Depending on when you ask the question of how risky investing in property is, you might get some varying replies. In the lead up to the 2008 financial crash, you wouldn’t have met too many who would have deemed it overly risky to invest in bricks and mortar. However, with house prices at an all time high, there are many more doubters of the wisdom of property investment than there used to be.

This argument does also depend on how you approach the market and the good news is that there are a number of low risk methods that can be employed to protect yourself in the current housing market and whilst there is no such thing as a ‘no risk’ strategy, there are certainly some that put more in the hands of chance than others.

1. Play the long game

Whatever the properties are that are bought and sold over the course of your property investment career, you will be, for the large part, at the mercy of both the market and things like interest rates. There are many variables at work which often fluctuate, but the overall trend has been, is and pretty much, will always be an upward one.

House prices 20 years ago were significantly lower than they are now and in 20 years time, the chances of values being lower than they are now, are slim to none. As long as you buy well, don’t overstretch yourself financially and are prepared to ride out the rougher times, eventually you will reap rewards.

2. Don’t rush and overpay

When you set out on the road to making money through property investment, it can be very easy to rush into things and pay over the odds. Every pound that you spend on the purchase is a pound that you’ll have to recoup at the other end, so it’s vital that before bidding on properties, you comprehensively research the locale and more importantly, what constitutes a fair price.

This knowledge puts you in an extremely strong position when it comes to negotiation and it could literally save you thousands. Research will also pay dividends for buy to let investors, as a bit of research will give you lots of insight into rental demand and factors like how long it averagely takes to get tenants in the area.

3. Insure against bad tenants

Speak to an average buy to let investor and they’ll tell you that the one thing that keeps them awake at night is figuring out what to do in the event of their tenant stops paying rent and/or trashes the property.

All of this panic can be easily addressed by organising buy to let insurance from one of the major insurance providers. Letting agents often also offer this kind of facility as part of their service, which they will charge you seperatly for.

A typical policy will kick in when a tenant stops paying until you are able to rectify the issue. Cover does vary, so you must check the small print to see what each policy actually covers you for.

4. Vet your tenants thoroughly

There’s one thing that’s harder than finding tenants to put into your rental property and that’s getting problem tenants out. Ensuring that your tenants are asked to provide valid references, which themselves are verified, is a vital aspect of your buy to let investment strategy.

If you can, it’s also an idea to be the one showing potential tenants around, as meeting the people who will be living in your house will tell you a lot about them. When combined with a throughout vetting process, the chances of you getting problem tenants will drop significantly.

5. Factor rate rises into your budgeting

The Bank of England base rate of interest in the UK currently has much more scope for rising than for falling, sitting as they do at just 0.5%. This is in stark contrast to the worst times in the 1980s when they were pushing 15% and those who lived through that time will know that even a small change in the rate can have quite a big knock on effect on how much you have to repay for your mortgage.

The best way to avoid getting into financial difficulty, is to factor this into your budgeting before you buy. If you max out your borrowing and the rate then goes up, you’ll find yourself paying more than you’re getting in rent or with a mortgage you can’t afford to pay. Both are undesirable scenarios, so make sure you leave a bit of slack to take account of rate changes or opt for a long term fixed rate mortgage.

In summary

If a property purchase goes wrong due to factors out of your control, it’s distressing, but when it happens because of a lack of preparation and, you’ll end up kicking yourself. Thinking about what you could do minimise this risk before you start may seem like you’re being unnecessarily cautious to some, but to those who find themselves on the wrong end of the equation, it will seem like an entirely sensible and prudent thing to do.

Prep properly and you’ll take much of the chance out of the process, so make sure you do yours or you might end up regretting it.


Technology Real EstateMichael Beckerman, Founder of The News Funnel and CEO of CREtech, joined us on the podcast to discuss how technology is impacting real estate.

Michael Beckerman is a leader in the commercial real estate tech sector. He entered the sector in 2012 after a 25-year career in commercial real estate public relations, in which he started and built Beckerman Public Relations into one of the largest firms in the country before eventually selling the agency.

Michael now serves as CEO of CRETech, the largest event, data and content platform in the commercial real estate tech sector. He also owns other successful brands such as The News Funnel, the largest commercial real estate news aggregator and The Content Funnel, a social media and blogging platform for the commercial real estate industry.

Michael blogs at www.cretech.com/michael-beckerman/ and is active on the commercial real estate tech speaking circuit.

Michael’s Links

CREtech – CREtech is where the commercial real estate industry comes to discover all things tech.
The News Funnel – The News Funnel is the largest content platform in the real estate industry, containing news from 5,000+ media sources and companies.

*If you like this post, be sure to enroll in our free six week course on the fundamentals of commercial real estate investing — RealCrowd University.*

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Transcript

RealCrowd – All opinions expressed by Adam, Tyler, and podcast guests are solely their own opinions and do not reflect the opinion of RealCrowd. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. To gain a better understanding of the risks associated with commercial real estate investing, please consult your advisors.

Tyler Stewart – Hey listeners, Tyler here. Before we start today’s episode, I wanted to quickly remind you to head to realcrowduniversity.com to enroll into our free six-week course on the fundamentals behind commercial real estate investing. That’s realcrowduniversity.com. Thanks.

Adam Hooper – Hey Tyler.

Tyler Stewart – Hey Adam, how are you today?

Adam Hooper – Tyler, I am doing pretty well today.

Tyler Stewart – Yeah?

Adam Hooper – Yeah, I am.

Tyler Stewart – How come?

Adam Hooper – Well, we had another great episode. It’s sunny out. We kind of harp on that a whole bunch here–

Tyler Stewart – We do.

Adam Hooper – But it’s fall now. We got to take it for what we can here in Portland. Another good day though, another good episode, who is?

Tyler Stewart – Michael Beckerman who is the CEO of CREtech, and also the owner of The News Funnel.

Adam Hooper – Yeah, Michael is all things real estate media, and technology. You’ll probably hear a lot of themes in this conversation today similar to what we talked with Brendan Wallace at Fifth Wall, kind of how technology is affecting the real estate space. We’re seeing more of the investments in the space. We’re seeing more of the traditional players start to adopt technology, and just again an embrace of technology industry finally, which is a nice thing to see.

Tyler Stewart – Michael is also a master of building relationships and networking in the commercial real estate space. He delved a bit into his secret tips for how to build relationships and how to go to networking events and get to know people and start to build mutually beneficial relationship.

Adam Hooper – Again, I also love his emphasis on basically being a never ending learning, always trying to identify new things and kind of grow your own knowledge base to make you a better investor, a better user of real estate, and just more knowledgeable overall.

Tyler Stewart – Continue to learn and continue to grow, and just develop those skills as a real estate investor.

Adam Hooper – Perfect. Well, as always, we love your feedback, we love your comments, ratings on iTunes, SoundCloud, Google Play, wherever you might listen to us. So with that, Tyler, let’s get to it.

RealCrowd – This podcast is brought to you by RealCrowd, The leader in online real estate investing. Visit realcrowd.com to learn more about how we provide our members with direct access to commercial real estate investments. Don’t forget to subscribe to the podcast on iTunes, Google Music, or SoundCloud. RealCrowd, invest smarter.

Adam Hooper – Michael thanks for joining us today. We’re excited to talk a little bit more about what’s going on in the real estate and technology world. Where are you joining us from today?

Michael Beckerman – Well thanks guys, I’m really excited to be on the podcast, I’m a big fan of the podcast and your platform. Today I’m fortunate to actually be home, for once in a long time. I don’t know if my wife and kids are so thrilled about that, but I’m home in central New Jersey. Most days I am either in New York or I’m traveling, but today you find me in bucolic, horse country, central New Jersey.

Adam Hooper – Very nice, and we were just talking before we started recording, fresh off of the San Francisco conference you put together. You said about 500 in attendance there?

Michael Beckerman – Yeah, it was last Thursday we were in San Francisco, so I guess, depending on when this podcast airs, we were recently in San Francisco for our annual CREtech conference, and it was just an extraordinary event. It’s become so much less about us as a company, and as a site and a platform, it’s so much about, the industry and its evolution. The great thrill for me is to sit back as an audience member, in the back row or move around, listen to the crowd, and listen to the conversations. It’s to see how much progress, you guys have been in this is for as long as I have, how much progress has really been made. I measure that by the quality of the conversation, the substance of the conversation, the speakers, the amount of transactions that are taking place at our conferences, and of course the size. Last time we had the CREtech San Francisco, it was about 500, as you said. Which was terrific. The other thing that’s really great is that it’s all food groups within the industry, so obviously it’s heavy on the startups, but also now increasingly heavy on the investor side. We’ve got a lot of investors both institutional, and so we see private equity, as well as family office high network, individuals that are just angels that are looking to invest in this space. Then the occupiers, the developers, the landlords, then the service professionals, like the brokers, that want to discover tech. It’s been an extraordinary evolution in this space, I’m blessed that I get sort of a first row seat on what’s happening.

Adam Hooper – Good, well now take us a little bit back. We know you had a career and more of the public relations side, and then have transitioned now into what you’re doing with CREtech. Why don’t you take us a little bit through that transition, your background, and how you come to where you are today with CREtech.

Michael Beckerman – I started working I was in my early twenties. I had a love for media. I didn’t really have much formal education, but I loved media, and I loved content, and so I thought that anything in that industry, that space, would be something that I would enjoy doing. I started a PR firm in the late 1980’s, in a time when we were in the midst of a really horrific real estate cycle. Some of my first clients, as a publicist, were real estate. I found that there was a great void in an agency that specialized in mostly, commercial real estate, we did do some residential, but it was mostly commercial, multi-family office, retail, industrial hospitality. it took me a little time to figure out the importance of specializing in a particular industry. At some point I started to really see that this was a career path where I could build this agency, and we could focus on one category, commercial real estate. Worked really hard, scaled the business and got up to about 70 or 80 employees, and a couple of offices across the country, doing almost exclusively media relations. At that time , the media looked very different than it did today. There was actual print, there were actual magazines, there were actually very sophisticated reporters that were covering the beat. My job was to build brands using the media, and I did that for a very very long time. Then at some point in the late 2000’s, I started to understand when this thing called the internet was really starting to get traction, the world of content was changing. Just look at what we’re doing now,

Michael Beckerman – this is content, real crowds, podcasts, this extraordinary podcast, you’re your own media, and I kind of saw this coming. It didn’t take a rocket scientist that print was suffering, everything was going online. I eventually wanted to restart my career, wanted to reinvent myself. I just became completely bored with me, number one, and what I was doing. I worked on an exit plan and eventually was able to exit the agency. I wanted to go into something that I knew nothing about, that felt like real estate PR, 25-30 years ago. What wasn’t happening in our industry? What wasn’t anybody doing? That was in technology so, I migrated from the PR world. My first foray in this space was a site called The News Funnel, which is a content aggregator, it’s the largest in the industry, so that was the first thing that I built. Our job and our focus there is to take all of this wonderful content that, folks like RealCrowd and startups, but also just real estate companies were doing, and distribute that to the industry. We built that and it’s really thriving and taking off. I had an opportunity cause I really got into the tech world as a founder myself, to acquire CREtech about two years ago, which was, well you guys were a part of it, which was really kind of a volunteer community of founders that which were getting together and having some small meet-ups and talking about real estate tech. I saw that it could be a lot more than it was, they needed some investment. The fellow that started @Pierce9ken, who became my partner,

Michael Beckerman – is a wonderful, wonderful ambassador for the industry. He was at CBRE, took a job at Airbnb, in their real estate department. He was sort of looking for a way to scale it, and we came along and bought it two years ago. So CREtech has come into my life in a meaningful way, and that’s a big part of what we’re doing everyday now as well.

