The commercial real estate industry is a lucrative investment option that is highly dynamic that can easily propel an aspiring investor to success. Much due diligence before investing in commercial real estate is necessary. Among the areas that an aspiring entrepreneur should focus on before establishing a business include understanding the common mistakes that are often committed when investing in commercial real estate.
Inaccurate property valuation
In the commercial real estate industry, property valuation is a crucial entity that should be mastered with great precision and accuracy. Sometimes, aspiring real estate investors make the mistake of underestimating or overestimating the net worth of a property. Failure to accurately consider all the variances that determine a property’s net worth in a market makes such an investor to invest more than necessary. Generating a profit from such investment becomes an uphill task.
Inaccurate sources of information
Investors In the real estate industry should rely on a great wealth of accurate and reliable sources of information when making decisions. Quite often, ambitious real estate investors fail to exercise the necessary due diligence when sourcing information to advise their decisions. Focusing on opinionated publications and failing to benchmark information may lead to wrong and costly decisions.
Taking too much risk
Risk-taking in the real estate industry is considered as a norm. As an investor, it is important to consider weighing each risk to ensure that it is manageable. Some of the common risks that investors have to bear include taking loans to finance investments such as property acquisitions. As part of the due diligence, the investor should consider aspects such as loan-to-value and the debt coverage ratio to ensure that they are within manageable limits.
Improper timing of decisions
Decision making in real estate investments should be precise and well researched. As an ambitious investor, it is quite common to make rushed decisions, such as acquiring large properties at times when the market is not favorable. Poor timing may cost the investor capital as they will have to wait for the market to stabilize before making sales and profits.
Choosing the wrong market
The choice of investing in the real estate industry should be precise and well-researched. Sometimes, investors fail to consider the numerous factors at play when choosing the right market and location to base their operations in. Poor choices, in this regard, may stagnate the business at a later stage as moving products in the market will be substantially tough.
For anyone interested in learning the art of real estate investing, education is the key to success. But in our busy lives, it can be difficult to carve out time to read a book or do research on the Internet. Thanks to the rise of the podcast, you can educate yourself on the go whether you are in your car, on the train, or even on a plane. When you get the chance, try out one of the seven podcasts. They will help teach you the ins and outs of real estate investing without taking too much of your time.
1. The Real Estate Guys Radio Show
The Real Estate Guys have been broadcasting on traditional radio since 1997. Now their show is available on demand. The podcast is loaded with solid information on investing in real estate. Hosts Robert Helms, professional investor, and Russel Gray, financial strategist, educate and entertain in this fun podcast.
2. Real Estate Investing for Cash Flow
Kevin Bupp, the host of the Real Estate Investing for Cash Flow podcast, provides actionable tips to help increase cash flow when investing in rentals and multi-family homes. He features successful real estate investors who have been able to create passive income through real estate.
3. Real Estate Investing Mastery Podcast
Joe McCall reveals the secrets of investing in real estate so that his listeners can escape their day jobs. McCall teaches fast cash strategies and other investing tips to help investors obtain the freedom they dream about.
4. House Flipping HQ
Justin Williams interviews top real estate home flippers and professionals so that listeners can gain insights and strategies on how to get started and become successful in real estate investing. Williams provides actionable information that listeners can use today.
5. Let’s Talk Real Estate Investing
Sharon Vornholt brings decades of real estate investing experience to her podcast. She helps investors create a name for themselves and develop marketing plans that will take their businesses to new levels.
6. The Mobile Home Park Investing Podcast
Kevin Bupp and Charles DeHart teach how to build a steady stream of income by investing in the highly lucrative mobile home park market. Those who master these investing principles can bring superior returns over traditional real estate markets.
7. The Ultimate Real Estate Investing Podcast
Sean Terry claims investors can quit their day job in 19 weeks or less when they apply his principles of flipping properties in their spare time. He teaches the tips and techniques needed in today’s real estate market to make it happen.
Learn more about real estate investing podcasts here.
REITs, or real estate income trusts, are a great starting point for anyone who has an interest in jumping into the world of real estate investing. Unlike other investments, REITs have a tendency to be very stable, and they also pay dividends. These days, many stocks don’t pay regular dividends. REITs are a great choice for people who are on fixed incomes and seek to generate regular dividend income.
REITs exist for a number of different types of properties. There are residential, medical, and retail REITs, to name just a few varieties. One particularly good bet for the summer months are REITs in the hospitality space. Some hotel and resort REITs have had returns of up to 18% for investors this year.
Hotel and resort REITs have some advantages compared to other types. These include the benefit of predictability. Hotels and resorts track their occupancy rates. These are often very stable. Hotels and resorts also respond to the market very quickly, adjusting their rates from night to night.
Although the hotel industry has faced challenges from competitors like AirBnB, several REITs are still posting incredible returns. In fact, many REITs are still acquiring new properties and posting returns of 18 to 20%. Some of the hottest investments of the summer are hospitality REITs.
The Chesapeake Lodging Trust (CHSP) is one such investment. This REIT holds mostly upscale properties in its portfolio. Recently, this REIT was acquired by Parks Hotels and Resorts. Together, they will become the second largest REIT in their category. This is an exciting time to invest in CHSP.
