Landlords Use Technology to Monitor Rent Fluctuations and Employ Web Self-Service

Certain apartment complex developers have taken advantage of recent upgrades in the rent monitoring software industry that enable them to closely examine the ever-fluctuating rent prices in varying parts of the country, according to an article from the Wall Street Journal.

Computerized models have come out recently that enable apartment developers to monitor their competition and what they are advertising for rent. The software enables landlords to quickly adjust to rent prices should their competitors lower or raise theirs.

AvalonBay Communities, a fashionable and chic apartment complex developer, uses Rainmaker LRO, developed from The Rainmaker Group Holdings Inc., and UDR Inc., another apartment owner and developers, uses RealPage’s YieldStar Price Optimizer. UDR reportedly witnessed rents in the D.C. area climb 7 percent in December using the software. AvalonBay also witnessed increases.

Haendel St. Juste, a senior REIT analyst with Keefe stated that, for landlords, it’s about “being able to react quicker, changing your pricing more effectively to capture that incremental dollar.”

But the new software is not for everyone, especially landlords in popular places to live such as New York City. The WSJ noted that landlords can find renters easily without even having to advertise since there is a constant influx of people moving to the city.

However, the larger developers find it more easily manages their rent pricing systems. Kevin Thompson, vice president of marketing for AvalonBay stated, “Prospects can get a better rate if they’re flexible. It’s added real science, it’s taken away the guess work.”

Additionally, some landlords are making the move towards electronic applications, and accepting them online. It’s about time!

Originally posted at: http://web-self-service.tmcnet.com/topics/web-self-service/articles/131586-landlords-use-technology-monitor-rent-fluctuations-employ-web.htm

What Home Sellers Don’t Tell Buyers

As buyers ease back into the battered real-estate market, they’re often hitting a stumbling block: fibbing by home sellers.

Eager to unload their abodes, some sellers exaggerate the size of their lots or their houses. Others minimize their property-tax or utility bills, conveniently forget about pests, or downplay flooding problems or noise.

Real-estate experts say that while such misrepresentations aren’t new, the tough market of the past few years has made buyers more wary, partly because they can’t expect rising home prices to bail them out of costly mistakes. As a result, deals are taking longer, and more of them are falling apart as buyers find properties sometimes aren’t all they’re supposed to be.

More than 30 states have disclosure laws requiring sellers to tell prospective buyers and agents about leaky roofs and other problems, according to the National Association of Realtors. But there’s often a gray area involving the disclosure of problems the seller may not know about, such as a long-ago flood or hidden mold.

States are also increasingly passing laws requiring homeowners to disclose environmental issues, such as the presence of radon gas, a contaminant linked to lung cancer, and underground fuel tanks. In California, the checklist of required disclosures is so long that a cottage industry has sprung up of firms that help sellers prepare the forms.

Given the complexity of disclosure laws, it’s not surprising that potential buyers don’t hear about every problem in a house. Besides the issue of fibbing, sellers may genuinely not know about problems. And even if they do, the laws generally don’t apply to bank-owned homes transferred in foreclosures, which now constitute a larger share of sales.

Buyers need to do their own due diligence and not rely exclusively on what sellers and agents say. They should hire an independent home inspector or home-inspection engineer, one not referred by the seller—and be aware that real-estate agents typically represent the seller.

Here are some of the common misrepresentations and white lies that buyers may hear as they shop for a house, according to real-estate experts and state regulators:

This House is on Two Acres

Disputes about property dimensions; how many square feet in a house or condo, or its exact boundaries; are common. Sometimes buyers don’t learn the exact dimensions until the lender’s appraisal.

Listing agents usually accept a seller’s word on property dimensions, says Diane Saatchi, a senior vice president at Saunders & Associates, a real-estate firm in Bridgehampton, N.Y. “We tell everyone to verify,” she says. Smaller dimensions also can cause an appraisal to come in lower than the agreed-upon purchase price. Low appraisals are a leading cause of ruined deals in today’s market. A properly worded appraisal contingency in the purchase contract would allow you to scuttle the deal or find other financing if the appraisal comes in low, says New York real-estate attorney Michael Xylas.