Adam Hooper – Good. And just for listeners out there, CREtech, a great source of content like you said, maybe you can just take a couple of minutes and tell listeners what you guys are doing at CREtech, and how that might be beneficial for them to get on board.

Michael Beckerman – One of the things I found was, as a founder myself, building my own content platform at The News Funnel, that there was really no place for the industry, the real estate industry, to discover all of these startups, all of these great emerging technologies and platforms. When I bought CREtech, it was with the sole purpose of bringing technology to the real estate industry, and being this one hub for anybody to come and discover all theses great platforms, all these great tools, and also to just have the industry just connect. We got a hold of the company, we acquired it, we started to reinvest it, we rebuilt the website, so the website’s a place where we’re aggregating news everyday and distributing that. We hand-curate about ten stories in the industry, that we think are most noteworthy everyday, whether they’re on funding announcements, new product launches, new hires, expansions, fundraising. We distribute that to our audience daily. We have a directory of startups there. We are doing a lot more there as well, we’ve pushed into consulting and advisory work. A big part of the platform is our events. We do large events in New York, San Francisco, LA, every year. You’re looking at anywhere between 4 to 800 at those events. Then we will do smaller regional events in Chicago, Austin, we’re thinking about going to Seattle. That’s where someone will say, “Hey, we want to bring CREtech to our community. We want to try and spread the word about what’s going on in commercial real estate technology. Will you guys come?”

Michael Beckerman – That’s core to our mission, so we’re like, “Absolutely.” We work with local startups, or local developers or owners, or investors, to help bring the community to their location. At the events, we are not a pay-to-play platform, so our speakers are 100% curated for merit and content. That’s very heavily me, and what I’m picking, that is interesting. You’ll come to the event and you’ll see startups have booths. You could see anywhere from 30 to 40 to 50 start-ups, and they’re really terrific. Then at the speaking level we’ll usually have something to do with venture investing or angel investing, and we’ll get a bunch of investors together and talk about what they’re investing in. What they see and what the hot topics are. Typically we’ll get some of the commercial real estate brokerage firms, the big names, to come and speak, their CTO’s and CIO’s. Then we’ll get developers to speak as well. Whether it’s Hines, or Prologis, or Equity, or Boston Properties. Those are the one’s that are talking about what they’re investing in and what they’re using, and what have you. It’s great content and it’s great connectivity, and networking, and the events are just really really scaling. Like we were talking before, the thing that I notice is that, it is the caliber of the conversation that people are having, it’s not just these puzzled faces anymore, “How does this compare to that? How does this impact my business immediately?” There’s also a lot of integration amongst the startups, that’s happening.

Michael Beckerman – I would say in the two years that we’ve been doing the event side of CREtech, it’s been extraordinary, the growth and evolution of this tech. We’ve got people coming, at the last event we had people from Europe, people from Asia, we had people come from New Zealand. All just extraordinary investors. I don’t want to reveal all the names but, that aren’t even speaking, that are just walking around, looking for opportunities to invest and to learn. I can’t wait for the next one, which is LA.

Adam Hooper – You talk about caliber right, so just today you guys announced your leadership team. Looking through this roster, a lot of folks we know. You’ve got Tom and Rich, Tom Byrne and Rich Boyle, early LoopNet. You’ve got Brad and Brennan at Fifth Wall. You got Colliers, Berkadia, Elie, formerly of CBRE, now Metaprop. JLL, Pierce at Airbnb, Newmark Knight Frank, ICSC. Our friend Steve Weikal at MIT. That’s a pretty solid list of folks that are involved in this.

Michael Beckerman – Yeah thanks. Our mutual friend Steve Weikal is just another one of our partners. Important I mention the event that we do with Steve and the MIT Center for Real Estate in Boston, We did our first together this year, and it was just extraordinary. Anytime you do anything with Steve and the Center, you know it’s going to be great. Our two companies combined really produce something amazing. Steve speaks at a lot of our events, he spoke at our recent Atlanta meet-up. The thing about the leadership board is, what we’re really trying to do is advance the conversation to really elevate it, and I don’t consider myself a quote-unquote, tech person. I consider myself an infinite learner. somebody that’s constantly trying to take my own knowledge to the next level, and push myself, and challenge myself. Technology is not something that is intuitively, guess cause I’m old , I’m 53. That I was not born with a phone or swiping in my hand. I’m constantly learning, and the way that I learn is to surround myself with the best and the brightest people that I can find. That’s the leadership board, and those are people that we will frequently just tap into and say, “What does this space look like? What are your thought on driver-less cars? What are your thoughts on Blockchain, or AI?” Whatever the topics are. Just to give us some feedback, and also to create some content for us, so they’d be blogging for us. We’re not journalist, we want to crowdsource the best content. That’s the purpose of the leadership board.

Adam Hooper – A lot of that and I think, the real estate industry, has always been about relationships and networking, and I think that’s one of the things we try to do here at RealCrowd is, bring people that, historically didn’t have access to that network, primarily on the investor side, with real estate managers, and try to build that network through this digital media versus traditionally just the dinner meetings or golf rounds, whatever that might be. What is your approach or secret or how do you approach networking and building this kind of collective of such high caliber people? Is there anything special that you’re doing, or secret that you’re doing, or is it just a genuine enthusiasm for what’s going on, and that just kind of builds on itself?

Michael Beckerman – It’s a terrific question, thank you. It’s one I was actually talking with a couple founders the other day. We got together in New York and we were talking about building their particular platforms, and how they went about it. The general consensus, and the exact same thing that I found myself is, it’s a very very physical business. The reason for that, and what I mean by that is, you have to go out meet and talk to everybody you possibly can. We’re in a new industry, an emerging industry. One that is not mature in the sense that there’s no central place for people to connect. It’s not something that you can merely use social media for, or organically grow. We’ve got to take, and RealCrowd’s done amazing, this is why you guys have been so successful. you have to literally take your product, get it to the market, get in front of people, and see them. Demo the product or just meet with them. Everyday, in my case for instance, I take virtually every call from every startup that wants to demo their product to me, and I simply say “How can I help? What can I do to help you?” Everybody’s boat rises then, alright. “So what are you looking for? Are you looking for introductions for investors? Are you looking for introductions to get adoption?” And it’s the same thing on the investor side. “What are you looking for? Are you looking for deal flow? What can I do to help?” It’s very very physical, the networking. I go out, I meet, I travel. That’s why we go, we’ll do an event in Atlanta. We’ll do one in Austin. We’ll go to any place we can where people want

Michael Beckerman – to talk about commercial real estate technology, because we have to physically build this thing. This is the largest business category in the world, real estate, and there’s no tech ecosystem. Of course if you are in consumer tech, or even fintech now is a mature industry, as you guys know well. Healthcare is coming along pretty aggressively, there’s big conferences in all those categories. Even Blockchain now, it has its own sort of ecosystem. Our world doesn’t have one yet. So the only way we’re going to do this is, we just have to go out and old school network. Like I did 30 years ago. Thankfully I got the energy and stamina to do it . But it’s a lot of work, but it’s fun, it’s exciting.

Adam Hooper – Now if listeners out there where to find themselves at an upcoming CREtech conference, they’re not industry participants typically, right? They’re kind of maybe coming from outside, maybe less of an ingrained kind of knowledge about the space. How would you suggest they approve something like that? Or when they’re having conversations with the manager in the space? Educate themselves, and that’s a lot of what we do with the podcast but, what would you say a good approach for people that are trying to get into the industry might take out when they go to conferences or have these conversations, and then start networking?

Michael Beckerman – What a wonderful question. I’m somebody that tries to do as much preparation as possible always so, when I’m meeting with somebody or I’m going somewhere, I really do a little bit of homework. I would suggest, let’s say if you were coming to our most recent event in San Francisco. You go on to our website, you see who the startups are that are there. You try and schedule meetings with people, whether in advance, you get in a day before, or if you’re local and it’s easier to do. You can do it the day before or what have you. This is also what I tell people that want to get a job in the industry, or are looking to invest in the industry, or don’t know what it is. Go talk to people. But set up meetings, do some homework, get there early, don’t just show up and you get lost. I see it happen all the time. People show up, they get their name badge, and there’s a crowd of 500. It’s pretty intense, it’s only 3 or 4 hours. It’s not like it’s 3 days, so that’s a tough thing to navigate. Look at the thirty or forty or so startups that are there, look at who the speakers are. A lot of these speakers also open up their calendars to people as well. You could reach out to some of the speakers and just make a point do some preparation, both in knowledge and in connectivity. Again, just reach out for us and our team and say “Hey, we’re coming to your XYZ event, how do we navigate? Can I get a few minutes with Mike?” We’re a small company, about 10 of us, so we’re extremely accessible. That’s the best way.

Michael Beckerman – The worst way, I always find this, to show up blind, not have any real agenda. It’s just common sense, just preparation.

Adam Hooper – Yeah, and engage, don’t be afraid to engage and ask those questions.

Michael Beckerman – Yeah, again, completely. We take Q and A’s afterwards, but again, I typically will see, we’ll have some of the venture capitalist there, like one in the top names in the space, they get off the platform, and there’s a line literally trying to get to them. Somebody will come up to me and say “Hey, can you get me to that one or that one?” I’m like, “I would love to try and help, but that’s not the way to do it.” Same way I would do it, if I went to a conference and I didn’t know anything about it, I would literally connect to people on LinkedIn and say “Hey, I’m going to be at this event and I would love to meet up.” You know, for coffee a bit before, or find them and go in, you know, just step into it, but do some homework in preparation.

Adam Hooper – One last bit on your recent conference in San Francisco. One of the ones that I always enjoyed going to is ICSC, the big convention in Las Vegas. That was always a good way to take the temperature and sentiment of the market. There’s a ton of deal-makers there. You have investors, landlords, tenants, you got the whole gambit down there at ICSC. At your last conference in San Francisco, what would you say the sentiment was? I guess, just in terms of industry outlook. What’s keeping people up at night? How was the energy in the overall real estate space at this conference?

Michael Beckerman – Wow.

Adam Hooper – We’re hittin’ you with the hard ones today.

