Categories
Real Estate

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.


By Gurpreet Singh Padda, MD, MBA

Categories
Real Estate

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.

 

By Gurpreet Singh Padda, MD, MBA

Categories
Real Estate

7 Real Estate Trends to Watch Out for in 2023

We are just barely into the second half of the year 2022. Much of the economic news is doom and gloom; perhaps it’s best to look into the future if one wants to find an iota of good news. For that, a glimpse of the past could provide near-accurate future predictions.

Six months on, the Russia-Ukraine war is causing a considerable downturn in every sector of the economy, including the real estate market. The ongoing war has triggered fears of a global recession, with the World Bank dropping its growth prediction from 4.1% in January to 2.9%, causing supply chain disruptions, high commodity prices, inflation, and food insecurity.  

While COVID-19 might seem like a thing of the past for most Americans, pandemic lockdowns are still alive and kicking in the “world’s factory,” China. That translates to supply chain issues, which explains why there’s a push to bring some of those jobs back onto American shores. With that background, here are the top trends in real estate to watch out for in 2023.

1. Housing Prices Likely to Remain High

According to Zillow, the typical monthly mortgage payment increased 75% between June 2019 and today. The National Association of Realtors (NAR) also states that home sales dropped 5.4% from May to June, marking the fifth consecutive month of declining sales—but median prices reached a record high in June: $416,000, up 13.4% from a year ago.

Although incomes have risen over the same period, they haven’t kept up with inflation. Wage growth in June was 6.7%, below the 9.1% rise in inflation that month. Moreover, mortgage rates continue to stagnate, and there’s the ever-present threat of further interest rate hikes. The overheated markets of early 2022 will drop precipitously in the later half of 2022 and most of 2023. But that still means, even if home prices were to drop 20-35%, they probably would remain beyond the reach of most first-time homebuyers.

2. Expect an Uptick in Mortgage Defaulters

To fight rampant inflation, the Federal Reserve activated its nuclear option—hefty interest rate hikes. Inevitably, mortgage rates rose as well, with the national average mortgage rate hovering at 5.08% as of August 2022.

Considering the August inflation rate is in the upper 8%, higher than the long-term average of 3.26% and the Fed’s target rate of 2%, it’s inescapable that the Fed will announce further interest rate hikes.

That means higher mortgage rates, and since the wage growth in June was 6.7%, below the inflation rate. As the economy continues to contract, you should expect an uptick in mortgage defaulting that will likely stretch to 2023 and beyond, and more people are likely to choose adjustable-rate mortgages over fixed-interest mortgages.

3. Affordability of Homes Still a Problem

Affordability of homes is still a challenge for many Americans, but it’s not the only one. According to a recent survey by Pew Research Center, 46% of Americans say affordable houses are still a challenge.

That is exacerbated by the rising cost of rent, with New York recording an average of $3,500 in June 2022, an all-time record high. With the raging inflation and considering rent prices hardly drop significantly over time, it’s difficult to see how homes will become more affordable in the near future.

The only hope lies with the Fed cooling down inflation sufficiently, imposing more agreeable interest rates, and the cost of living dropping significantly to lower the price of everything, including real estate.

4. Suburb Living and Higher Prices in the Suburbs

With rental prices in major cities shooting past most people’s capabilities and mortgage prices continuing to lock people out of home buying, there’s a push towards moving to the suburbs to access affordable housing.

More employees are also pushing for more opportunities to work from home to save on the daily commute. That should see the prices of suburban houses rising to meet this new demand, which should persist into 2023.

5. Prevalence of Technology Usage

The trend of increasing use of technology in real estate is nothing new, but it has become more widespread in the last few years. For instance, the NAR states that 97% of all homebuyers used the internet to search for a new home.

That trend will continue, allowing homebuyers to access a broader home listing catalog. The same is true for realtors as it will enable them to advertise to get their listings before more prospects. The apps and websites also come with matching and software to make it easier for buyers to filter homes that fit their descriptions better.

Technology also comes in handy when showcasing a home. Instead of hosting an open day which may force prospects to travel great distances, a real estate agent can conduct virtual home tours. Virtual staging will save the agent a ton of money as they don’t have to spend time and money collecting and setting up furniture that matches a listing.

You’re also likely to see an increase in drone videos and photos to capture stunning overhead footage of properties and the surrounding amenities to enhance the desirability of the listing. Social media sites that use videos and photography, such as YouTube, Instagram, and TikTok, may also prove vital as independent platforms for showcasing real estate.

6. Emphasis on Amenities as a Selling Point of a Home

In the next few years, you will see a substantial shift in how people choose where to live. What was once a matter of location, price, and square footage will soon become a question of amenities.

As more people focus on their health and wellbeing, they’ll look for homes that offer more than just a place to rest their heads. They’ll want easy access to gyms and pools, dog-friendly apartments, and pet-sitting services—and they’ll even want walkable neighborhoods with local stores and restaurants. 

7. Luxury Homes

The need for luxury homes has steadily risen over the past few years. These refer to homes that go for $1 million in the smaller cities. In major cities, that starts at $4 million.

According to luxury home marketing, single-family luxury homes only spent 12 days in the market in 2022, compared to 38 days in 2020. At 41.6%, the growth in luxury home sales in 2021 outpaced other segments of the market, such as affordable homes at 7% and mid-priced homes at 5.9%. This trend will likely continue to 2023 and beyond as the trend for buyers looking for luxury homes seems to be going strong. 

Final Word

We can use historical patterns to chart a course for future trends, and what that teaches us is that housing prices will cool down but will likely remain higher than most people can typically afford. Additionally, we will likely experience in the real estate market are the continued high demand for luxury homes, emphasis on amenities for healthy living, the prevalence of technology usage, and the continued preference for suburban living.

Categories
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.

By Gurpreet Singh Padda, MD, MBA

Categories
Real Estate

10 Reasons Why You Should Invest in Large Multifamily Property

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.

Categories
Real Estate

Tokenization of Real estate in 2022

Tokenization of Real estate

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.

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Real Estate

Commercial Real Estate Investments: Understand the Risk and Reward

Commercial Real Estate Investments: Understand the Risk and Reward

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.