“We Don’t Have Pests”

A basic home inspection generally doesn’t include a peek inside walls or underground for termites and mold, which are among the top complaints. Inspections for mold and radon gas also generally aren’t included; usually buyers must order these inspections separately. Other inside-the-wall problems include faulty wiring and old plumbing, which also may require specialists.

James Holtzman, a financial adviser at Legend Financial Advisors Inc. in Pittsburgh, says sellers of the 1901 house he bought in August 2006 said its electrical wiring was completely upgraded, yet an electrical inspection revealed only one of three floors had been totally upgraded. The seller then knocked $6,000 off the sales price before they went to contract so Mr. Holtzman, 35 years old, could pay for the necessary work.

“This Place Never Floods”

Even arid states such as Arizona and New Mexico have occasional flash floods, and water and drainage problems aren’t always obvious. June Walbert, 52, a certified financial planner at USAA, a financial-services company, says her San Antonio house received a clean bill of health from a home inspector before she bought it six years ago. But 10 days after she moved in, the sewer backed up, flooding the house, and she had to fork over $2,800 for repairs. “It was a rude surprise,” says Ms. Walbert, who adds she asked her home inspector and the seller for compensation, but didn’t get it.

Bill Richardson, outgoing president of the American Society of Home Inspectors, says a general home inspection wouldn’t catch that unless the sewer line was visible from the basement or water backed up into sinks and tubs or toilets.

“Taxes and Maintenance Costs are Low.”

Home buyers often gripe about tax and utilities bills that are higher than sellers said they were. Homeowner association and condo dues and assessments are also common complaints. Sometimes sellers simply underestimate the bills, or forget to include recent or expected increases, agents and brokers say. Taxes can also be deceptively low because of unrecorded improvements like decks and finished basements. Ask to see recent bills, and check with the tax assessor’s office for up-to-date information.

“This is a Quiet Neighborhood.”

Sellers may play down distractions that could drive you crazy, such as barking dogs or idling buses. A charming park by day could be a teen hangout at night. Your best bet is to view a property at different times of the day. “I can’t tell you how many times in my career buyers didn’t go there in the night time, even though I told them to. You spend more time in the house at night than during the day,” says Ms. Saatchi, the New York real-estate agent. Talk to neighbors and peruse the local newspapers and blogs to get a feel for a place, and check with police for crime.

“There’s Going to be a Golf Course, a Pool and a Party Room.”

Builders of many developments that broke ground during the housing boom ran out of money before the project was completed. Many homeowner and condo associations also are strapped because of delinquencies and defaults. Some states require upfront disclosures about this, but you should also ask neighbors, not just sellers, about any promised facilities. Also, check titles to be sure that specific parking spaces, storage units or other facilities are included in a property sale.

Renovating Doesn’t Pay Off Like It Used To

Home remodelers are getting less bang for their bucks. For the fourth straight year, renovation jobs have added less to resale values relative to their costs, according to an annual Remodeling Cost vs. Value Report released this week by the National Association of Realtors.

The average remodeling job cost $50,908 in 2009 and added $32,497 to the value of the home, a ratio of 63.8%. That was down from a cost-to-value ratio of 67.3% in 2008, when the average was $49,866 and the added value was $33,568.

One common renovation, a mid-priced bath remodel, for example, runs an average of $16,142 and adds only $11,454 to the resale value of a house — recouping just 71% of its cost. In 2008, the same job cost less — $15,899 — and typically added $11,857 to the home’s value, recouping 74.6%.

The most financially successful jobs are smaller-scale, lower-cost renovations that improve the exterior appearance of homes. In this down real estate market, curb appeal is king.

“Once again, this year’s report highlights the importance of a home’s first impression,” said NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz.

Ron Phipps, a real estate broker in Rhode Island, said how the house looks from the outside is more important than ever.

“If you’re driving down the street and the house doesn’t have great appeal, it doesn’t matter how nice it is inside,” he said.

But here’s the kicker: Clients are savvier than ever in their shopping. Even though the costs of home improvements are less likely to be returned on resale than they have been in prior years, sellers may still have to bite the bullet and do the remodeling if they want their house to sell at all, he said.

“It’s kind of intriguing,” said Phipps. “Buyers are using the unimproved houses to negotiate lower prices, but they wind up buying the remodeled homes.”

So, if there are two similar houses in the area, buyers will use the listing price of the one that has not gone through a metamorphosis to get the seller of the renovated house to slash their price. Buyers want to pay for the caterpillar but get the butterfly.