Michael Beckerman – No, it’s the good ones. Really good, I love these questions because they’re really insightful. Which, I wouldn’t expect anything less from you guys. It’s interesting because I’m so, sort of deep into the ecosystem, and I’m talking to all the sectors, so I know the startup’s pains. I know what the developers and the owners are doing, and I know what the brokers are trying to do. You can look at numbers and sort of see, you can get excited about how much money is, for instance, is being invested in the space. You go, whoa! Every year it’s doubling, I mean it’s literally doubling. Month-to-month, year-over-year basis, it’s doubling. Now but, that’s kind of misleading so the things that I look for is where’s the traction, who else is growing and why, and what are companies trying to do with these tools. Are they deploying them or are they just investing in them? Et cetera. I think when I look at the sentiment, I look at it and say wow everything’s going really fast, everything’s growing, money’s definitely coming in. JLL Spark, as you guys know, they just announced 100 million. Metaprop just raised 40, Camber Creek around the same, out of New York, and Fifth Wall with their 400, and many more that are coming. RXR in New York, and now it’s 50 million from Ranmore, Brookfield, I think is 200 million. Prologis is massive in terms of their investment. That’s real material progress. What I look for is, I really go deep into the ecosystem and say, “Where’s the traction?”

Adam Hooper – But is anybody doing anything important that money?

Michael Beckerman – Correct.

Adam Hooper – Just putting money in the system is one thing, but what’s actually being done with it. I think that’s the bigger indicator, right?

Michael Beckerman – That’s what I look for. Not to get too much into the weeds. I’m looking for which sites are brokers using more than others, which sites are investors using more than others, which sites? Is VR finally getting some traction or not? I mean obviously, really very little of the Blockchain, but it’s a big topic. So what I really try and understand from my perspective, from my knowledge is, where’s the traction. A lot of it’s happening within organizations. If you could open up the boiler room into the big brokerage firm, and see what they’re doing, and people inside are going to the HUD, you would see where traction is. That’s what I look at. What are the brokers using, what are investors using, what platforms, what tools, and so, my takeaway is always, “Oh, that site is really scaling. That one is really scaling, or this one, they’re not there yet.” So that’s one thing without giving you too much specific that . I think the thing is that I see, it could somebody going, “What’s the takeaway, besides the individual sites that are scaling, and the money that’s coming in?” We’re at this point in the evolution of the space where we’re starting to see startups and platforms integrate and work together, and collaborate via API’s and what have you. I think that’s a very very important trend in the space. You’re starting to see multiple solutions come together to try and create a more coherent solution for the end user, and I think that’s an important evolution. If you say to me, “What’s the one sort of trend that

Michael Beckerman – you’re starting sort of seeing?” I would say, “It’s that!” The users of these products and these tools are saying, to the startups, “There’s too many of you, and you’re in too many silos. You need to understand from the user experience side, “that you need to make it simpler for us, and we can’t bounce from app to app to app to app.” I think we’re at that stage in the evolution, and that’s very very exciting.

Adam Hooper – That’s one of the things that we focus on, so we recently partnered with IMS, Investor Management Services, to provide that backend process. That’s what we’ve seen, and I would completely agree with you. Each one of these segments and each one of these companies that’s attacking their specific segment, it’s such a specialized business, that it’s really hard to do one thing exceptionally well, and near impossible to do more than one. Mediocre at best. I agree with you, I think we will see more of that integration and partnering with best-in-class providers to make that end-to-end solution for the customers as seamless as possible, rather than everyone trying to build everything internal. Leveraging the best-in-class with these different silos. The more you can build an integrative platform across all those different services, I think that’s going to be great for the industry.

Michael Beckerman – Well I remember meeting, I think you guys put that out sometime in May, about the IMS partnership. You used those words like seamless, end-to-end, life cycle. I read that and I was like, “Oh my gosh, these guys are so ahead of the curve.” That’s what your users are probably saying, “Yeah, give us more of that.” That’s just you, and this is why RealCrowd has done so well. It’s really a breakout platform, is because you’re really understanding what your users are looking for. Your customers, your clients. There’s a tendency sometimes, as you know so well, when you’re in tech, that you’re just so focused on the tech. You’re so focused on your own opportunities and challenges, that you don’t listen much, and I think all of us get into those traps. That’s why, when I saw that partnership, I was like, “Oh, yeah yeah, they’re listening, they’re listening. They’re being very intuitive about what their clients are looking for.” Kudos, kudos, you’re ahead of the curve–

Adam Hooper – We’re trying, we’re trying. You mentioned VR, AR, autonomous vehicles, Blockchain, we’ve touched on a couple of those. What are some of the more exciting areas that you are tracking, or that you see potential in? What gets you excited about the technology space right now? Where do see some of those going?

Michael Beckerman – We had a very small event in Utah a couple months ago, we had about 50, really at the highest level, thought leaders in the space. We got together at this beautiful lodge, Stein Eriksen, in Utah We had speakers, the world’s leading experts on Blockchain, cryptocurrency, and robotics, and what have you. I spent a lot of time reading and thinking, and talking about autonomous vehicles. I spent a lot of time talking to people about machine learning, and what have you. A lot of the stuff that we talked about is not practical today. It’s not being implemented now. It has transformative powers and applications down the road. When that comes I think it’s going to be extraordinary, I mean just the driverless cars, and the impact on all of us that either work, or live near cities, or what have you, Or what it can do. Parking garages, and the way we commute, congestion, and everything. But I think today, what’s on the ground today. I think the biggest revolution that I see, The thing that is having the most impact is simply, data. And this is where you’re at as well. First time in my lifetime, people in the industry have access, open access in many cases, to real-time data in ways and to degrees that have never existed before, that they can do so much more with now. Types of decisions they can make on investing, or leasing. So for instance, recently I was with Savills Studley, a massive tenant brokerage firm, who had built something with Leverton, an AI and data project that gives their professionals extraordinary access to information and trends that they never would have had a year or so ago.

Michael Beckerman – I could get into that for an hour but, it’s too much in the weeds. More so than any time in my 30 year career in this space, it’s all about dating now, and you look at companies like Reonomy or RealCrowd and or Comstack, it’s just an extraordinary amount of data, which is transformative, both for investors, for occupiers, tenants, owners, developers. That I think, is the game changer in the industry now. It’s the access to data and what it represents.

Adam Hooper – Now with some of those, what could be more transformative technologies that you mentioned, but now is not necessarily the time. Because you’re talking to all the different sides of this equation, what do you see as some of those barriers for adoption? Is it just that the technology isn’t advanced far enough that there’s practical uses for it? Is there a resistance? Real estate is always been a fairly slow industry to adopt technology, period. We talked with Brendan Wallace at Fifth Wall, in a prior podcast. One of the things we talked about was, can I use a generation of executives coming into the space be much more embracing of technology, we grew up with it. Do you see that playing a role? What do you think is going to be one of the tipping points that gets more adoption with some of these more industry-changing technologies?

Michael Beckerman – Oh boy, my crystal ball right? Personally, let’s say we’re in a new world of data, and that’s never going back, and that’s the new reality, and it’s wonderful, it’s amazing. We’re in that now, forever. Data used to be exclusive to either one company in our industry, or it would be exclusive to a professional, so I have information, and I have knowledge. Now flood gates are open, everybody’s got it, anybody can get access to it. When I think about it, the most transformative I would say, obviously the blockchain. Then again, that hasn’t even really materialized in other industries yet. I think that that could be extraordinary. That there is this open ledger that could profoundly impact the way that information is stored, and shared, and transacted. Again, moving this industry, this massive industry into the Blockchain, we haven’t even been able to move this industry into virtual reality, or augmented reality–

Adam Hooper – Or even just what we’re doing online with the same process as doing it on a website, right. We’re having conversations today that we were having five and a half years ago when we first started the company, same conversations.

Michael Beckerman – Exactly, exactly, but I think the thing that I get most excited about, as a consumer, as a dad, as a commuter, is the autonomous vehicles. Every article that I read, I am like, I just hope that this comes sooner. I hope my kids don’t have to ever drive. I don’t have to go through these New York commutes anymore. I hope that in other parts of the country, DC, or Austin, or LA, that this can be a solution for traffic and congestion, and open up and make more green spaces. Get rid of parking garages. Just the way the cities are built, the design, and green spaces. I think the one I am personally most excited about, the one that I can’t wait for, I never got my jet pack that the Jetsons told us was coming. If the driverless comes, the autonomous comes, when that comes, I think that’s going to be very… you still got to get through regulatory issues, municipal issues. It just has so much potential. Again, from the horse and buggy to the car, hopefully from the car to the autonomous.

Tyler Stewart – Do you have any sense for the timing on when we might see some autonomous cars out there?

Michael Beckerman – It’s so hard because, somebody’s that not working at Google, or Lyft, or Jaguar, Uber. I’m not in Pittsburgh and I’m not in Silicon Valley. It’s really just kind of what I read and who I talk to. We had a conference in La last year on this very topic, and the CEO of Gensler did an extraordinary presentation, led by a good friend of mine, Jeremy Neuer of CBRE. He was very very passionate about it as well. He went through this whole thing about what the future of design and construction looks like, et cetera. He had said five years. I’ve read other things that are sooner, and other things that are later. Hopefully we are not that far off, but I would say when you start to see them on the roads and having a material impact, I would say hopefully within the next five years but, your guess is as good as mine.

Adam Hooper – There’s a lot of different avenues that can impact our space, and so we can kind of tie it back to our listeners on this podcast, as potential investors in real estate. How can some of this change or how will this change the investment landscape, or what are some of those hot points we should be looking out for, and maybe some resources that they can go to? Obviously CREtech. But to keep apprise on what’s going on and start forming some opinions or thoughts on how that might affect their investment philosophy.

Michael Beckerman – As it relates to specifically real estate, right? Directly? It’s really been the most transformative period in my career, in terms of the physical space over the last couple years, due to tech I attribute a lot of it, whether you’re a fan of the company or not, I don’t think you can dispute the impact that WeWork has had on physical space. I’ve been a tenant my whole life, I’ve invested. I have a lot of friends that are investors. On the office side, you cannot deny that paradigm has shifted, and in every city now there’s coworking, in every community that it’s available. That has real implications on the investing side and the ownership side, and we’re starting to see it now. A lot of these conferences you’re hearing major landlords changing the dynamics of their properties to accommodate a different kind of workforce. A workforce that wants to have more communal space. That’s why you’ve seen startups like Convene thrive. Have more mixed use, so it’s co-working, and it’s retail, might even be some housing in there now, some residential.

Michael Beckerman – Fundamentally, WeWork has had a profound impact on the nature of occupancy, so that’s really important, a trend that I think is here to stay, and growing. The other thing is e-commerce has just exploded, so if you look at the warehouse industrial space, there’s no surprise as to why that’s done so well for the last couple years, with the likes of Amazon, and what-have-you, really expanding. Also, I spend a lot of time looking at robotics within industrial, and listening to folks like Will O’Donnell at Prologis, and what they’re doing. How buildings are being operated better through technology, is something that’s really really interesting. It goes on and on and on and on, all of these technologies are having a real impact on the nature of space. What’s the implication then on investing in that space, and what becomes the new hot product? You can come to these conferences and you can understand. I don’t know that I would be owning parking garages anymore– That’s a good opportunity to start selling or what have you. There’s also this whole trend towards office buildings becoming hotels.

