Using the Web and social media to sell real estate

The National Associaton of Realtors has just published a research paper that pinpoints ten important facts about the current US real estate market.

The US real estate market is looking better now.

1. The economy is growing, though slowly. The Gross Domestic Product has been rising for three quarters in a row.

2. The private sector is actually creating some jobs. The positive trend has begun in January 2010 and has continued without interruption through June. In April there were more than 200,000 additional jobs.

3. Consumer confidence is still low, but way off bottom. The research graph starts at 140 index in January 2000 and reaches its lowest value toward the end of 2008 with approximately 20. No we are ranging on the 60 mark and there is a steady growing trend. So consumers are three times more confident than they were 18 months ago.

4. The 30-year mortgage rate has never been lower, descending to almost 4%.

5. The national median home price is now stabilizing around the $ 180,000 mark and has been hoovering between 160,000 and 180,000 for 2 years now, after the steep descent between May 2007 and November 2008.

6. Price measurements by third party research firms are also stabilizing in the $ 140,000 range.

7. Home price-to-income ratio has finally gone back to reasonable levels, which means houses are more affordable and prices do reflect consumer buying power.

8. Economists expect the prices to slowly increase in the coming years: as little as a 0.78% increase in 2011 and then 2.43% in 2012 and so on.

9. Delinquencies are still high, but they are an heritage of the reckless lending happened in the first half of this decade. The loans originated in the recent years are performing well.

10. The median family net worth has been increasing between 2004 and 2007 (2010 data are not available yet) so there will be a growing number of renters that will be able to become bona fide home owners.

Good news, overall, which shed a positive yet conservative light on the future of the US real estate market. To read the full research, click on this
link.

Roberto Mazzoni

Investors from Europe are coming back, but they select their markets very carefully.

They are only looking at gateway cities like: Washington DC, New York, Boston, not Atlanta. They are looking some in Miami because of the industrial base.

But they don’t like to be in a scenario where they need to compete with many local investors. Also in commercial real estate we need to go back to a traditional scenario where owners need to have at least 30% down, both domestic and international, which is a major shift as compared to the last few years.

Roberto Mazzoni

What is the basic formula of success in commercial real estate investing when you are looking to attract local or international real estate investors? The properties you are looking to acquire should have multiple rental income streams but should not have a business connected with them. It is that simple.

Commercial buildings are more attractive when they don't require managing a business.

Let’s make an example: an office building that rents space to individual companies offers a pure rental return potential, you can rent the premises, you can rent the use of some common spaces (like conference rooms), you can rent equipment. You can offer an excellent level of service to your tenants by improving the premises and keeping the basic systems always operational (air conditioning, heat, and so on) but you don’t need to deal with a centralized reception or the office support staff that some companies provide as part of the rental service.

The management of the staff connected with the additional services prevents any standardization of the management activity. If you are acquiring, managing and turning around more than one property you need to standardize the type of services you provide so to make them less expensive and more effective.

But why rent and not just a straight flip? You lose most of the gain potential or you leave it to the next investor. Let’s take an example from a different market. Wayne Huizenga is the only man to have built three Fortune 500 companies practically from scratch: Waste Management, Blockbuster Entertainment e AutoNation. He began as the owner of a small garbage collecting firm and he built it to the national level by acquiring 133 other similar small companies, he then took over Blockbuster and AutoNation and expanded them big time and sold all of them for billions in profit.

The basic formula of his success was to find service based industries where he could create a recurring income and provide a higher level of services in areas where the existing industries were not meeting customer needs. So if you acquire a distressed commercial property you can remedy the management mistakes of the previous owner while you create cash flow for yourself and your investors and then you turn the project around in 18 months time and sell or refinance for a major profit.

Another example of good and bad: a standard apartment building that has just tenants in them is a simple enough operation to standardize and keep efficient for an investor. An hotel, even if partially converted into an apartment building, is a totally different scenario. If you acquire an hotel you now have to manage the hotel business in addition to the real estate and it can get quite complex. The potential of profit can be much higher, but also the risk increases in proportion. You will be absorbed by the project fully for a couple of years and you won’t be able to do much more.

So recurring income and standardization of services and “brand” are the way to go in the current commercial real estate scenario, whether you are an investor or you are looking for deals to bring to an investor.

Roberto Mazzoni

P.S. If you want to get street-smart information on how to find and evaluate commercial deals join my MEETUP and come to our meeting on June 9th.

Foreclosures are the main focus for real estate investment activities both in residential and commercial. They allow to garner significant benefits from acquiring a distressed property at a very discounted price and turning it over so that it regains most of its current value and yielding a substantial return in the process.

Commercial foreclosures bear an important difference from residential in that they offer two main ways of changing the value: fix what is broken (just as in residential) or change the property use (which is usually not an option in residential. This doubles the exit strategies and the earning potential.

As far as fix what is broken is concerned, you can rehab the property, bringing value to the actual structure, or you can improve its management and its marketing presence. When “flipping” a house, you can only work on the house itself, with some cosmetic or maybe even some serious rehab work (like replacing the A/C or redoing the the roof and so on).

On a commercial property you can fix the property inside but usually you get the best return by “massaging” it from a management perspective: improving the service to your tenants (office or apartments), increasing rent, reducing maintenance costs, improving the marketing efforts and thereby reducing vacancies.

You have therefore much more latitude of action so to bring about a substantial change in value but you also need to have the experience to produce such a result. It is all very fine to “flip” commercial properties just on a wholesaling basis: you find a deal and negotiate it down to a certain price and then sell it immediately to somebody else for an higher price, but still you must know what your final buyer would need in order to provide her a good deal that will also make you money.

And you must be able to understand the need of the seller and become a problem solver for her as well. Look first of all for problem properties: those that need repair or those which are vacant, as they will be acquired at much lower price than pristine properties going in foreclosure.

Remember, you always have two exit strategies possible: bringing the property back to a workable condition or changing its use altogether. Even if you might not be an expert in this field, your final investor will know what to do if you bring her a good deal. And a good deal is measured not only by the price but also by the terms for that price. There is a saying: “You can always get your price if I can get my terms”.

Commercial foreclosure is a “problem solving business” and you’ll be working with sellers that are sophisticated enough to understand the value of a solution when they see one. So look for properties that are in bad shape and start working for them. One word of caution: avoiding hotels in Florida, the market is just plummeting and it often takes a super-hero for turning them around. Small office and apartment buildings, small strip malls should be your main focus.

Roberto Mazzoni

P.S. If you want to know more on how to look for deals that can make a big payday, join our Meetup group.

I have reviewed the traffic statistics of my blog and there are 5 articles that have gathered the most attention of my readers in the last few weeks.

Picking the best for you.

Here they are in the order of preference expressed by the readers themselves:

Selling a Home in 21 Days

Which provides practical suggestions for a very needed ability, today.

The top six mistakes in social media

A nice summary of the most common errors people face while dealing with this fascinating new world.

Being captured by the third tribe

An introduction to a completely new way of doing marketing, which is much closer to the spirit of a blogger like I am.

Learning from a magazine publisher

The best advices I have gathered in a long time.

The top ten sites for real estate investing

This is very recent and comes from detailed research I did on the subject, which gives a very complete description of the various different approaches.

Roberto Mazzoni