Seller must play along if they want to make deals. “You get to sell the house more quickly if you do the renovations,” Phipps said.

Biggest pay-offs

The major job that returns most in resale value is an upscale replacement of siding using fiber-cement. The job costs an average of $13,287 but increases home value by $11,112, or 83.6%. A vinyl siding replacement returns 79.9% of costs.

Adding a basement bedroom is also fairly cost effective, averaging $49,346 but adding $40,992 in value, an 83.1% return.

“Increasing livable square footage with a new deck or an attic bedroom is usually more valuable than just remodeling existing space,” Phipps said.

The return on investment for some jobs varies greatly by region.

In New England, where winter are long and cold, vinyl window replacements reap a better return than they do in the warm South Atlantic region, where poorly insulated windows don’t mean as much expensive heat leaking away.

So, although replacement windows cost more in New England — an average of $11,155 — they add $9,152 to home values there, recouping 82.3% of their cost. In the South Atlantic states, they cost $9,705 but add just $7,417 to home values, 76.4% of their cost.

On the other hand, buyers in the South Atlantic seem to reward sellers for adding living space more than they do in New England. Maybe thrifty Yankees hate having to heat those extra rooms.

Finishing a basement returns 84.4% of its $55,357 cost in the South Atlantic and only 64% of the $65,715 New Englanders spend for the job.

Among the remodeling jobs faring the worst in return on investment were large, upscale kitchen remodels. They cost an average of $111,794 in 2009 and added $70,641 in recoupable value, just 63.2%.

That was down a whopping 7.5 percentage points from their 70.7% return on investment in 2008 . At the height of the housing boom, in 2005, upscale kitchen renovations returned more than 80% of their costs.

“A lot of the things that, historically, had huge value, don’t have as much today,” said Phipps. “If you want to redo a kitchen, it may no longer make as much sense to use upscale appliances — Viking ranges, Sub-Zero refrigerator. Buyers may not pay any more than they would for a home with GE appliances instead.”

Of course, most remodeling jobs are done to please homeowners. Any increase in home value is a bonus, not an end in itself. But for anyone thinking of selling in the near term, keeping an eye on the bottom line is always a good idea.

7 Red Flags for Home Buyers

Before you bid on a home, check for potentially dicey, and pricey, problems.

In most states, home sellers must disclose any defect they know about that could affect how desirable — and marketable — their home is before they sign a purchase contract. Even in the six states that lack a “mandatory seller’s property condition disclosure” (Alabama, Arkansas, Kansas, Vermont, West Virginia and Wyoming), the state’s licensing agency may require real estate agents to tell buyers what they know. In all states, real estate agents who belong to the National Association of Realtors are obligated by their code of ethics to disclose any defects they know about.

But you may have fallen in love with a house, and spent hours preparing a purchase contract, before the disclosures are made. You should always make your purchase contract contingent on a professional home inspection ($300 to $350). Home inspectors could miss hidden problems, however, such as a basement that floods during a downpour.

This list of red flags, recommended by Kathleen Kuhn, president of HouseMaster, a nationally franchised home-inspection company, and Bill Richardson, president of the American Society of Home Inspectors, can help you identify potentially pricey problems. You can use your observations to winnow your choices or to factor in condition when you negotiate price with the seller.

Poor water pressure. Aside from issues of comfort and convenience, low water flow may indicate plumbing problems, such as corroded pipes that will need to be replaced down the road. Tearing out old plumbing and replacing it with copper pipes can run $2,000 to $15,000 or more in a typical 1,500-square-foot home. A less costly alternative is cross-linked polyethylene (PEX) piping, which unlike rigid copper piping, is flexible and easier to install (approved for potable use in all U.S. model plumbing and mechanical codes, but may not be approved in local building codes).

Among tests you can do: Run water in a bathroom sink and check for weak flow. Flush the toilet while the water is running. Does the faucet flow drop off during the flush? In the bathroom located farthest from the water heater, turn on the hot water. Is there an unduly long delay before the water turns hot?