Michael Beckerman – It’s the way that they’re configured, so that’s something to really pay attention to. An investor co-living, same sort of thing. I don’t think these things are bubbles, I think these are the real trends. If you just look at the demographics they all support, that the nature of physical space is changing and evolving, because of technology, and therefore there is a direct correlation to what is a good thing to be investing in or not. I’m not that smart, that’s you guys, but, there’s a correlation there.

Adam Hooper – It’s what we talked about with Steve Weikal on our episode middle of last year, the whole concept of real estate fracking.

Michael Beckerman – He should get a dollar for every time someone mentions that now, cause he would be a multi-billionaire–

Adam Hooper – I’ll send him a check. The concept for changing the nature of the use, right. You talk about data, don’t kid yourself for a second that every time somebody walks in or out of the door, in any of WeWork spaces, they’re collecting data on that. The insight how tenants use space, I think will have huge impacts on what gets done going forward. Like you said, no one’s really ever had access to the amount, and the kind of data that we have now, and so, my thought on this is I think we’re still early enough in that kind of data aggregation part of this phase, that once we have a meaningful dataset to start using to inform decisions going forward, that’s when we’ll start to see some even more dramatic changes. I think we’re still trying to wrap our heads around how can we use this data, now that we have the ability to collect it. I’m curious to see what happens in the next 5 to 10 years. Once we have that dataset, how can we actually use that to inform these decisions were making about the usage of space or new development, or retrofits. I think it’ll be interesting to see.

Michael Beckerman – Right, exactly right. That’s really well said, spot on. If you think about it, like in my lifetime, the dynamic was, you sign a lease or you became the owner and you signed a lease with an occupier as the tenant. You’re kind of done, that was it it would be five, seven, ten years, kind of wait till it rolls over, check back in and hopefully do it again, or whatever, figure out what they needed. That would also be on the multi-family side. You build the building, you get the tenant, and you see them when the lease rolls around. That’s forever change. I do attribute a lot of it to WeWork, I do give them a lot of credit for being bold enough to re-think that dynamic, and say “Hey, there’s another way, which is going to be short-term, and flexible, and creative.” Like you said, “Now we’re going to just put sensors on the ceilings, we’re going to capture all your data, we’re going to build apps to communicate with you while you’re in our building, and we’re going to know everything about you, on a real-time basis.” That has never happened in this business. Who’s in the building and what they’re doing, is now captured, like you said. What everybody does with that, that’s the next iteration. That’s where the smartest investors will be, smartest landlords will be, understanding that data. In one of conversations we were having yesterday, one of the things I really try to write about in my blog, and whatever speaking opportunities I’m fortunate to get, is I’m really talking to people in my generation and my community and and say “Look.” The other thing that’s happening and that everybody

Michael Beckerman – should pay attention to, is that jobs will be lost. You’re kidding yourself to think that technology plus real estate, equals efficiency, equals job losses, results of job losses. People are going to do more with less, it’s why you’re starting to see so many virtual assistants. Executive assistants are getting impacted or marketing people are getting impacted. But, on the flip side, there’s great opportunity. So if you’re somebody that loves research and data, go get whatever information you possibly can to educate yourself to become a data scientist in real estate, and you will go to the top of the food chain, based on what we were just talking about. That’s a little side vent of mine. Trying to get people to wake up and see there are opportunities here, but there is also going to be some pain as a result, which always happens. I mean, one of the things that I always talk about and I know you know this world well, is like when I do my presentations is I always point to fintech and say, if you look at like, what AI or what machine learning and all have done to Wall Street and the financial community, I mean, there have been massive job losses that, and there’s only more coming because they’ve gotten so efficient and I can’t even know the number of stock brokers, or people that pick stocks that have been lost but so now we know it’s coming to a hiring issue so get in front of it.

Michael Beckerman – Anyway, getting off topic but that’s just, it’s a passionate topic of mine– The great opportunity here.

Adam Hooper – Well, lets take a minute if we can and just kind of go through maybe the four major food groups, you know, office, retail, industrial, multi-family. Maybe you can just kind of pick off by level maybe a couple, two or three, either interesting technologies or interesting companies that you’re seeing in that space that you think we should be watching out for? Can we do that a little bit?

Michael Beckerman – Specific companies?

Adam Hooper – Yeah or just themes, right? Something like if we start with office, right, obviously you got We Work, co-working, you know, what are some other things that you’re seeing maybe that will impact the office market?

Michael Beckerman – Without getting in too much trouble because I know our larger audiences, if I started picking off specific startups. On the office side, the big sort of theme right now is apps that are enabling landlords to communicate and bring amenities to the workplace. You’re starting to see a lot more focused on applications that you can broadcast food services, you can do yoga classes. Whether it might be emergency situations to what have you is that, you know, the landlords are really waking up to the possibility, the potential, the opportunity, having direct communication with their specific tenants. On the office space, it’s very, very sort of big into the community apps and communication apps, I think it’s also obviously on the data, so on office it’s very, very much about data right now, and I think again, that’s not going away, so again, that calling out specific startups if you just, you know, looked into, you know, data, you’d find a lot of…

Michael Beckerman – Lot of the startups that are attracting the most amount of money are they’re scaling or in that space. Same sort of thing on the industrial side. On the industrial side, it’s really interesting because there’s two parts of that, that I see, that are really accelerating because of growth. Specifically on, there’s a great deal of innovation on the construction side of the business. Which is a really exciting and fascinating to see, you know, what robotics can do, what so and so, I’ve seen some stuff on 3D printing, and extraordinary. Then I think just on near the industrial side it’s interesting because it’s a little quieter, they don’t broadcast as much because, you know, the companies at the top of the food chain are so massive and so large but some of the things that like, Prologis is doing within their warehouses in terms of data now it should see, is just, and robotics is mind boggling. Maintenance is another big thing that’s there’s just tremendous advances in maintenance and energy efficiency, and things like that also in the office side. I mean, on retail, I think retail’s a, you know, you mentioned ICSC, we were just at an innovation lounge at their big Las Vegas show. I mean, retail’s interesting because I find that like, you know, they were a little late in seeing the threat and now they’re really making up for it in a very exciting way and there’s just profound, exciting technologies that are coming to retail, everything from sort of, the Amazon Go to, you know, to motion detectors,

Michael Beckerman – sensors, just amazing, but again, I think you could just look at Amazon Go and see that’s the future of what retail looks like, for better or worse. On the multi-family side, it’s also one that’s really exciting, whether it’s like, building access, whether it’s amenities, and again, communications. Much innovation happening on a multi-family side. What you see now is that the landlords, and the owners, and the managers, are all recognizing that technology can be a way for them to differentiate themselves, get a competitive advantage in the marketplace. It’s sort of like, you know, used to be like, who had wifi and who didn’t. Who’s got just the most extraordinary technology in the unit, in the home, and outside. It used to about like, who’s got the cool? And now it’s like, who’s got the most state of the art, you know mail, locker systems rather–

Adam Hooper – Right, who’s got the most room for all my Amazon deliveries?

Michael Beckerman – Yeah, exactly. There’s so much happening, it’s a lot. Again, it’s wonderful, it’s wonderful. We don’t dabble as much as a hotel side but, you know, I think the major food groups: office, industrial, multi-family, retail. There’s innovation happening in every food group and at our conferences, we really do try with have everyone represented.

Adam Hooper – What are some things out there that are maybe super early or not on the radar of the most that you’ve been tracking, or what aren’t we talking about that we should be watching out for?

Michael Beckerman – Wow, that’s a great one. One thing that I really notice… I don’t know, again, what the application is specifically to your audience but that because of all this technology that’s being invested, it’s really become now more of a global community real estate and so what we’re doing here in the US, is also taking place in the UK. It’s also taking place in India, it’s taking place throughout Europe. There is this sort of global community that’s forming that it’s very exciting. From an investment point of view, from a startup point of view, we’re getting a lot of foreign investment into the US, in terms of VC’s and what have you that are interested in the space. I think the other thing that I think about is that there’s clearly an arms race in the sense that the firms that are able to are investing substantial dollars into the space. That is going to give them a clear leg up. So if you’re a middle-market firm, you’re getting squeezed right now because, you know, this is proving out, day to day, that middle markets and brokerage firms are struggling in some cases because the channel house, the CPRE’s, you know, the Newmarks, the Colliars, I mean, they’re investing tremendously in tech. At both they’re creating, like, look at Colliars and their collaboration with Techstars, they’re one of the world’s great accelerators, you should have on the show. They’re incubating technology that’s going to be proprietary to theirs, JLL Spark, same thing. I equate it to fintech’s…

Michael Beckerman – It looked like Goldman’s doing or some of the other, they’re getting competitive advantages based on the technology investments that they make. Just because they’re throwing a lot of money at it doesn’t mean that they’re going to win, but they’re bringing in people from outside the industry, Silicon Valley, and tech, to being really leading. You’re starting to see CTO’s could gain, and CIO’s getting increasingly importance on brokerage, and development, and innovation people. That’s one of the things I’m really, really, really paying attention to, and then on the, sort of on the investment side, if you’re a small investor… When I say small, not dollars, just you’re a regional and you’re buying in your particular community, and you’re not like, a global investor on a couple of markets, you’ve got like, you know, again, and I come back to Rilke, you don’t like opportunities now to be more competitive than ever before in your market, where you can have a leg up on your competitors. It used to be like, you know, you got a call from that broker, or you got a call from somebody because you’re in a relationship with them, and you have a strategic advantage because you’ve got some inside information in a good way, not in a bad way obviously. Now, you could use RealCrowd to communicate and source, you could use so many other tools that are out there to gain a competitive advantage.

Michael Beckerman – I’m starting to see more and more individual investors come to our conferences looking for tools and applications that could give them a competitive advantage. As you guys can attest to, they’re becoming, investors are becoming much, much, much, much more sophisticated in the tools that they’re using. That’s really the great surprise for me is that I’m walking around San Francisco and I’m seeing a couple dozen local investors and multi-family, or office and industrial, talking to startups to use their products in their marketplace, and I think that is extraordinary because oftentimes we get lost in the tree tops but we’re talking in the beginning of the podcast, it’s really about what’s happening locally and individually within each office. That 10 person, 20 person, five person, two person investor or company in real estate can now compete with the 100-person operation because of tools like RealCrowd and others. That to me is thrilling, and that’s what technology at it’s best can do.

Adam Hooper – There you go. That’s some good stuff. There you go, absolutely. Get optimized, get optimized. That is a good, that’s a good mic drop, Moe. What’s next for you and CREtech, and maybe, yeah, we’ll put again the link in the show notes so that all our listeners out there can attend some of these conferences, right? I think it would be, from an educational standpoint and what we’re trying with, you know, helping our listeners understand this asset class better, would highly recommend they check it out and attend, and see what’s going on in the space.