Summit Hotel Properties (INN) is, by contrast, invested in very mainstream hotel properties. Some Hyatt, Hilton and Marriott International properties are included within this REIT. INN earns returns of about 6%. This is great for the category. Its return is over 20%.
Pebblebrook Hotel Trust (PEB) invests mostly in urban hotel properties. In 2018, they merged with LaSalle Hotel Properties. So far for the year, Pebblebrook has returned about 7.5%. The Pebblebrook dividend has been at 3.5%.
Finally, the smaller Xenia Hotels & Resorts (XHR) is also a great option. XHR’s return for the year is 29.6%, and the yield is almost 5%. Based in Orlando, Xenia owns just 40 properties across 17 states. Xenia has outperformed expectations in recent quarters.
If you decide to make this summer, the summer of your first investment, investing in a Hospitality REITs, like the Chesapeake Lodging Trust Pebblebrook Hotel Trust, Pebblebrook Hotel Trust, or Summit Hotel Properties, is a great way to start.
There is no doubt that technology is completely changing the landscape of real estate. From online listings to virtual tours to even online mortgage tools, technology is making it easier than ever to buy and sell a property. One technology, in particular, that is poised to completely revolutionize real estate is an emerging technology known as blockchain. Most people are familiar with blockchain due to its role in regulating cryptocurrencies, but the potential applications for blockchain are almost limitless. From reducing costs to creating faster transactions blockchain can impact the real estate industry positively in a number of ways. Keep on reading to find out how blockchain will change the future of real estate.
1. Significantly reduce closing costs and associated fees
At the moment, a significant number of expenses are incurred any time a property changes hands. Closing costs on just a single residential property can run up to five percent of the purchase price and commercial closing costs go even higher. While real estate overall tends to appreciate over time, it takes some time to appreciate beyond the costs lost just by the transfer of ownership. Blockchain technology has the capacity to administer smart contracts, which will cut out a number of parties currently involved in the contractual transfer of ownership, which will also cut down significantly on expenses.
2. Conditional transactions
Not only are the contracts produced by the blockchain, but they are also administered by the blockchain. This means that smart contracts can also include the conditional release of funds. For instance, a smart contract can be entered into in which the purchasing party has a certain amount of time to ensure the property is in satisfactory condition before funds are released to the buyer. Since the contract is administered by blockchain, any disputes are also settled by the blockchain itself in a thoroughly democratic matter.
3. Swift transactions
On average, it takes roughly 50 days to close on a house. This is in part due to all of the many checks that need to take place before a mortgage can be fully approved, including inspection, appraisal and reviewing the property title. Not only can smart contracts reduce the costs associated with a change in ownership, but they can also significantly reduce the time it takes as well. This means that the time may not be far off when individuals can buy and sell a home as quickly, cheaply and conveniently as they can rent an apartment.
Climate change is a huge concern in our time. It has become such an evident issue that even governments and other stakeholders across the globe boost their concerted efforts of responsible use of the environment. Effects of climate change, such as adverse and rare, weather elements, flooding, hurricanes, extremely high and low temperatures, among others are already having a major impact on various industries including real estate. Here is an overview, according to experts, on how climate change is, directly and indirectly, affecting real estate.
- Accumulating losses of real estate property
Adverse weather conditions, especially extremely high precipitation and hurricanes, have a huge impact on the structural integrity of real estate properties. Buildings in the path of major hurricanes in the United States suffer partial or total destruction. In the state of California alone, for instance, rising sea levels, extreme weather elements, coastal erosion, extreme floods, and wildfires cause an average of $3.9 billion worth of damage annually.
- Reduced property demand in some areas
Properties located in states that experience extreme weather elements, especially hurricanes and high rainfall, have been determined to suffer low demand. This is even as anticipating property owners shy of purchasing properties from those areas for fear of suffering losses. States such as those located along the East Coast, including Florida, are particularly affected by annual hurricanes.
The reduced property demand in some areas is accompanied by hiked prices of properties located in states where the weather is favorable. This is because more anticipating homeowners choose to purchase property in those areas, thereby leading to increased demand.
In addition, real estate engineers are expected to up their game as far as design and construction of homes and properties are concerned. Buildings are expected to be constructed with reinforcements in order to withstand the extreme forces of weather such as hurricanes.
- Increased property insurance
Property insurance companies have also been largely affected by extreme weather conditions brought by climate change. The increased risk of homes being exposed to adverse weather conditions and thereby suffering destruction has led to insurance companies to rethink the factors to consider in risk calculation. The cost of insuring a property located in an area that is highly prone to adverse climate change is exponentially high. Homeowners are there for paying the cost to secure homes in such areas.
Losing real estate property, reducing the demand, and increased property insurance are only a few effects of climate change. As the situation worsens as will the real estate industry.
Successful management of real estate properties requires a significant amount of skill and due diligence. The vast number and type of calculations to make in order to manage properties accurately can be mindbogglingly challenging. Real estate investors have a reprieve as they can invest in the acquisition of real estate investment management software available in the market. Here is an overview of such notable software.
