we are in deep trouble.

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
Blogs Real Estate

How Successful Companies Handle Crises

Handling Crises 危機 (“Kiki”)

危機 (“Kiki”) is the Japanese word for crisis, it is composed of two letters:

(危) means “dangerous”

(機) means “opportunity”

Combined, crises are both an opportunity and a threat.

 

No matter your company’s age, size, or legacy, it is vulnerable to a crisis. Recently, some of the world’s most prominent brands have come under fire from the media. Like when Uber lost 200,000 customers after the hashtag #DeleteUber trended when they operated during the Trump strike. Or when United Airlines lost $800 million in value in a matter of hours.

A 2021 PWC study showed that 35% of respondents had a crisis plan in place when the COVID-19 pandemic hit, and only 20% felt the pandemic positively impacted their organizations. Seeing the consequences Uber and United Airlines faced, companies must have a crisis management strategy.

Crisis Management For Real Estate Companies

The pandemic brought unprecedented challenges to businesses, not just the real estate market. Statistics showed that nearly 100,000 businesses closed shop permanently. That forced many companies to reevaluate their crisis management strategies.

Many developers experienced stoppages and delays in their real estate projects, requiring companies to think outside the box to create safe and smart solutions.

Many companies tend to be reactive instead of proactive regarding crisis management, but lacking a crisis strategy may lead to the following issues:

● No designated spokesperson to coordinate communications can lead to a communications breakdown.

● A lack of clear messaging to stakeholders to address the situation can make them confused, scared, and angry, which is bad for business.

● Outsiders looking in will place your company on the list of companies facing a PR disaster in that year.

● Solving the crisis will take far longer, so you may hit some snags.

● If you do not take control of the situation, the company will face negative financial ramifications.

Crisis Management Examples

1. Cracker Barrel

In 2017, Bradley Reid posted on the restaurant’s corporate page, asking why they fired his wife, Nanette, after working at the restaurant for 11 years. Soon enough, the hashtag #JusticeforBradsWife began trending online. Shortly afterwards, someone started an online petition at Change.org, seeking answers. 17,000 went ahead to sign it.

The response the restaurant gave to the crisis was silence. They ignored the hashtags, petitions, and firestorm surrounding the situation. Cracker Barrel did run through the crisis without so much as a tumble in its net worth.

The key takeaway from this is that sometimes silence works best. It is a risky choice, but like Cracker Barrel, it may turn out well. A new video trends every other day, and people are quick to forget and move on. This strategy may just work out if keyboard warriors find something else to focus on.

2. Johnson & Johnson

In 1982, Johnson & Johnson faced a crisis where 7 people in Chicago died after ingesting over-the-counter Tylenol capsules laced with cyanide. To date, the incident remains unsolved. How the company handled the crisis is a textbook example of crisis management today.
Following the deaths, Johnson & Johnson immediately responded by stopping advertising for all its products. The company then sent out 450,000 messages to healthcare facilities and stakeholders, informing them of the crisis. Johnson & Johnson also sent out safety warnings to consumers.

Evidence later showed that the substance was accidentally introduced through store shelves and that it was not the company’s fault. However, the company still took full responsibility. This incident led to the company eventually manufacturing tamper-proof packaging.
Experts roundly regard the response as one of the best in the history of crisis management. The media praised how J&J handled the situation and how it also helped Tylenol recover as a brand. The key takeaway is that integrity and transparency go a long way towards building consumer and public trust again.

Crisis Management Planning Tips

Having looked at how some companies managed their crises using essential principles, below are a few steps to create a successful crisis management plan.

1. Anticipate Crises

Instead of waiting to scramble a team and a plan together after a crisis, plan ahead for the worst-case scenarios. During brainstorming sessions with the team you put together, quickly determine which situations are preventable. You can include variables in the plan that allow tweaking in response to a real crisis.

2. Create A Crisis Team

By default, the crisis team should include the management team, the CEO, and the PR manager. If possible, have web and social media managers on the team. Social media managers are on the frontline and can detect the public’s consensus and mood.

They can also gather insight from online mentions, hashtags, or posts that the company can use to steer the crisis on the right track.
Next, you want to choose the right spokesperson in place—one who is comfortable in front of cameras and people. If possible, the spokesperson you select should have some media training.

3. Know Your Stakeholders

The internal and external stakeholders are the first people you should communicate with. Develop communication channels that will resonate with stakeholders individually.

4. Develop Holding Statements

With the proactive planning in place, you should already have pre-planned holding statements ready to release inside the company’s online newsroom. The main aim of a holding statement is not to plead for forgiveness or grovel; the idea is to acknowledge the situation and provide contact information that the public can use.

5. Post-Crisis Review

As insignificant as it may seem, this is a step that major companies focus on that helps evaluate and update the crisis management process. Develop, assess, and discuss strategies to update potential scenarios that may happen.

This is a crucial process as you now have data and facts regarding how the company reacted to the crisis, the public’s response, and stakeholders’ reaction to the situation. You can use the information to ensure the company creates an even better crisis response.

In Conclusion

Any company can implement the same strategies big companies use for their crisis management. Combine the swift and transparent response that Johnson & Johnson used, with the crisis plan outlined above, to ensure your company stays ahead in any crisis it may face.

I personally look forward to times of crises, it dramatically improves my returns and allows me an opportunity to test myself against unknowns. The most important thing that crises brings to the forefront are my inherent weaknesses in my structures, it allows me an opportunity to prune dead wood and recharacterize / recast the future. Look to crises as an opportunity, not a threat.