Michael Beckerman – How about this, how about my team’s going to listen to this and get crazy, how about any listeners to the RealCrowd Podcast, we can give a discount to an upcoming event, so we’ll work on that together. I love you guys, you’re so supportive of the ecosystem, you’ve been involved in CREtech from day one, showed great leadership, amazing content. We want to encourage your community at RealCrowd to come out and come to a conference. Next for us is really just, continue to scale the events, continue to source, you know, great ideas and themes or what have you. We’re looking at our fall lineup. We’ll be in LA, coming to Austin in October, we’re coming to maybe a couple other places, I know Chicago’s on the docket. We’ll have another small meetup in New York, and then our big meetup at the end of the year, in December, in New York, which is our largest event. Continue to scale the event. We’re producing more video on our websites so please sign up for the website’s free, at CREtech.com. For me personally, I’m excited to head over to London in a few weeks to check out the CREtech, or as I like to say, pop-tech world over there. Find out what’s happening over there, and bring some ideas back here. I’m just excited everyday, I’m excited about tomorrow. I’m excited about everyday in this space is again, as the infinite learner, I’m just trying to learn and educate myself as to what the smartest folks in this world are doin’

Michael Beckerman – like you guys at RealCrowd and try and bring it to the rest of the my community.

Adam Hooper – Perfect.

Michael Beckerman – Takinh it day to day, so thanks again, guys. I really enjoyed this and big fan of RealCrowd, and everything you’re doing, and it’s been an honor, and a pleasure to be on the podcast.

Adam Hooper – Well, likewise, we appreciate your time coming on today. If there’s anything else you want to add or anything you want to ask us?

Michael Beckerman – You know, I want, well, yeah, how about what’s next for RealCrowd, how about that? Give me a scoop on something and we can put it on the website.

Adam Hooper – I will say, keep your eyes out for, and so, a big thing for us has always been, and we’ve talked about a lot on this podcast, is helping people understand this asset class on a risk-adjusted basis. We’ve given people tremendous access to this asset class, we’ve made it, you know, available, $4.5 billion worth of real estate through the platform now.

Michael Beckerman – Wow.

Adam Hooper – A lot of work still needs to be done on giving people the tools to look at things on a risk-adjusted basis. An individual investor doesn’t have the underwriting arm that a global investor has. They don’t have those risk-modeling capabilities and so you’ll see something from us on that pretty soon.

Michael Beckerman – Well, great, can’t wait.

Adam Hooper – And then also blockchain. We could talk for weeks on that. So many interesting applications of the fundamental concept of block chain that could have very far reaching impacts for our space and the financial industry in general. Where the biggest kind of hand-wavy, ethereal conversations is, how does this concept of a distributed ledger, what does that mean for the whole notion of ownership. Can a blockchain own a thing? And then my token is a license to that, that bundle of rights that come with ownership, right? Can that challenge this whole notion of just the typical ownership structures? What does that mean from a regulatory standpoint? From a tax standpoint? Absolutely fascinating, fascinating conversation. There’s hard to summarize but we’re very aggressively looking at that space and I’d say also keep your eyes peeled for, depending on when this podcast launches, you’ll probably hear from us on that front as well.

Michael Beckerman – Well, keep us posted because all those themes, those topics, are fascinating to me– And our community. You guys are so far out there in terms of innovation so any time you’ve got something that you’re going to market to announce, let us know and we want to support it as much as we can–

Adam Hooper – Perfect.

Michael Beckerman – Thanks for the opportunity and continued success to you guys at RealCrowd.

Adam Hooper – Likewise. Again, we appreciate your time comin’ on today. Listeners, I hope you enjoyed the episode today. As always, if you have any question for us, send us an email to podcast@RealCrowd.com. With that, we’ll catch you in the next one.

Tyler Stewart – Hey, listeners, if you’ve enjoyed this episode, be sure to enroll in our free six-week course on the Fundamentals of Commercial Real Estate Investing. Head to RealCrowdUniversity.com to enroll for free today. In RealCrowd University, real estate experts will teach you the important fundamentals like the Start With Risk approach, how to evaluate real estate sponsors, what to look for in the legal documents, and much more. Head to RealCrowdUniversity.com to enroll for free today. Hope to see you there.

RealCrowd – This podcast is brought to you by RealCrowd, the leader in online real estate investing. Visit RealCrowd.com to learn more about how we provide our members with direct access to commercial real estate investments. Don’t forget to subscribe to the podcast on iTunes, Google Music, or SoundCloud. RealCrowd, invest smatter.

Real estate investing is on the rise. Middle class entrepreneurs are finding opportunities to boost their income by investing in fix and flip (or fix and hold) real estate investments at an exciting rate.

This blog is courtesy of  Eric Krattenstein, Chief Marketing Officer of Asset Based Lending. You can find more information about their services at http://www.abl1.net

What exactly is a flip?

Thanks to the success of several primetime television shows and the rebound of the US housing market, house flipping is on the mind of new and experienced real estate investors alike. These savvy investors find a distressed property that can be purchased at a discount, 26% below market value on average, with the goal of renovating the property and selling it for a profit or holding it for rental income.

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Smaller investors are making money…

According to RealtyTrac’s 2015 US Home Flipping Report, residential property flipping is the most popular it has been since 2007; counting over 110,000 active flippers. Out of those 110,000 flippers last year, the average number of flips per investor was just 1.6–the lowest it has been in 8 yearsa strong indicator that smaller investors are entering the market.
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Why the rise in new real estate investors? Quite simply, they are making money. According to the research, the average finished flip was appraised at 5% above market value and sold for an average gross profit of $55,000 if it wasn’t held long term for rental income.

But where do they get their money?

The name of the game here is leverage. By bringing in a lender or equity partner, investors are able to fund these investments with just a fraction of the cash coming out of their own pockets.

Conventional Financing

The first source of funding beginner investors try is their local neighborhood bank. Banks tend to offer lower interest rates than the alternatives, and some investors feel more comfortable using a federal institution. However, investors that are not exceptionally healthy with an outstanding profile have trouble getting the financing they need from banks for a few reasons.

First, institutional financing is almost impossible to obtain with a mediocre credit score and not a great deal of liquidity. Perhaps even more importantly, bank loans take time that investors usually do not have. Time is money when it comes to real estate investing, and a delay in funding almost always means the inability to snatch up that perfect listing and a missed opportunity.

Hard Money Lenders

The option most investors turn to for leverage then is what is known as hard money lending (or asset based lending). A hard money lender is willing to finance “riskier” loans for borrowers that don’t meet institutional criteria in exchange for higher interest rates.

As opposed to banks, hard money lenders are more interested in the deal itself rather than the profile of the borrower. These alternative lenders use different underwriting criteria that tend to offer significant leniency when it comes to credit scores, income history, and other traditional underwriting factors.

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Hard money lenders want to know that you’re getting involved in an investment that will be profitable–whether the goal is to sell quickly or hold and rent. Unlike conventional financing, these alternative lending firms were born out of necessity in the real estate investing market so their processes are designed to support those specific needs.
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In addition to closing loans fast, hard money lenders help investors leverage their capital by financing some or all of the purchase price of a property as well as the renovation costs. As a hard money lender ourselves, we typically fund up to 80% of the purchase price and all of the rehab costs. This means in exchange for paying more money per month in interest, a borrower is able to get involved in a real estate transaction with just 20% of the purchase price coming out of their pocket. Investors looking to hold a property for rental income typically refinance out of the hard money loan with conventional financing once the property has been stabilized.

Key Takeaways

1. New investors are entering the real estate market at the highest rate in a decade.
2. The average fix and flip or fix and hold project is purchased at a steep discount and ultimately worth several percent above market value.
3. Individual investors that are not independently wealthy are leveraging alternative financing to fund investments with just a fraction of the deal out of pocket.

This blog was written by our special guest Eric Krattenstein, Chief Marketing Officer of Asset Based Lending. You can find more information about their services at http://www.abl1.net

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I’m going to do something a little bit different today, because I’m going to dissect an article, which was published on the front page of a well-known tabloid newspaper a couple of weeks ago, because it’s all about the property market. It’s quite unusual for a national tabloid to devote the frontpage to a property article.

Now, it does happen sometimes. The Daily Express, for example, quite often has articles about the property market. While I say quite often, regularly is perhaps a better way of describing it. Once every 3 or 4 months, The Daily Express will often have an article about the property market. Generally speaking, depending upon what’s happening in the world and in the economy, it happens to be quite a positive article. Now, this is a different tabloid. I’m wondering, if I should name it. Okay, well, you’ve twisted my arm, it’s The Daily Mail. On August 16th, The Daily Mail rant a sort of a shock horror, “The Property Market Is About To Crash” type article on the frontpage. We’re going to look at that. We’re going to dissect it. We’re going to think, are there actually grains of truth in this, or is it just hyped? Because the interesting thing, is that, The Daily Mail is much less likely to write an article on the frontpage than The Daily Express. 

So, I’m just wondering why they did that. The answer, is probably, because it was published on August 16th. If you think about that, that’s the height of the silly season. The silly season is when all the Politicians are away on holiday. Nobody is really arguing about Brexit. Donald Trump’s probably been a bit quiet, and hasn’t twitted very much recently. The journalists who aren’t on their summer holiday, who are left in an almost empty office to keep the show on the road, and to keep pumping out newsprint, are looking around for something to publish. What do they see? 

Well, it was a report by the Office of National Statistics all about the property market. Very, very interesting. Because the thing which strikes me, is, it’s interesting, isn’t it, how we can take the same statistics, but give them a completely different spin, depending upon our mindset, and depending upon perhaps even our political leaning. Because all of the newspapers definitely have a different political leaning we know that. But it’s also evident when they talk about properties. So, for example, The Guardian, which is quite left leaning doesn’t like landlords. The Daily Express as I say, is usually quite positive and encouraging the property market. The Daily Mail in this particular instance, was quite negative.

So, let’s have a look at the article. This is on the front page. As I say, this is their prime real estate in terms of newsprint. So, they obviously want to make a bit of impact with this. It says, As Property Sales Fall Across The UK, Are House Prices Set To Take A Tumble? A big dramatic headline, is, the body of the copy. Fears are growing that Britain’s once red-hot property market has run out of steam. A string of indicators yesterday triggered warnings, that it could be heading for a correction, or even a crash. Oh, my word, gosh? Prices in London are falling at the fastest pace since the financial crisis! Really, okay. Well, we’ll certainly look at that. But the declines are not limited to the capital. Houses are also losing value across the North East as well as in towns and cities such as, Winchester, Oxford, Wycombe and Blackpool. Pockets of Devon, Derbyshire, Lincolnshire, Hertfordshire, Berkshire, Staffordshire, Cumbria and Surrey are also affected. 

