December 13, 2016

Should You Invest in Commercial or Residential Properties?

Posted in Integrale Advisors LLC, Keith Knutsson, Real Estate tagged , , , , , , , , , , , , , , , , at 12:12 am by Keith Knutsson

Real estate is a great place to invest. One of the first questions I, Keith Knutsson, get asked by potential investors is commercial or residential real estate? There are pros and cons to both ventures, so here are some tips to help you decide which one suits your personality, talents, and goals.

Commercial Real Estate

When most people think about investing in real estate, their minds immediately jump to residential. Commercial real estate has additional benefits however, that can really increase your net worth. The biggest benefits to discuss are more financing options, less competition, and a more favorable valuation.

  • More financing options. While there are plenty of traditional, hard-money lenders to get a mortgage payment from for residential loans, there aren’t a lot of other options for financing. With commercial real estate, there are plenty of other sources, like small private equity firms, joint venture partners, and even other commercial real estate investors you can partner with to raise the amount of capital needed. Access to more money means that you can get a higher rate of return. It’s the adage “spend more to make more”.
  • Not as much competition. For some reason, most people try to make a name for themselves in real estate through the residential route. That means that commercial real estate is an area of real estate with less competition from other investors. This is especially true if you are shopping for smaller commercial opportunities. Most big time commercial investors are going after properties worth more than $5 million, and anything less than that is out of reach for most residential investors. This is a great niche for someone with the work ethic to make a name for themselves.
  • A More Favorable Valuation. The main way that residential real estate is valued is by basing it off square footage, rooms, bathrooms, upgrades, lot size, etc. compared to other homes in the area. This method makes sense for this sector, but it can hurt your bottom line when the market isn’t performing well. With commercial buildings, the valuation is based off current leasing/renting income. In simple terms, the amount of money being generated from the property is how much it is worth. Small improvements and great marketing can increase the value of commercial property easily, unlike in the residential realm. Therefore, it’s easier to make more money from commercial properties.

This isn’t to say that commercial real estate is an easy, definite way to make millions of dollars. If it were that easy, everyone would do it. The main downfalls to investing in commercial real estate are more risks, high costs, and zoning laws.

  • More Risk. Commercial properties see a lot more traffic from customers or residents, parking lots, and possibly multiple businesses running out of one location. Insurance costs are much higher because of all the risks involved with safeguarding against accidents and injuries to any of these people or the property.
  • Higher Costs. While most investors know that the money upfront is going to be higher in commercial real estate than residential, the maintenance bills are also larger. It costs more to maintain professional looking businesses, and repairs have a higher price tag. Just a few examples could include a new roof, multiple furnaces break, one accident causes various damage in more than one apartment in the building. There are all kinds of costs that arise during commercial that are different and require a lot of money as the investor. All repairs must be done professionally too, so there aren’t quick do-it-yourself fixes for these problems. It also costs more to hold on to a vacant office space than a vacant house.
  • Zoning Laws. The government is very interested in maintaining zoning and regulations for commercial areas. Buying a building in the manufacturing area or an apartment building, all the uses you intend the building for is already decided. If you intend to lease the space out to another business, your pool of possible renters is limited. Depending on the city, it is possible to change some of the requirements in zoning, but it requires a lot of work and usually a legal team.

Residential Real Estate

Residential real estate is not a bad way to make money as an investor. There are definitely still benefits to going this route over the commercial arena. The biggest three benefits to going the residential path are more availability, the option to flip, and less money required to get started.

  • More Availability. There are more homes to choose from when you start looking for an investment property. Commercial real estate properties and buildings are not always available, especially if you’re looking in a certain part of town. Even when new residential neighborhoods start popping up, the homes in older neighborhoods are still desired. The turn-around time for houses are much faster, so if you’re looking to find a home in a certain area, one will show up if you wait long enough.
  • Option to Flip. If you want to make money flipping houses rather than holding and renting, you still have that option. You can flip a house, sell it, and be done with it much faster than other real estate ventures. While the money required to do repairs is an issue for some investors, it is usually recouped at selling time, plus a little more.
  • Less money required. A down payment is really all you need to start. While there are more financing options for commercial real estate, to start can be difficult. To buy the first residential investment, you need to qualify for the amount and have a down payment. The qualification process is usually easier because having a renter pay the mortgage payment each month isn’t too hard to find.

There are three fairly well known hardships to owning residential properties as an investor; dealing with bad renters, a variable market, and bringing in property managers.

  • Bad renters. While most people renting a home are going to treat it well, the fact is it isn’t their house. Some people see this as an opportunity to not have to take care of it, and in some cases, trash it. The costs can really add up to fix problems that bad renters can cause. If neighbors start getting bothered by renters, that causes an entire other set of problems.
  • Variable market. Ideally, most investors want to buy when the housing prices are down and then sell when they are highest. This is harder to do though since home prices change slower and less consistently. As a Real estate investor, and CEO of Integrale Advisors LLC, I, Keith Knutsson, see how there are predictable cycles for real estate, but times always vary on how long each cycle lasts. This makes investing trickier because it’s always changing.
  • Bringing in property managers. Managing multiple properties is hard for one person to do. It’s also difficult to be a great real estate investor when you don’t live around the properties and cann’t check on them often. The best way to handle both of these scenarios is to hire a property manager. While this makes life easier for you, it cuts into your profits and requires trusting a lot in someone else.

