Thursday, November 14, 2019

Doing Your Investing Homework

Over the past few years I have been working more with real estate investors while continuing to serve licensed agents and offices with branding and marketing. Investors often shed a different light on marketing themselves and their properties, especially when it comes to seeking their "next" property investment.

Quite often, the properties with the most investment potential over the subsequent 10+ years are ones in which there is also an increased risk. Even the most reputable experts have no guarantees that the market will go as they expect or predict.

Recently an investor client told me, "The greater the risk, the greater the reward!" as one of his reasons for seriously considering purchasing an investment property. He and his group saw the potential for some serious rental income upon completion of major renovation which could take close to one year to complete to their liking.

However, this investor was surprised at my response to his comment, which was to ask him to show me the market trend numbers instead. When he replied that he "already looked" and concluded that "Other investors are not willing to take this risk", I gave him my standard example in response.

If you are in your first floor office and jump out of the window, chances are you only drop a couple of feet and would land safely and ready to continue on. However, jumping out of your fifth floor office is a bigger risk. Yet, the consequences of such a jump would be far worse than jumping out from ground level.

Consequently, the "reward" is far worse than the greater risk in the fifth floor scenario. Or is it?

As is usually the case in real estate, more information is needed. Suppose the fifth floor office fed into a rooftop garden. In that instance, jumping out would likely produce the same result as doing so from the first floor. 

The point of the discussion is that the need is there to more thoroughly compare the risk to the reward. 

Although my marketing client "saw" the reward and realized there is a risk, he was closer to a form of gambling than he was to making an important business decision.

One of the questions I asked him was about the amount of time this property had been on the market. To me it was clear that if this property had been available for months it would mean there would be more problems than needing a lot of renovation. Very few real estate opportunities go unexplored once they hit the market.

There were more questions, including researching of local rental comps over the past couple of years with an eye toward showing growth trends.

The whole idea was to get my marketing client to make this property he was so interested in become his "fifth floor" in considering his risk.

Next, I suggested that he ask the broker he works with to come up with other investment possibilities on the market which are available and fit his group's criteria. If his broker could find one or more opportunities which are as or more likely to become profitable in less than one year, it would be more financially feasible to go that route. 

He told me that he had already looked at other opportunities before targeting this "risky" one. That meant I had to put it a different way.

"Suppose you find something that could bring you $50,000 six months from now. This opportunity could bring you $90,000 a year from now. Which opportunity would really be your best investment?

The idea is that it is important to compare the risk to the reward with every possible real estate decision. 

What happened? My client is still looking for his next investment deal. His group wants something more rewarding.


Tuesday, November 12, 2019

Post For A Real Estate Solution, Not The Problem

With thousands of dollars at stake, it is not a good idea to post about a problem situation. You could be tipping your hand.

The situation described in the (below) link is another example. If I saw the post and my office is more than 2,000 miles away, there is no telling how many local people saw this and now have information which could benefit them and not the party which posted.

This post deals with an unfortunate situation where a home buyer moved in to a community only to then find out that a developer is buying up homes in quantity nearby to rebuild for their benefit. Now these new owners are asking for suggestions on a public real estate forum.

They want to be able to have local developers bid for their property. There are not any visible comments (as of press time) following this post. No surprise here. As generous and helpful as some people are, it is highly unlikely that anyone would comment publicly on strategy.

Instead, it would not be surprising to have had a couple of area developers contact this party with offers lower than what they would normally pay. The person behind this post could very well have lost out on thousands of dollars because they posted their motivation online where "anybody" could see it.

Furthermore, there are several real estate investor sites which also have forums such as this for people to post specific questions and problems. This example from Seattle is far from the only time we see this sort of thing happen. There are lessons to take from this.

A home owner should always have a network of contacts and know how to use them. This is whether you have owned your home for two weeks or thirty years. Instead of putting out in public, the person behind this post should have known who they could ask privately. Not on a public forum.