My word, I wished I’ve stayed in bed this morning. The number of property sales has also tumbled, by as much as 65 percent in some areas as buyers worried about rising interest rates baulk at the ‘silly money’ demanded by sellers. House prices have enjoyed almost a decade of strong growth since the financial crisis, but experts fear that this has left property overvalued. Estate agents said prices are now being cut to tempt buyers back in, particularly those worried about rising interest rates as they struggled to raise enough money to secure a mortgage. 

Reuben Young, Director of Priced Out, which campaigns to make housing more affordable said, there can be no doubt that we are in a bubble. Okay, Reuben, there is no doubt. We’ll take your word for it. We might look at that a little bit closer though. People buy housing not just for security, but in expectation that prices will rise in the future. At some point, the bubble will burst. But in a warning to first time buyers hoping to take advantage of lower prices, he said that the fall seen so far does not mean it’s bursting now. It’s a very interesting point. 

A report by the Office for National Statistics and Land Registry yesterday showed:

  • Overall UK house prices rose by only 3 percent to £228,384 in the 12 months to June – the slowest increase since August 2013. 
  • London prices fell 0.07 percent, or by £3,400 to £476,752. I say that again, £476,752, the sharpest decline since September 2009, when the UK was in deep recession in the wake of the financial crisis. Interesting, £3,400 on a £500,000 property is the sharpest decline since 2009. Very interesting.
  • Prices fell by 23.8 percent or £220,000 in the City of London. 13.9 percent or £187,000 in Kensington and Chelsea. 12.1 percent, or £132,000 in Westminster. 
  • Prices were also down year-on-year in the North East, by 0.6 percent, or £825 to £127,271. 
  • There are also falls of 5.3 percent in Purbeck in Dorset, and 4.9 percent in South Buckinghamshire. While home owners in Winchester, Wycombe, Stroud, Oxford and Blackpool saw declines of between 2 and 3 percent. 

Experts warned that prices have risen too far in parts of the country, resulting in a dramatic collapse in a number of sales as buyers are put off by sky high asking prices. Many sellers face with demands to cut their prices have refused to do so, instead withdrawing their house from the market. Again, a very interesting point actually. 

Across England, the number of transactions fell 19.3 percent between April last year and April this year. Sales were down 13.9 percent in Wales. A similar amount in Northern Ireland, and 9.4 percent in Scotland. But in parts of the UK, the falls were even more dramatic. In Newham, in London, they were down 65.6 percent. A shortage of supply has helped prop up prices in some areas as a large number of houses hunters chase unlimited number of properties. A crucial point. Experts warned that when sellers accepted the market has softened, and are willing to accept lower prices, a flurry of homes coming onto the market could push prices down further. 

Howard Archer, and let’s face it, they always will borrow Howard out, didn’t they, to comment on everything. Howard Archer, Chief Economist to the Ernst and Young ITEM Club said, the downside for house prices is being limited by shortage of houses for sale. If a significant amount of supplies starts to come on to the market, you would expect to take away some of the support for prices. Lee Pendleton, Founder Director of Independence Estate Agents James Pendleton said people have been asking for silly money. Sellers need to be realistic. If a house is not selling, it is usually down to price. In South West London, where we operate, house prices rose 180 percent in 10 years. It’s insane!

Separate figures from the UK Finance revealed that there has been a sharp fall in the number of landlords buying properties. Let me just repeat that. Separate figures from the UK Finance revealed that there has been a sharp fall in the number of landlords buying properties. Some 5,400 buy-to-let mortgages were completed in June, down 19.4 percent on the same month last year. Both the Government and the Bank of England have launched clampdowns on landlords in recent years through higher taxes and tough lending rules. Paul Smith of Haart Estate Agents said, areas of the market are suffering. Government Policy on buy-to-let is clearly having a detrimental effect. But he added, the UK property market remains buoyant. Middle England is thriving. 

So, that’s the end of the article. There we are, at the very last paragraph of this doom and gloom article actually, finishes on quite a positive note. It says the UK property market remains buoyant. Middle England is thriving. Now, contrast that with the headline, which is, Are We About To Have The Mother Of All Crashes? There we go. this is the press for you, isn’t it? It’s a very interesting article though.

So, it starts out suggesting the whole market is completely bombed, isn’t it, and that we’re heading for this horrible crash. But actually, there’s not a lot in there to support this. So, there’s interesting phrase like, Reuben suggests that we’re definitely in a bubble. He also, sort of, said that, as if that’s just taken for granted, taken as red, is a bubble. We’ll come back to that. But one of the things, which I thought was very interesting, which did come out through this article, is the fact that, there is a shortage of properties in the market at the moment, and that’s supporting prices. 

This is one of the things, which we’ve seen since the credit crunch I think, that there’s been a scurrilous game of cat and mouse, between buyers and sellers. The reality seems to be that many people who would have sold house and moved perhaps, prior to 2007 have decided that they’re going to stay put, and they’re not going to move, and they’re going to improve the property therein. You’ll see, if you look at the figures for finance, for example, the number of re-mortgages has gone up, because people are re-mortgaging their homes to undertake, well, get finance their home alterations and improvements rather than selling properties, and taking out new mortgages to buy new properties. That seems to be the case. 

Now, one of the things, which this article does highlight, is, the fall in values for the very, very top values stuff in London. It talks about properties in the City of London, and Westminster, and Kensington and Chelsea, where hundreds of thousands are being knocked off the price of a property. But the reality, is that, probably hundreds of thousands being knocked off properties which worth multiple millions. So, as a percentage of the asking price, it’s probably not a lot. I mean, it’s obviously to you and me, it’s a fair chunk of change, but in terms of the actual overall value of the property, it’s probably not telling us an awful lot. You’ll probably expect that, there are fairly niche markets with only a limited number of buyers. If there’s only a handful of properties sold in a month, that probably distorts the market. You could easily see that, if in an extra few properties were sold next month that could distort the market, in the way they could go up disproportionately. It’s a bit of a strange market. You certainly couldn’t put behind your hat on that, as being evidence of anything within the property market. 

But what I think, is happening here, is that, as so often happens, I mean as I’ve said right at the beginning, The Daily Mail, they’ve got to sell papers. They’re trying to be a bit dramatic. But it’s a very London-centric view, isn’t it? Because, if you look at the property indices, which I would say, produce the best evidence, and if you’ve been to the Masterclass, you’ll know which one I’m talking about. I’m not going to talk about it now. Come to Masterclass. But there’s a particular index, which I love, because it’s one which is used by valuers and bank valuers. Interestingly, that came out today. 

One of the reasons why I wanted to record this podcast today, is because I wanted to look at that index, to see what’s actually happening. Because it’s a monthly index, and it shows values across the whole of the country, but not regionally. It actually talks about specific towns. If you look at it, it’s quite clear what’s happening. London is taking a breather. But outside of London and the South East, probably the rest of the country is pushing on particularly, in the Midlands and the North. That’s classic of what happens with the ripple. If you understand the ripple, you’ll understand what I’m saying. Because ripple theory is this: London values go up, and then values ripple out from London, and the value of properties increases almost in a line coming out of London. Over time, that line moves across the country from North up to the north, and values increase in the wake of that. It’s a bit like literally, dropping a stone in a pond, and seeing it ripples out, or the stone would sort of drop on London and the ripples, the values ripple out of London, and they wake up. I’m sure you understand what I’m trying to say.

That’s what we’re seeing, because values in the North, values in the Midlands are still pushing on. I invest up in the North East so I’m particularly interested in what is happening in Newcastle. According to my favourite index, and this isn’t why it’s my favourite index, by the way, because I had to take bad news as well as the good news. But the good news, is, this month it’s reporting that values are not only going up in Newcastle, but they’re actually going up slightly faster than they were last month. So, we’re not seeing this sort of rush towards a crash. We’re seeing outside of London, things were actually doing pretty well. But I thought it would be interesting to contrast that article with the one produced by the RICS. 

So, I have in front of me the July 2018 UK Residential Market Survey produced by the RICS, The Royal Institute of Chartered Surveyors, my eminent body of which I’m a member. If you want to find it, you can Google it. Just Google RICS UK Residential Market Survey. You’ll find not just the one for July, which is the latest one, but you’ll find back copies for previous months, which you can read, should you wish to. Anyway, the July one has a headline of “Landlord Instructions Fall As Rent Forecasts Edge Up”. So, let me just go through this. As I go through them, I’m just going to highlight some other points, because I thought it will be quite interesting to contrast this, which is kind of be like, with that one, it sounds naughty, but the professional viewpoint, which we can contrast with the sort of the media hype. So, this is what the RICS say..

They say, the most striking feature of the July 2018 RICS Residential Market Survey is the worsening trend in new instructions in the letting sector. This was something that was highlighted in the June Report on the basis of monthly non-seasonal adjusted data. However, a broadly similar pattern is visible in the preferred indicator. Whatever that means, it basically is saying, that the number of New Instructions in the letting sector is going down, less landlords. We’ll come to that. The results show that New Landlord instructions in the latest 3-month period has slipped to a net balance of -9 percent. This is the 9th consecutive quarter, in which this indicator has recorded a negative number, albeit only modestly on some occasions. This pattern is symptomatic of the shift in the mood music in the buy-to-le market in the wake of tax changes, which are still in the process of being implemented. Significantly, the drop in instructions is evident, in virtually all parts of the country to a greater or lesser extent. 

So, what they’re saying, is, they’re saying basically the number of landlords bringing properties to the market has decreased quite significantly, since the Government start to bring in the tax changes. What tax changes? Well, it’s our old friend, Section 24, which is stopping us from offsetting mortgage interest against our rents when we’re calculating our income tax, if we own properties in our own name. Also, of course, stamp duty. Now, if you think back to The Daily Mail article talking about the big falls in the London prices in that little inner ring, at the most central part of London, which is Westminster, Kensington and Chelsea and the City of London. That’s where the changes in stamp duty is going to have the biggest effect, isn’t it? Because that’s where the highest value properties are. So, that’s no surprise. The RICS are confirming that, that and Section 24 are beginning to bite in the investment market and the buy-to-let market overall. 

Let’s carry on with what the RICS have to say. While the implication of this feedback, is that, the supply of fresh rental stock of the market is increasingly constrained, the Tenant Demand indicator remains resilient. So, well, you’ve got an imbalance. The number of properties to rent out is diminishing, but we’ve still got a very strong demand from tenants. The upward momentum in the latter appeared to have slowed in recent quarters. But the numbers remain in positive territory at the headline level, +11 percent in the latest 3 months’ period. One consequence of this imbalance, is that, expectations for rental growth appear to be strengthening once again. Over the next 12 months, rents are projected to increase by a little short of 2 percent nationally. But the shortfall in supply pipeline is more visible over the medium term with a cumulative rise of around +15 percent expected by the middle of 2023. East Anglia and South West are viewed as likely to see the sharpest growth over the period. So, there we go.