Ceiling stains. Something’s leaking. If the stain appears beneath a bathroom, odds are the shower is leaking. It may merely need recaulking or regrouting, but it could also require ripping out tile and replacing the shower pan, a much more costly process (about $1,500). Most roof leaks result from neglected flashing that seals “valleys” in the roof or around a chimney or vents (cost to repair: $200 to $500). But roof leaks may also mean it’s time to replace shingles — at $100 to $350 per 100 square feet for asphalt shingles and $210 to $1,000 for wood shingles.

Troublesome doors. Are the doors hard to close? Do they swing open by themselves or fail to open fully? If you have one bad door, it may simply have been installed incorrectly. But more than one may indicate a serious structural issue, such as a foundation that has settled or framing that is deteriorating. Fixing this problem can require structural and geotechnical engineering reports and thousands of dollars in repairs.

Overloaded electrical outlets or lots of extension cords. Today’s electrical demands may exceed the capacity of homes built as little as a decade ago, says Kuhn. You’ll spend $75 to $250 to have an electrician add a 120-volt outlet to an existing circuit. Or, if the electrical system is very outdated, it may require a new electric panel. A new, 100-amp panel will cost $1,500 to $2,500.

Exterior features that slope toward the home. A porch, patio, driveway or grading that slopes toward the home all but guarantees water in the basement. And that may lead to structural decay, mold and insect infestation. In the basement, a musty smell may indicate previous flooding or ongoing moisture problems. Check the walls for stains, dark or light, which are tell-tale signs that water has penetrated the walls.

Solving the problem may be as simple and cheap as adding gutter extensions or regrading soil away from the home, or it could require thousands of dollars to excavate and build drains. Some homes may require exterior drains (one at the bottom of a sloped driveway, for example) as well as buried drains.

Odors. Cigarette smoke and pet odors can be hard to get rid of. And if a home smells too clean — heavy with the scent of cleaning products (especially bleach) or plug-in deodorizers — the seller may be trying to cover up an odor, such as mold or urine. If so, you need to inquire further, says Richardson, of the American Society of Home Inspectors.

Synthetic stucco siding. This must be installed precisely or else moisture will be trapped behind it, resulting in mold and decay. In the worst case, the siding will have to be replaced. For a medium-sized house (1,250 square feet of exterior surface area), replacing vinyl siding can cost $2,500 to $8,750, while wood or fiber cement siding can cost $5,600 to $10,000 or more. Especially in humid climates, you may want to pay for a special inspection. HouseMaster charges $600 and up, depending on how much of the material has been used and the size of the house.

If you find out before you close your purchase that the seller deliberately misrepresented or failed to fully disclose the home’s condition, you may have the right to rescind the contract under state law. If it’s a done deal, you’ll probably have to sue the seller to recoup your damages. In some states you can also seek repayment of your legal costs. Consult with a lawyer who specializes in real estate fraud. If you have reason to believe that the seller’s agent was negligent, you can take it up with the local Board of Realtors and the state’s licensing agency.

Nakheel bond to be paid in full

Abu Dhabi and UAE Central Bank give $10b in support, Dubai World welcomes decision, Dubai Government expected to announce new legal framework.

Dubai Government has authorised the release of $4.1b which will be used to pay Nakheel’s sukuk.

A statement from the Dubai Financial Support Fund said that the government of Abu Dhabi and the UAE Central Bank had provided $10b in support.

Dubai Government is also expected to announce legal steps which will allow Dubai World to restructure completely.

The statement also added that the UAE Central Bank would provide support for local banks.

The news comes on the same day that Nakheel’s $4 billion (Dh14.6 billion) sukuk had been due to mature. It had originally asked for a deferment on payment of the bond on November 25.

A statement from Shaikh Ahmad Bin Saeed Al Maktoum, Chairman of the Dubai Supreme Fiscal Committee said: “The Government of Abu Dhabi has agreed to fund $10 billion to the Dubai Financial Support Fund that will be used to satisfy a series of upcoming obligations on Dubai World.

“As a first action for the new fund, the Government of Dubai has authorized $4.1 billion to be used to pay the sukuk obligations that are due today.”

He added that the remaining funds will also “provide for interest expenses and company working capital through April 30, 2010″ but only on the condition that Nakheel negotiates a standstill on it’s future debt repayments. 

Dubai World welcomed the support, saying that it provides “Funding and a stable basis for the restructuring process which continues.”

