A commercial real estate property is an asset that generates income for its owners. The property offers favorable returns over a long time. It benefits the owners with consistent monthly rental income and adds value to the total investment portfolio. The process of commercial real estate appraisal determines the current or market value of a commercial property which in turn helps seek financing, insurance, purchase, or sale deals.
Commercial real estate investments have earned solid returns in the past. Unfortunately, these gains have dissipated due to the Covid-19 pandemic. Clients choose to move out of office spaces they no longer afford to save on rental costs as employees work remotely. Whereas there is some semblance of a return to normalcy, it will take time, and companies worldwide will have to adapt to new business models to survive the post coronavirus era.
This trend has been long in the works as the past decade will show, with brick and mortar businesses switching to digital platforms. Global brands have set up massive distribution centers across the continent to serve an ever-growing internet consumer base. Notably, the near-collapse of coworking spaces company WeWork has cast doubt over flexible working spaces options that the sector had started to acclimatize.
With global travel at less than 50%, short-term stays companies will continue to struggle in the foreseeable future casting further doubts on investments in real estate startups such as Common, Quarters, and Ollie. Deloitte projects that economic activity across Europe, large Asia-pacific economies, e.g., Japan and Australia, India, United States, and China, will face a severe downturn if the coronavirus vaccination is not practical. As it will take time to develop enough vaccines and deploy them, economists expect growth to remain constrained for a long time. Nonetheless, the economy will recover. The critical question for Commercial Real Estate owners is whether CRE companies are ready for the future.
By tapping into tenant data, commercial real estate companies will become more resilient. IoT sensors collect proprietary information about the behavior of users in multiple real estate properties. This data provides a valuable commodity that could help technological and marketing companies build trust and increase user engagement. These observed trends are bound to take commercial real estate to a whole new competitive phase.
Whether you are looking to purchase or sell a property, commercial real estate appraisals are key to determining the price or value of the property in question. Appraising commercial real estate is beneficial to a seller and a buyer as it helps identify the comparative value of a particular property against other available properties in the market. Commercial property is defined as a property used exclusively for business-related purposes or to provide workspaces rather than private living spaces.
Commercial real estate should not be confused with residential real estate appraisals, which looks at the value of single-family homes, condominiums, or townhouses mainly used as private living spaces. Whereas commercial real estate properties are typically leased by tenants who conduct income-generating activities, residential properties are purchased for personal use. Knowing the distinction between the two will help you choose the right valuation approaches when you are buying or selling.
Commercial real estate appraisal is the process of identifying the current value of a commercial property. It is mainly conducted by sellers to identify the market value of their property when considering selling it to other parties. In other cases, buyers undertake a commercial property appraisal to verify whether the asking price is competitive against other options in the market. In both instances, the derived value of the property acts as an unbiased, fair estimate that sets a foundation for negotiations, financing, restructuring or insurance purposes.
The current market value of a real estate property helps banks determine how much financing they can safely lend against such assets. Financial institutions provide capital to investors, individuals and businesses against assets that can be sold off to recover the total sum of principal and interest accrued on loan should the borrower fail in their obligations to repay. In the case of real estate, the current market value forms a basis for calculating the maximum mortgage value a bank can lend safely.
Further, insurance companies use commercial real estate appraisals to determine how much you should pay to insure the commercial property’s value against such perils as fire, theft, and natural disasters. Whichever the case, it is essential to identify the exact purpose of the appraisal report to determine the correct method of undertaking commercial real estate valuations.
The real estate business is one of the most lucrative fields today. From renting to leasing or buying properties, the world is growing at a swift pace. Real estate marketing is, therefore, very crucial for any agent or investor in the industry. You should invest in both online and offline marketing to ensure no market is left out. In this article, you will find some of the creative ways to market your real estate business.
Create a Professional website
You mustn’t create just any website, but a professional one, especially if your focus is on moving property. Ensure that your website is appealing and accessible. The quality of content on the website should encourage visitors to want to see more. Avoid stuffing it with too many ads, and nobody wants that. You can as well include listings on your site and make sure to keep them updated.
Get Social Media Marketing
Make use of all social media platforms such as Instagram, Twitter, and Facebook. Research from the National Association of Realtors (NAR) shows that 92% of real estate customers first use online platforms before consulting an actual agent. So make sure your social media pages are active and highlighting what you are offering. You can even engage social media influencers to help with marketing.