So, in the short term, because of this imbalance between the number of properties coming onto the market, but with strong tenant demand, they’re expecting +2 percent, an increase in rent of +2 percent as an average across the country. But over the next 5 years, they’re expecting a 15 percent increase in rents. Now, here’s the thing. If rents are going to go up 15 percent, what’s that going to do for property values? Because the two can’t be in isolation, can they? It’s very hard to imagine it. So, all good stuff. If you’re thinking about, if is this the time to be in property? Well, maybe that’s suggesting, that now is the time to be in property. Very interesting that the RICS are highlighting that the Government measures to try and disincentivise buy-to-let investors. It’s clearly beginning to work. Let’s carry on.

Turning to the sales market, the underlying message is a little different from that reported in June. The headline price balance edged up from +3 percent to +4 percent in July, following two months when the results were very slightly negative. There we go. The Daily Mail, you haven’t mention that at all. The RICS is saying that actually far from being in a position, where prices and values are about to fall, they are actually edging up. They’re edging up more quickly. They’ve gone from +3, +4 percent. Okay, it’s not great shakes. But it’s certainly not indicative of an imminent crash, is it? It’s actually going the other way. Meanwhile, the Newly Agreed Sales net balance remained close to zero for the 4th month in succession. These results are consistent with a broadly stable housing market when viewed through the prism of the national perspective. 

There we are. The RICS aren’t predicting a crash. These are the people who own the estate agencies. These are the people who are out doing valuations for mortgages. They’re saying that the market is actually broadly stable. That’s very interesting, I thought. As we’ve highlighted previously, the feedback to the RICS Survey continues to suggest a stronger market in Scotland, Northern Ireland, much of the North of England, the Midlands and Wales. There you are. That’s the ripple effect that I was talking about. Outside of London, things are doing pretty good. Thank you very much.

The London Price balance was little changed over the month at -40 percent. But it does represent a shift from the reading of -66 percent in April. Now, to better explain, that’s not saying that prices in London have gone down 40 percent. It’s just saying that 40 percent more surveyors expect to see a price fall than a price increase. But that’s less than we’re expecting a price decrease in April. So, if anything far from concurring with The Daily Mail, the RICS are actually saying things are coming back in London a little bit. So, there we go.

It’s perhaps no surprise that as speculation built ahead of the August Bank of England meeting, which was to see a quarter point rise in base rates, the headline New Buyer Enquiries series was a little changed over the month with a net balance of +2 percent. The New Instructions measures similarly signalled a flat picture of following 2 months in a row of very modest increases. We acknowledged last month, harbouring some doubts as to whether the pipeline of new supply into sales market would continue to improve in the light of the feedback received on appraisals being conducted by valuers. For the record, the appraisal balance in July, was once again firmly negative. As a result, our judgement is that the average inventory on the books of the estate agents, is likely, to remain close to historic lows. Let’s say that again. As a result, our judgement is that the average inventory on the books of the estate agents, is likely, to remain close to historic lows. The impact of this is visible, in both of the 12 months’ sales and the price expectations, while the former recorded a reading of -7 percent, is most negative number since October last year. The latter was much firmer at 25 percent. 

So, what are they saying in all of that? Well, they are saying, despite the fact that The Daily Mail are telling us, that buyers are scared, because of interest rates. They’re saying that actually, the number of buyers went up slightly only by 2 percent. But this going is into positive territory, not negative territory. So, there’s slightly more buyers out there. But because the number of new properties in the market hasn’t increased, they’re expecting that prices are going to increase. The net balance of the price expectation graph is +25 percent. More surveyors expect prices to go up than there are surveyors expecting prices to go down, in other words. The RICS, putting it crudely, are expecting prices to go up, because there’s slightly more buyers, and there’s no extra sellers. We continue.

Each quarter an additional question is inserted into the survey in an attempt to capture the trend in the gap between asking and sale price. The latest set of results tell a broadly similar story to that seen in April, and generally, reflects of regional skew in the performance of the housing market. So, for properties put on the market at a price in excess of £1 million, roughly one in 10 are sold at a discount of more than 10 percent. Okay, that’s what The Daily Mail are saying. Those are really high value properties in London, taken a bit of a hit. The RICS are saying that properties, which worth more than £1 million, expect to have to discount the price by 10 percent to get them sold. Actually, that’s not an unusual thing, because there are far fewer buyers at that level. But obviously, one of the things, which we’re struggling with, is, with this whole stamp duty, in which we’ve already alluded to.

In addition, around 3-quarters of survey participants cite there being some negative gap between the initial asking and an eventual sale price. For properties put on the market between £0.5 million and £1 million, the comparable numbers show only 2 percent of respondents seeing prices achieved coming in more than 10 percent below asking although a still sizeable 62 percent contributors report sales prices coming in below the initial asking price to some degree. 

So, basically, what they’re saying, is, they’re saying that between £0.5 million and £1 million, you’re going to have to discount a little bit, but not nearly as much as for the properties over £1 million. You’re going to have to knock a little bit off, but it’s not going to be the 10 percent that you’re going to have to knock off, if you’ve got a property of more than £1 million. 

Meanwhile, and this is probably, most of us are going to be interested in. Meanwhile, for the mainstream market, which is, homes priced under £0.5 million, the largest share of respondents noted asking and sales prices being at the same level. The same level! Significantly, the feedback in this area of the market actually shows one in 5 properties with a completion price, above the asking price. 

So, there you are. Daily Mail, certainly no evidence of a crash in that. So, what are they saying? Well, if we sort of pick out some of the main headlines from that article, they’re saying it’s a relatively stable market. It’s doing better in the Midlands, and the North, and Wales, and Scotland than it is in London. If the properties are below £1 million, you’re probably not going to have to discount them, because there are more buyers. There has been no increase in the number of sellers, which means that it’s kind of a sellers’ market in a way although the buyers may disagree with that, because we’re told there’s not that many buyers. But there’s enough buyers for there to be a slight imbalance, which means, that prices are stable, and that below £1 million, you probably don’t have to discount. You may even be able to get more than the asking price. 

So, there we are. That’s what the professionals think. I thought it’s very interesting just to contrast that with the article in The Daily Mail. If anything, it just proves that you need to know what you’re talking, and get your own information. Do your own interpretation. Don’t let The Daily Mail, or the press, or anybody else interpret the data for you. Don’t let me interpret it for you. You get your own data. You come to your own conclusions. But certainly, don’t just read the headline, and think, ah, that must be true. Because when you start digging into it, there’s an awful lot going on, which isn’t reported, and which isn’t said unless you go to the right sources and information. 

So, I recommend that you perhaps, get a hold of the RICS Residential Market Survey every month, just to keep an eye on what they’re saying. Because, whether you agree with them or not, what they’re saying is going to be clouding the judgement, or influencing the judgement of valuers who are going out to value your properties, if you’re applying for mortgages. If you’re wondering why you’re being down valued, you’ll find it in here. If you’re wondering whether you’re going to get a more positive valuation, you’ll find it in here. So, it’s always good to see what they’re thinking.

Peter Jones

Peter Jones

Peter Jones is a Chartered Surveyor, an author and a serial buy to let property investor. He has been involved in property for over 30 years having graduated from the College of Estate Management, Reading University, and then qualifying as an Associate member of the Royal Institution of Chartered Surveyors in 1983, before being elected a Fellow in 1992.

By the age of 35 he was a Salaried Partner in a well respected firm of Chartered Surveyors, and was managing partner of their West End of London Office. His specialty was commercial property but during the recession of the 1990’s his specialisation became redundant, and so did he.

Peter Jones

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What Questions Must a Real Estate Investor Ask While Finding Hard Money Lenders?

Finding Hard Money Lenders

Finding hard money lenders is easy, but they aren’t all created equal and it’s very important to be selective.

In order to do your homework, these are the key questions you must ask when seeking out a hard money lender and submitting your loan application:

1) How Much Experience Do You Have?

Make sure you choose an experienced hard money lender for your project. With an experienced lender that has been in business for years, they understand the cyclical nature of the industry. These individuals can suggest an appropriate loan for your real estate investing business, including some advice on avoiding potential risks and pitfalls in your business.

2) Are You a Licensed Lender?

If a lender is licensed and State approved, that individual is bound to follow state mandated rules which provide customer protection. Their website must display their license ID, which can be researched on the licensing state’s website. One example is the Texas Real Estate Commission website, which allows you to check the licenses of Texas real estate lenders.

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3) Can You Show me Your References or Testimonials?

A good hard money lender should not hesitate to show you the reviews and testimonials by his/her previous clients. These reviews are often on  lender’s own website, but better reviews can be found from third party sources. Considering the lender’s length of time in business, if he or she doesn’t have enough satisfactory reviews, you should be on high alert.

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4) How Do You Fix Your Interest Rate?

Generally, hard money interest rates are determined by the property type, risk analysis, and your credit rating. Hard money loan interest rates are higher than bank rates and range from 8% to 18%. There is greater flexibility in hard money loan rates and you should keep this in mind when you negotiate with the lender.

5) How Fast You Can Approve My Loan Application?

Hard money lenders are known for their quick approval of loans as they have very few requirements. The lenders approve loans within a week (or in some cases, the same day) if they determine you’ve provided satisfactory information. Asking about the lender’s funding timeline, and indicating your own need,  is crucial when you want to close the deal on time to increase your cash flow. Providing proper documentation, project status, and a solid exit strategy will improve turnaround time on this approval.

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6) How Much Loan to Value (LTV) Can You Offer?

Since property values are the key driver of a hard money loan’s value, it’s important to talk about the Loan to Value (LTV) on your investment. The LTV is the funding amount a lender provides on the basis of the existing value of property. It will vary from lender to lender.

LTVs are typically lower on land, commercial property, and rural houses due to the greater risks involved in these projects. Some hard money lenders provide funds on the After Repair Value (ARV), which is the value of the property after remodeling.

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7) What Types of Loans Do You Offer?

Some lenders are specialized in a niche loan category, while others have a broad loan portfolio. If you need a loan for buying and remodeling a property, you will want to select a lender that is more accustomed to a broad loan offering. You are more likely to see success working with a lender that is more aligned to your project’s needs.

The Last Word

By asking these questions, you can get a good sense of the lender’s services and criteria, helping you to find just the right one for your investment property.

Author Bio

David Mixon, owner of Loans 4 Investors, has been in the real estate business for 20+ years. His company specializes in Private Hard Money Lending for Real Estate Investors and Home Builders. He and his wife also have lots of fun traveling across the US in their RV exploring new markets and developing their power teams as they go! David was raised on motorcycles and it is still a huge passion of his to ride his Harley Davidson for the pure pleasure of it.

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What Do I Do When My House Floods?house floods

Dealing with the aftermath of a house flood is always difficult. It is an emotionally difficult time for everyone – both landlord and tenant. Damage from flooding only gets worse as time goes on, thus it is important to act quickly! As an owner of a rental property there are several things you should know and understand about your responsibility as you begin the recovery process. The most important fact is, home flood coverage is typically NOT included in a property policy. Flood coverage can be purchased, but it requires a separate policy and most times the flood policy requires a 30 day waiting period before it takes effect.