RealData is considered one of the best real estate investment software in general given its ease of use platform coupled with multiple features and capabilities. Among the various features that RealData provides include analytic tools, data presentation, as well as marketing abilities for both residential and commercial real estate properties. The city is also equipped with various decision making and analysis tools capable of simulating different management inputs in the management of properties.
ZilCulator is a freemium real estate investment software that is greatly suitable among new beginners and aspiring investors. Among the various tools that the platform offers include calculators that can analyze different kinds of real estate calculations such as market cap rates and mortgage rates. The platform can also simulate cash flow analysis while also enabling the investor to compute tens of expenditures such as repairs and new investments.
CREmodel is a multi-family property management software that doubles as a suitable apartment, project, and shopping center management platform. The software is well integrated with various spreadsheet templates and functions that enable the property investor to undertake different kinds of presentations and Excel-based calculations. Among the various analysis tools that CREmodel uses include return on investment analysis, cash flow analysis, cash-on-cash return analysis, and loan-to-value computations.
Real Estate Analysis Software LLC
Real Estate Analysis Software LLC offers combinations of different functions on one convenient platform. The software is particularly optimized for helping investors to analyze and simulate cash flow and return on investment before deciding on whether to invest in a property or sell it. Additional notable features that the Real Estate Analysis Software offers include a lease vs. buy analysis that gives an investor a chance to visualize how making either of the investment decisions would affect their cash flow and goals.
Software like Real Estate Analysis Software LLC, CREmodel, ZilCulator, and RealData help make investing in real estate an easier process. Introducing technological advancements like these is helping to revolutionize the real estate investment industry and bring it to the future.
Investing in real estate has a number of advantages over other types of investing. For instance, if you buy $100,000 worth of stock in a company and the company goes under you may end up losing your entire investment. While you may end up in a situation where you need to sell an investment property at a loss, you will rarely ever lose your entire investment. Conversely, however, real estate investments also incur ongoing expenses that you have to factor in before making the investment. Unlike a stock or a bond that has a value set by the market, the true value of real estate investments can be much harder to assess. To determine the true value of an investment property the following three key components need to be considered
1. Income potential
Unless you are just purchasing land, most types of real estate investments will have some type of income potential that has to be factored in when considering the value of a property. There are a number of ways to determine income potential depending on the type of property it is. To determine income, you need to determine the capitalization rate. Put simply, the capitalization rate is the projected annual income from the gross rent multiplier divided by the current value of the property.
One of the most common methods of evaluating real estate investments is to compare the property you are considering investing in with other comparable properties in the area. While there are a number of variables that will affect both the price and income potential of the property you are considering versus other properties, finding properties that are legitimately comparable and accounting for differences can give you a fairly accurate estimate of what you can expect from your property.
3. Capital Asset Pricing Model (CAPM)
A CAPM is a comprehensive evaluation tool that considers a number of intangible variables such as the safety of the neighborhood and the age of the property and compares it to the expected ROI of other types of investments. For instance, you can expect an older rental property to need more major repairs and you can expect high tenant turnover in less desirable neighborhoods. These will all have an impact on your rental income. If a real estate investment is likely to have a smaller ROI than another investment tool, then it doesn’t make sense to invest in real estate.
Real estate investment is among the most successful field of investment in the world today. The investment is projected no to go down anytime soon as investors are flooding in each day. Just like any other form of investment, an investor needs to have some financial zeal to engage in this business. But most investors don’t always have bundles of cash on hand. Most of the top real estate investors borrow money from real estate fund lenders. Below are some of the most popular lenders for real estate credit and investment property loan lenders.
1. Hard money lenders
For many years now, Hard Money lending has been a crucial resource for almost all types of investments. It involves offering funds in the form of short-term credits of between 6 to 60 months. Hard Money may charge high interests and in most cases, may not have forestallment penalties. Traditionally, Hard Money lenders have been processing funding very fast and few requirements.
2. Transitional Funding
Transitional Funding is arguably the easiest and speediest lending method for most investors in real estate assets, especially in house flips and wholesale deals. More so, this type of lending is among the least popular forms of real asset financing. Transitional Funding works best for the investors who wish to be in, on, out and receive their real estate payments quickly. The terms of this funding method are too good that some people think it is a scam until when it works for them. Transitional Funding is solely for investors who do wholesale real estate deals. In Transitional Funding, an investor gets 100% funding, and their creditworthiness, income proof, and assets do not have to be checked. Besides, these types of lenders do not have to require the production of full title reports, appraisals, or insurance.
3. Private Lending
As the name suggests, Private Money Lenders are people with money and wish to loan it on real estate. These individuals consist of all kind of people with savings and investment or surplus cash intending to receive passive income. Private Money lenders are flexible and allow investors to negotiate their terms of lending. Their terms vary from one investor to another. The popularity of Private Lending has marked a significant rise due to more awareness of the opportunities they provide.
Hard money lenders, transitional funding, and private lending are all great ways that real estate investors can receive a loan and not miss out on a potential real estate investment.