As you can see, investing in real estate is a great option whether you choose commercial or residential. Knowing your end goals and ability to handle different situations, you have two very different paths to take if you decide real estate investing is right for you.

July 4, 2016

What are the Positives & Negatives of Investing in Real Estate?

Posted in Integrale Advisors LLC, Keith Knutsson, Real Estate tagged , , , , , at 8:48 am by Keith Knutsson

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Real estate investor and philanthropist Louis Glickman is famously known for saying “the best investment on earth is earth.” As a man who made his fortune in real estate, it’s safe to assume that he knew what he was talking about. But, does his wisdom carry over to the general population? Let’s take a look at some of the positives and negatives of investing in real estate, and then you can decide for yourself.

POSITIVE – Real estate is a tangible asset

You can touch and see your investment. It’s a physical property, not a display on a computer screen or on a TV-news ticker as with stock market investments. If you’re a hands-on type of person, you’ll likely feel much more in control when investing in real estate.

NEGATIVE – Homes can be a hassle

Your real estate investment will likely require emergency repairs, as well as regular maintenance and upkeep. This can require some serious time investment, depending on the property, as well as additional financial investment, especially if you rely on subcontractors to handle the work for you.

POSITIVE – Source of steady income

Keeping your real estate investment properties filled with good tenants guarantees a steady and consistent monthly income. Those regular checks can be a real boost.

NEGATIVE – Not a liquid asset

Money kept in a back can be withdrawn at any time. The stock market is a quick, buy-and-sell environment. Real estate investing, however, is a very time-intensive process. Even if you are lucky enough to find a buyer for a home you’re planning to flip on the same day you purchase, you’ll have to first go through the entire paperwork process, which frequently takes several weeks. In order to get cash out of your investment property, you’ll need steady renters, or you’ll need to borrow against the equity.

POSITIVE – True value, regardless of economic climate

There is always value in real estate. It fulfills a basic need. Even when the economy is at its lowest of lows, people will always need a place to life. It is certainly possible to lose money in real estate, but any property that you own free and clear is an asset with true value.

NEGATIVE – Your liabilities are high

When you own stock in a company, you are not directly liable for any illegal or underhanded business that company may conduct. But when you own real estate, you are liable for the actions of your tenants, regardless of how they occur. If someone slips and falls on the steps of your investment home, you are the one who will be sued. Additionally, you, as the owner, bear the burden of maintaining proper insurance for the property. As real estate investing involves a hard asset,the risk profile is an inherently different form of investment than early stage investing.

There is also one other side of real estate investing that has emerged in recent years and opened up this form of investment to a much larger pool of potential investors – online real estate investing via crowdfunding. Let’s take a quick look at some of the benefits provided by this mode of investing.

More readily available transparency

The technology of online real estate crowdfunding platforms has changed the expectations of today’s investors. They’ve come to expect a certain level of readily-available information and disclosures. According to Investment Management Services, “Investors want their real estate holdings and relationships to be as accessible and transparent as their online banking and brokerage accounts. They want all the available information at their fingertips, not just the required minimum mailed periodically in a legal document.”

Depth of property and opportunity detail

Online real estate crowdfunding platforms afford potential investors the opportunity to research and explore their potential investment opportunities in much more detail than traditional methods.

Increased communication

Today’s always-connected, 24/7 world has changed the way we communicate and our expectations of communication. In the world of real estate investing, “customers now expect and demand real-time updates on their mobile phones. Transactions are documented instantaneously. Legal disclosures and investment details should be available from almost anywhere with a user-name and password.” (source)

Ability to create a highly diversified portfolio of real estate assets

Investing in real estate through online venues opens an investor up to a worldwide array of possibilities that would otherwise be inaccessible.

Ultimately, deciding whether or not you want to get started down the path of real estate investing is a personal decision that requires much thought, research, and consideration of your current and future financial situation. The highs of real estate investing can be very high indeed, and there is certainly ample opportunity to turn your investments into serious money makers.

Waleed Esbaitah is CEO and founder of the Dubai-based real estate crowdfunding platform, Durise. Waleed has spent the last eight years receiving an education in various countries around the world. After attending Institute Le Rosey in Switzerland for three years, Waleed went on to complete a Bachelor’s Degree in Business and Administration with a focus in Finance from the George Washington University in Washington DC. Waleed has always had a passion for entrepreneurship, venture capital investments, and the tech industry as a whole.

Sourcehttp://www.crowdfundinsider.com/2016/07/87495-positives-negatives-investing-real-estate/

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