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Most landlords are not responsible for insuring their tenants. However, a landlord could be responsible for covering replacement of items if they are responsible for the damage. But in most cases, your tenants should have their own renter’s insurance policy to cover their belongings. Renters insurance is generally fairly cheap and something all landlord’s should recommend their tenants own.
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Landlord’s Responsibilities

  1. The landlord is responsible for the building structure itself as well as flooring, wiring, plumbing, and appliances; i.e., pretty much anything you provided to the tenant as part of their rent.[su_spacer]
  2. The landlord has responsibility to repair the unit so that it’s habitable and livable once again and this means that the repairs must be made as quickly as possible. If the repairs are not made within a reasonable time, the tenant could withhold rent, hire the work to get done, or even notify local authorities.[su_spacer]
  3. When a flood happens and you learn there is damage, immediately report the claim to your insurance company. (Please note: most insurance policies require you pay for home flood coverage separately from your regular policy.)[su_spacer]
  4. Whether you have home flood insurance or not, it will be very important to carefully track the expenses incurred as a result of the flood, including all material purchases, labor, travel, etc. If your insurance covers the flood, you will need to submit your expenses to them for reimbursement. If your insurance does not cover the flooding expenses, at the very least you will need the receipts for the next tax filing season.[su_spacer]
  5. In most states, landlords must provide 24-48 hours notice before entering the rental property; however, in the event of an emergency this does not apply.[su_spacer]

Tenant and Renter Insurance Information

  1. Renters insurance, most known for providing coverage for replacement of personal items if your stuff is damaged, ruined or stolen, also has other benefits.[su_spacer]
  2. Most renter insurance policies cover the cost of temporary relocation and normal living expenses in the event the location where the renter lived was damaged in such a way to make it unlivable. When the house floods, if the renter’s insurance policy does not specifically include home flood coverage, the damage and loss associated with flood will not be covered. Each policy has different limits and terms. It is important your tenants understand the limits of their policy. Regardless of how the event occurred resulting in damage, the landlord should encourage the tenant to report the event to his/her insurance company.[su_spacer]
  3. If the tenant has to relocate as a result of damages due to the house flooding or other significant damage, the tenant is not responsible for paying rent during that time.[su_spacer]
  4. The tenant will have the opportunity to cancel the lease at that time they are displaced due to the damages. However, they must notify the landlord or property manager soon after leaving the property.[su_spacer]
  5. If the damage does not require relocation but is a significant inconvenience, the tenant may request a rent adjustment.[su_spacer]

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[bctt tweet=”Home flood coverage is typically NOT included in a property policy. 10 things you need to know as a landlord.”]

This is a broad-level overview of the things to know about being a landlord when your house floods. Every situation will have its own nuances. When in doubt, go to your attorney, accountant, or insurance agent and get the guidance you need.

Here are some additional links that provide some good information:

What’s My Flood Risk?
What to Do When Your Apartment Floods
Post-flood Tips for Residential Landlords
What Are My Rights If My New Jersey Apartment Floods?
Natural Disasters – Who’s Responsible?
The 6 Most Important Clauses in a Landlord Insurance Policy

Happy Investing!
Jeri

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illegal rental duplexThe almighty rental duplex. It’s such an attractive option for investors because you get two tenants under one roof.This reduces some of your management and logistical efforts, and increasing your rent per square foot…a 50% increase in some cases. Some rental duplexes are almost like complete units that are only sectioned off by a firewall; for example, a newer condo duplex. Other duplexes may just be a house that has been specially converted to a rental duplex. In this case, owners split off one of the bedrooms and one of the bathrooms, add a kitchen, and call that an efficiency that is able to house another tenant.

Example:

An investor, who we’ll call Tom, picks up a 3 bedroom/2 bathroom (later referred to as a 3/2) apartment in Miami and is able to rent it for $1,700 per month. This investor has a great understanding of his market and knows that 1 bedroom studio efficiency apartments in the area can rent from $1,000-1,200 a month. He decides to add another kitchen, put a wall in, and carve off a separate 1 bedroom/1 bathroom (or 1/1) unit for a second tenant. Now, he essentially just created a new unit out of “thin air” that rents for $1,150. Of course, his original 3/2 apartment is now a 2/1 apartment after the conversion.
[bctt tweet=”How to Avoid Purchasing or Rehabbing an Illegal Rental Duplex”]
What is the net effect? Well, in a larger city like Miami, you often pay a premium just to live there. In Tom’s case, the $1,700 per month 3/2 has been converted to a $1,550 per month 2/1 apartment, creating a second unit within that property.

Put it all together and you have a 2/1 for $1,550 and a 1/1 for $1,150, which adds up to the original 3 bedroom/2 bathroom house that Tom purchased. The total rent for this house, which was originally just one 3 bedroom/2 bathroom house (at $1,700), is now $2,700 per month of rent! If Tom already bought this rental unit for positive cash flow, he just kicked this puppy into overdrive. It just sounds perfect doesn’t it?

Until you realize that Tom’s unit is now an illegal rental duplex…

Why is that? Well, Tom did the conversion without notifying the proper authorities. He also didn’t ensure his improvements were fully up to code by having them inspected. You might argue that Tom was a little negligent here, but it could’ve just been an accident.

Let’s look at another investor, Jessica. She is looking for a rental duplex and Tom just so happens to be ready to sell his. Jessica thinks it’s a great deal, even after Tom’s inflated the price to account for the new income the duplex offers. It is a really nice looking property and the numbers look great. Nothing to worry about, right?
[bctt tweet=”Watch out for illegal rental duplexes that have been incorrectly converted, especially in large cities.”]
Jessica works with her Realtor and buys the property. The Realtor ended up pushing the appraisal through with the seller anyway, despite the fact that it was illegally converted (this is based off of a true story–beware of this and make sure to have those units checked out.) After purchasing the property, Jessica did notice one problem–she had to pay utilities of that unit because there was only one meter in the building and they couldn’t be separated out by tenant. Furthermore, someone could report her to the city. Other questions such as “what happens when I have to sell it?” crossed her mind. She’d either have to hope that the appraisal was approved again (which is taking a huge risk) or find a cash buyer that wouldn’t try to get an appraisal.

So what happens if the city found out? The bad side is that the units would have to be converted back to original drawing specs. This means tearing down the added kitchen and opening up the walls that connect the illegal unit to the main residence. Often this would also mean evicting the tenants from the illegal unit while all of this is going on.

So what’s someone like Jessica supposed to do to avoid this situation from happening? Here are four ways you can help ensure you aren’t getting an illegal rental duplex like Tom sold and Jessica purchased.

1. How many units does the property have?
2. How many bedrooms and bathrooms does each unit have?
3. Are any of those units illegal units?
4. Does each unit have their own water and electricity meter?

Asking these questions will make sure you don’t run into problems in the future. Having these illegal units may seem profitable at first, but they really aren’t worth the risk! Due diligence, as always, is important, but when you buy a rental duplex, you definitely want to make sure you take extra steps to ensure you aren’t stuck with a huge mess on your hands!

Helpful Links:

Find out any changes, repairs, and taxes from your local assessor’s site.
National Assessor’s Site

Get an estimate on how much rent you can charge. This is also an average.
Rentometer.com
Zillow.com 

Infinite Returns,
Bill

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Upad are always looking for ways to help landlords and tenants understand each other better. We are grateful for all the help we receive with our surveys and for the insight it gives us.

These are the results from our most recent tenant survey to find out how tenants are searching online for their next rental in 2018

Continue Reading…

Should You Invest in Real Estate or Pay Off Your Student Loans?

Someone once asked us, should you invest in real estate or pay off your student loans? Many people who have student loans wonder whether they should focus on repaying their student loans or use any additional money to invest. One type of investment that often comes up is real estate. That’s partly because many people dream of owning their own home or of buying investment properties to rent out in order to generate income.
But does it make sense to do this before being debt-free?

Investing vs. Repaying Student Loans

Most financial advisors will tell you it doesn’t make sense to wait to until you’ve repaid your student loans. That’s because student loans generally charge a relatively low-interest rate while many types of investments provide greater returns than that.

Here is an example. If your student loan is charging 5% interest, but you can make 7% by investing in the stock market – then it makes more sense to repay your student loans slowly and invest any additional funds in the stock market or another investment opportunity. 

Is Real Estate a Good Investment?

Real estate is an investment that has the potential to offer great returns. How big those returns will be, depend on the market you’re buying into and the purpose of your investment. If the real estate market is growing in value at a rate greater than the interest charged on your student loans, than investing in real estate makes sense. Unfortunately, real estate is cyclical and so it’s hard to know whether that growth will continue.

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If you plan to live in the home that you’re buying, such as a duplex, your return could be greater. The money that you would otherwise have been putting towards rent would now go to your mortgage. This would reduce the real cost of your investment and the equity you build would mean that your return will be better.

But when you’re investing in real estate, there are a number of other costs involved which could reduce your return. For example, you’ll have to pay taxes, buy insurance, and cover repairs on the house. Each of these expenses will increase your cost. That means even with a 5% price increase on your property annually, the actual return on your investment is less. 

One of the safest approaches to this technique is to buy strictly relying on the cash flow the rental property will generate. This way if the home value fluctuates, you will still be able to pay for all your expenses and weather the market changes. The real estate market will vary greatly depending on which part of the country you live in.

It is critical that you do your due diligence and run the numbers to ensure your rental property is generating positive cash flow at the end of each month. This will pay great dividends later on. The more times you run the numbers, the better you will be at understanding your local real estate market.

Ultimately, the only way you will really know if you should buy real estate or pay off your student loans is to run scenarios. Use our free Student Loan Vs Rental Property Analysis tool by clicking on the image below or using the menu by clicking the Tools -> AssetRover Downloads link, to help you decide which scenario makes the most sense for you.

Student-Loan-Vs-Rental-Property-Analysis-Tool

Fees and Interest Rates

Another important factor to take into account is how long you plan to hold the investment. Unlike stocks, it is sometimes difficult to sell real estate investments quickly. There are also high costs involved in buying and selling real estate such as agent fees, taxes, and closing fees. If you don’t plan to keep the property for a long time, then those fees could eat into your returns.

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If you have a high-interest rate on your student loans, it could also make it more difficult to make enough by investing in real estate. Should that be the case, you should think about refinancing at a lower rate. This could save you thousands of dollars and make it more beneficial to invest rather than repay your loans.

The Bottom Line

Many people who have student loans want to repay their debt as soon as possible. But if you wait and repay your student loans before investing, you lose valuable time that could be used to grow your net worth. In the end, you need to take your time, and do your analysis to make sure you are making the right decision to invest in real estate or to pay off your student loan.

Happy Investing,

Jeri

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If your tenant wants to stay in your property at the end of their contract and you are happy for them to remain, you have two options. You can issue them with a new Assured Shorthold Tenancy (AST) or you can simply allow their original tenancy to become ‘periodic’, in other words it will roll on from week by week or month by month, depending on whether they pay their rent weekly or monthly.

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