The main trends in real estate. Where and how to invest your money?

Posted On Monday, 06 September 2021 19:30

The coronavirus pandemic, which swept the whole world last year, clearly showed how important it is to be able to adapt to new conditions. Real estate, like other sectors of the economy, also has to adapt to changing reality.Today, the level of profitability from investments in real estate is less determined by the markets and types of objects themselves. The key role here is played by the availability and availability of tools for making profit, increasing capitalization and liquidity of your property. Unfortunately, it is no longer enough to just buy a home and wait for a rise in prices or rent it out using traditional methods and schemes. When purchasing real estate in the United States now for the purpose of further long-term lease, investors should understand that the profitability of such an asset, after deducting maintenance costs, depreciation and taking into account downtime, will not exceed 2-3% per annum in US dollars.Such a low rental yield can be offset by high growth in property prices, but only if the national currency is stable and inflation in the country is low.

What needs to be done today to make real estate investments a successful investment?

First of all, it is worth recognizing that the usual methods of generating income from real estate can no longer protect capital from falling money, and even more so bring real profit to the investor. This situation is developing not only in the housing market in the United States, but also in other countries of the world. Many may disagree, but alas, this is self-deception. If you calculate the real profitability of the property, adjusted for the devaluation and inflation of the local currency, honestly subtract all expenses: taxes, depreciation, repairs, the purchase of furniture and other costs that cannot be avoided, as a result, the net profit of your investment will be a very modest percentage, not exceeding sometimes 2% per annum in US dollars.Those investors who understand and accept the new reality are already earning on real estate several times more than some of their colleagues. Imagine a businessman who, in 2021, still denies the existence of smartphones, the popularity of YouTube, social networks and instant messengers, continues to advertise the services of his company exclusively in print media (newspapers and magazines), and then is surprised at the collapse of his business and bankruptcy.It is not only private investors who are losing, but also the larger market players who deny the new reality in real estate. A similar trend is observed all over the world. Equity Residential, one of the largest residential real estate funds in the United States, with a portfolio of 80 thousand apartments with a capitalization of more than 23 billion, has become an outsider in terms of profitability without rebuilding the model of working and making a profit from real estate. Over the past 5 years, the fund's absolute return was -20%, while in the United States it was a period of active growth in prices and rental rates for real estate. At the same time, 10 years ago Equity Residential was the leader among REITs.In fact, there are a lot of such examples, not only corporate clients, but also private investors receive less of their profits. What is the main reason? This is the inability to restructure thinking and adapt their activities to new methods.Today, the property itself is not as important as it used to be, the main criterion is whether it is suitable for modern income generation.For example, one of the highest returns on investment among real estate properties was shown by the yurt, which is rented through online rental platforms and aggregators such as Airbnb, Booking and others. The investor's expenses consisted only of the cost of the yurt itself and the lease of the land plot. A similar object on the US real estate market is exotic. This is largely due to such a high popularity among tenants. Such results could not have been achieved without aggregators and social networks, and the very concept of such an unusual housing fits very well with what these online platforms want to promote.Suburban real estate, which the owners, for example, adapted for shooting for TikTok, brings on average 5-10 times more income from long-term rent than similar, but not adapted for filming.Today, the value of your property can be 30-50% higher than the market price if a set of promoted accounts on social networks and profiles in online rental aggregators are attached to the property upon sale. Some enterprising people are promoting the dog's social media account that lives in a rental home. The tenants rent such a house with the joy of seeing their beloved dog. In addition to this, tenants bring the best food for their pet.

Where is the real estate world heading?

Of course, there are a number of conditions for successful work in the new format. First, your object should be located where these tools work effectively. Thus, if your home is located in a country where Internet access is prohibited or restricted, then yes, here you are unlikely to succeed using this approach. However, if the property is located, for example, in Florida (USA) or London (UK), there are dozens of similar aggregators and methods available to you to maximize rental income. Secondly, your home or other real estate object itself should fit the aggregator format.

For example, when you rent out a one-room apartment through a popular bulletin board, you are essentially selling access to your property for a period of, say, a year or several months, through a semi-aggregator. Thus, you find yourself almost completely involved in the process: you have to answer calls, show the apartment, sign contracts, and so on. Imagine that you can immediately get the finished result through the aggregator. Tenants at the appointed time are at your doorstep with an already signed online contract, with a rating and scoring, the money is already in your account and the aggregator itself has reached the maximum rental price. Fantastic? No, this has long since become a reality, and not an episode from a movie about the future.

Each time you call a taxi through the app, you do not need to separately call the transport company, the nearest car is waiting for you at the entrance, and the online contract has already been signed. And even if you do not realize it, the carrier accepted you according to the rating, and most importantly, the car rental, that is, the rate for the trip itself, was the maximum at the time of ordering, and all this was done by the aggregator. Hotels, airlines and many other businesses use the same scheme of work. It's just that in the residential segment, it is difficult for investors to accept the need for such changes, and even more so to implement them in life. For this reason, they are missing out on a lot of money, including the capitalization of their real estate.

Summing up

In summary, the most successful real estate investment properties are located where there is maximum access to various online platforms and aggregators. Among other things, the object itself must be adapted to them. Misunderstanding and rejection of this reality will leave the investor with a yield of 2-3% per annum in dollars.

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