If this home owner had, or utilized, his/her contact list instead, all he/she needed to do was ask around for an agent that works with local developers. That agent would then want to get the highest price (and commission) and would have the skills to attract the right developers and coordinate the process.

On the other hand, if this person did not have a network of contacts to help with this situation, they could have posted like in the above paragraph. A simple, "Looking for an agent to work with developers in (neighborhood)" post could have brought a similar result.

With this post and forum, it is not likely that we will know how this specific situation does or does not play out.

However, the lesson of not posting the problem, instead posting for the desired solution in a non-revealing way, goes for all of us.

Thursday, November 7, 2019

One Home Leads To Another

Another day, another "news" article showing real estate research which doesn't help the situation. It is no surprise, and didn't take a 'study' to show that baby boomers are staying in their homes much longer than they used to.

Instead of using this research to complain that their doing so limits inventory, the time would be better spent with giving boomers (and other demographics) one or more reasons to relocate.

Instead of complaining about "limited" inventory, the time would be better spent on getting the "weeks" worth of currently available inventory sold or rented. 

When too many homes in a given area are on the market, it sends a message to consumers that something might be wrong for this many residents to be looking to get out. The fewer homes on the market, the better it should be for sellers.

There is also nothing preventing potential buyers from making offers on properties not currently on the market. 

We all have our price. If someone were to offer way more than you think your property is worth, it would, at the very least, get your attention.

Due to economic conditions of the past few years, real estate is currently not the investment it used to be. Home owners are no longer able to do the maintenance and watch as their property increases in value over the next five years. THIS is why the market "slows down", according to this study.

Many boomers might prefer to downsize and/or to relocate upon retirement or becoming empty nest couples. However, it is not worth losing money on the sale of their current residence in order to do so. If local property values continue to be stagnant, this situation will not change.

Putting out statistics such as this only discourage home owners in most areas. Taking action toward making them consider selling for a profit is a much better solution.

Monday, November 4, 2019

Why AirBNB Owners Need To Deal With This Problem

Many of you may have already seen the extensive article written by a guy describing how he and others appear to have been scammed by one or more AirBNB operators in large cities. The author describes in great deal about what happened to him, as well as to other renters.

However, a larger part of this problem is how little is being and will be done in response. 

One of the most important tips I provide to my real estate marketing clients based on 30 years of experience is that there are times when a reaction is necessary to maintaining business. Not just an option.

If I were a betting man, I would bet that at least 95% of AirBNB (or its competitors) owners will totally ignore this story. They will either chalk it up to "I'm not that kind of person/owner and people already know that", or "It's the company's (AirBNB) problem and not mine".

As the article explains, AirBNB appears to not be getting heavily involved in this, although they certainly should be.

Reading the story, which I saw posted on several different social media sites, gives AirBNB, and consequently its operators, a bad rap. If even one person gets scared off of booking via this company, it means that its business is negatively impacted by this story and incident.

Chances are that way more than one person is scared away because of this story detailing how this scam took place in multiple cities and locations.

As a landlord, the next course of action should be to enhance your current and upcoming marketing. Let potential tenants know that you have a guarantee. Show them a current video, offer to do a Face Time or Skype if a high end unit. Do everything you can to leave zero doubt in their minds about exactly what they are renting.

Look at this from the potential renter's point of view. If you are willing to go to that extent to verify the quality of their rental, while other landlords are not, you are going to get their business. 

This is not to say that AirBNB is the only company that intentionally makes it difficult to publish bad reviews or follow up on complaints while relate to its service. Doing so makes it more challenging for the "good guys" to do business under this platform, and that is the problem.

No matter what role you have within the real estate industry, you need to always monitor for problems and be prepared to react. It might be to gain a competitive edge. Or, it could be a situation like this where standing still could negatively impact your bottom line even though you had no part in the problem.

Be one of those few that does not ignore this story, and that is whether you have anything to do with AirBNB or not. Don't let anyone associate you with a scam.