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
Blogs Real Estate

How The COVID Recession Shaped Real Estate

Failure to contain COVID-19 led to a global pandemic in 2020. To curb the spread of the disease, governments worldwide imposed lockdowns and stay-at-home orders.

In the following months, vacant office buildings, dead silent bars and restaurants, and empty shopping malls became symbolic of the limited interactions and social distancing.

Consequently, that led to a global economic crisis, with real estate one of the worst hit industries. In 2020, home listings dropped by 40%, while places like New York witnessed a 58% drop in pending home sales.

In 2021 however, housing prices rose, reaching 19.3% in July. That kept rising until the median home prices hit an all-time high of $405,000 in March 2022. So, here’s a look at how the COVID-19 pandemic shaped the real estate industry.

Home Prices Continue To Climb
Projections of the US home prices expect it to climb by up to 16% over the next year. Homes are nearing half a million dollars, and buyers are pulling out of the market. By the end of June 2022, mortgage applications dropped to the lowest level in 22 years.

The housing market change depends on the economy and consumer habits. There are currently signs of a weakening economy, as the country’s GDP has declined for the past two quarters. Economists suggest that the lower GPD is a sign of a looming recession.

The Mortgage Bankers Association (MBA) suggests a 50% chance of the U.S economy tipping into a recession within the next 12 months. On the flip side, consumer spending and the job market are still strong, muddying the projections of an incoming recession. All these factors contribute to higher home prices.

Higher Investor Interest
Real estate is one of the biggest targets for investors in private wealth, private equity, and institutional investors. Investors are looking to add hard assets to their post-pandemic portfolio.

According to Preqin, fewer than 500 institutional investors account for 84% of all real estate investments. That presents a problem because they can withstand the shocks of a downturn in the economy and keep prices stable, even in their currently inflated state.

There is a lot of competition in prime assets in segments like multifamily, commercial real estate, data centers, and logistics. The low supply of new buildings in specific markets due to the pandemic’s impact on construction exacerbates the situation.

However, interest in the real estate market has diminished thanks to measures to curb rising inflation. The Federal Reserve announced an increase in its key interest rates by 0.75% in July 2022, affecting investors’ ability to get a loan.

Navigating Increasing Uncertainty
Real Estate Private Equity (REPE) funds and Private Equity (P.E.) firms are in a better position to invest in real estate assets. These firms purchase and develop properties and later sell them for profit. This comes in handy post-Covid-19, where many real estate assets need repurposing and redevelopment.

Given that there was no extensive prior data regarding the impact of a global pandemic on real estate, it is challenging to determine core business aspects of investment targets. Data-driven investment analysis is necessary for optimal business during uncertain times.

Investors must also have access to informed guidance and marketplace insight. Because Covid-19’s effects varied across countries and regions, having insights into local markets is increasingly important.

For example, areas like updating tenant risk profiles and recalculating future rental cash flows are on the to-do lists of investors and construction companies. Investors will include risk mitigation strategies as a part of their deals when expanding their real estate portfolio.

Growth In Flexible, Hybrid Workspaces
Stay-at-home mandates forced many companies to allow employees to work from home instead of the office, leading to empty office spaces.
This did not mean farewell to office spaces, as post-pandemic workers slowly trickled back into the office. The future of work looks like a combination of working from home and in-office, that is, a hybrid workspace.

A study carried out by Building Owners and Managers Association International (BOMA) found that 37% of office tenants expect to rent less office space in the future. Real estate companies and investors are looking to repurpose existing office space and improve building layouts to accommodate collaboration spaces.

The risk that investors and real estate companies face is the possibility of asset obsolescence. If real estate needs continue to change, the concern is whether certain assets may lose value.

That leads to increased flexibility in newer constructions to counter concerns of obsolete spaces. Real estate companies must ensure that spaces are adaptable, allowing for change whenever the need arises.

Increased Interest In Technology
There is increased investor interest in the technology used in real estate, construction, building interactions, and property management.
For instance, there’s an increased demand for buildings with intelligent air quality monitoring and touchless technology. Such buildings fetch premium rates from both tenants and investors.
Data analytics is impacting the maintenance and monitoring of buildings. Improved construction software systems are simplifying and streamlining building processes like:

● Inventory management
● Project and contract management and documentation
● Budget control
● Regulatory compliance
● Performance data tracking

For investors, keeping track of emerging possibilities spearheaded by technological advancements, and looking at which companies are making use of them, makes it easy to decide which investments to target and pursue.

ESG And Sustainability
Environmental, social, and governance (ESG) and sustainability are increasing attractiveness and earning potential for buildings and real estate in the blueprints stage. Investors and tenants alike value climate adaptation, energy efficiency, and construction carbon emissions.
The pandemic further pushed the importance of ESG and sustainability that can help create market traction during uncertain times. Real estate construction is shifting towards net-zero emissions, which helps contribute to a building’s attractiveness.

For example, if a building can be self-sufficient by processing its wastewater or generating its power, it can significantly increase its earning potential. These are a few examples of how construction is turning to ESG and will continue to do so in future.

In Closing – What To Expect
The real estate market is changing, with upcoming trends like hybrid workspaces and touchless technology forming core aspects. Investors looking to boost their portfolio will do well to focus on multifamily housing and flexible alternative spacing.