Engage Local Television and Radio Stations
With this, you are sure it will reach the target audience, but make sure you do it right. If you choose to advertise through television, make sure it is one with a large viewership of your target audience. Use appealing and quality images to show your clients what you have. If it is through the radio, give precise details of your location and properties. Do not forget to leave contacts in both.
Start a Blog on Matters Real Estate
If you are a real estate agent or investor and still do not have a blog on the topic, you miss out. It would be best to start a blog to give more details about your services and engage with your potential clients. It is a great way to interact with people and know what they need. From the blog, you can link your website where potential clients can find you.
How do you know if a house is a smart investment or a good property to flip? You may be looking to acquire properties for your portfolio. The problem is it can be a struggle to identify good deals quickly. Read on to learn how the 70% rule will help you.
The 70% Rule is a Simple Rule of Thumb.
Investors and flippers should use the 70% rule to determine whether to buy a property. The rule states that you should only pay 70% of the after repair value of a home.
An example would be a $175,000 home that needs $10,000 in repairs. After repair, it would be worth roughly $200,000. A flipper or investor should only pay 70% of that. The total they should pay is $140,000 for the home.
This protects them from overestimating the value of the home. It also protects against downturns in the market.
Speculating that a property will increase in value can be very dangerous. Seasoned investors prefer to make money when they buy to minimize their risks. This also protects them in case they missed something.
Other Factors To Consider For the 70% Rule.
You should also consider a few other factors. Settlement costs, financing costs, and carrying costs take a large chunk out of the deal too.
Closing costs on a $200,000 property could easily be 2 to 5% of the property. This means it would be up to $10,000. Financing costs would likely be around $5,000.
You should subtract $15,000 from your offer price to account for these factors. Some sellers may not discount the whole amount. It is better to get some of these off the cost to protect your margins.
Exceptions to the 70% Rule
The 70% Rule is a simple rule of thumb for finding rentals and flips. It is only a starting point. There are other circumstances where you might want to ignore it.
One of these cases will be if you’re holding the property long-term. Then, you would not spend as much on renovations.
You would be more concerned about the cash flow. Getting a good deal would still be necessary. A better price will still allow you to get lower monthly payments. Lower payments will help you with cash flow.
Take the time to determine your situation and goals. Are you looking to get quick cash? Other times you’ll be looking for steady returns over the long-term.
The 70% rule is a good rule of thumb. You should always be cautious with your repair and closing costs. It is a good starting place to protect your profits.
A substantial investment portfolio includes commercial real estate. This type of investment remains as one of the best in providing excellent risk/reward profile to investors. Let’s review five reasons why investing in commercial real estate should be considered for growing wealth.
EXCEPTIONAL APPRECIATION OF ASSET VALUE
Compared to other investments, commercial real estate has historically shown outstanding appreciation in value. Real estate can increase in value due to internal factors such as renovations and cost-effective improvements. Also, due to external factors such as supply and demand in the market.
Property owners in the United States benefit from the real estate tax code in place.
Mortgage interest and depreciation deductions can affect a large portion of a property owner’s stream of income. It is advised to consult a tax professional to understand all of the tax advantages received from owning commercial real estate.
Commercial real estate is considered a hard asset, meaning it has a valid inherent value. The land the property sits on has value, as well as the structure built there. Choosing a quality location and asset creates security to investors in knowing that the property will earn income no matter of the existing tenant. This is where commercial real estate proves to be a stable investment compared to the stock market, which dramatically fluctuates.
LEVERAGE AND INCREASE CURRENT CASH-FLOW
An investor can multiply net spendable cash by borrowing at a lower cost than the property returns to them. For example, if person A loans person B $10 and asks for $12 back, a two-dollar interest fee is applied. Then, if person B takes those $10 and lends it at a $3 interest fee, without any additional investment, they can pay back the $12 they borrowed from person A, and still make one dollar in profit. That’s positive leverage, and it is commonly practiced with commercial real estate.
SIGNIFICANT INCOME AND SPENDABLE CASH
A huge benefit of commercial real estate is that assets are usually secured by leases. These provide a regular stream of income. Compared to stock dividends, commercial real estate dividends are significantly greater.
It is recommended that the benefits of owning commercial real estate are carefully considered as well as the challenges one might face. This type of investment is full of advantages that allow an investor to grow the value of their investment portfolio securely.