A statement added that: ”Dubai World will continue to work with financial creditors to negotiate a standstill in an orderly way. As long as a standstill is successfully negotiated, Dubai World has assurances that the Government of Dubai, through the DFSF, will provide financial support to cover working capital and interest expenses to ensure the continuity of key projects.

“Dubai World is committed to regular, direct and timely communications which it believes will yield the best outcome for all stakeholders.”

Top 5 future UAE AV infrastructure projects

1. Saadiyat Island
The massive $28 billion development is being pitched as the future hub of Arabian arts and culture. Headline projects include the first Louvre Gallery outside Paris, a Guggenheim Museum, a performing arts centre, as well as 29 hotels, three marinas, 8,000 residential villas and more than 38,000 apartments.

2. Bawadi
One of the highlights of the Dubailand district, the “largest cluster of hotels in the world” will put the Las Vegas strip (sans gambling houses) to shame in the OTT stakes, if it’s ever built. A big ‘if’, but one that will pay serious dividends to hospitality AV integrators if the grandiose development ever sees the light of day.

3. Dubailand
The jewel in the crown of Dubai’s plans prior to the economic crash, the $70 billion development was to consist of 45 mega projects including concert venues, theatres, theme parks and hotels.

4. Dubai Waterfront
While this landmark Dubai development has been in the headlines for all the wrong reasons of late, master developer Nakheel says work is continuing on the precinct, which was conceived to be twice the size of Hong Kong. It remains to be seen whether the developer’s bold vision will ever come to fruition.

5. Al Raha Beach
Currently in development is the $18.5 billion Al Raha Beach Complex, another mixed-use hospitality development involving reclaimed land on the outskirts of Abu Dhabi. Once finished it will have 50 high-rise buildings housing hotels, venues, and other entertainment facilities.

World’s Weirdest Hotels

On your next trip, you could be checking into a wine cask, a salvaged 727 airplane, or a room where the furniture defies the law of gravity.

Upside-down stay

At Berlin‘s Propeller Island City Lodge, each of the 30 rooms is weird in its own way. The artist-owner, Lars Stroschen, has seen to that. One room, the first built, is made to look like a brightly painted medieval town, with an ultra-mini golf course surrounding the castle bed. Another has furniture attached to the ceiling, another has coffins for beds, and still another has lion cages on stilts (the website claims that kids “love to sleep” in them). Then there’s the Freedom Room, which resembles a prison, complete with a toilet next to the bed—oh, that German humor!

 

A place to unwine’d

When they were owned by a Swiss château, the four enormous casks on the grounds of the Hotel De Vrouwe Van Stavoren in the Netherlands held the equivalent of 19,333 bottles of wine. Now, after some creative recycling, it’s guests rather than booze that mellow out inside the casks. The richly worn and airtight oak barrels have two narrow beds, with a small sitting area outside. The grounds are quite close to tiny Stavoren’s harbor, which was a major port in the Middle Ages.

 

Crazy kind of stay

The daughter of Ho Chi Minh’s No. 2 masterminded the Hang Nga Guest House and Art Gallery in Da Lat, Vietnam, a complex that more than earns its local nickname, the Crazy House. The three main buildings are Gaudi-esque concrete treehouse-like growths that appear as if they flowed organically out of the ground. Inside, the walls seem to dissolve into the floor, and right angles are avoided entirely. Each guest room is built around a different animal theme: the Eagle Room has a big-beaked bird standing atop a huge egg, while another has arm-sized ants crawling up the wall. The animal theme continues outside — a large giraffe statue on the property contains a teahouse, and human-size “spider webs” are set up here and there.

 

In a league of its own

Hydrophobics should stay far from Jules’ Undersea Lodge, named for novelist Jules Verne of 20,000 Leagues Under the Sea fame. The 600-square-foot lodge, a former marine lab, is 21 feet underwater, close to the bottom of the mangrove-filled Emerald Lagoon, in Key Largo. You’ll have to know how to scuba dive to reach your room, and guests without the mandatory certification must take a course at the hotel. Once you’ve reached the lodge, which sleeps up to six, you’ll be close to angelfish, anemones, barracuda, oysters, and other creatures—each room is equipped with a 42-inch window, so you don’t need to be suited up to keep an eye on the neighborhood.

 

Crash in a jet plane

Near a beach that’s within Manuel Antonio National Park in Costa Rica, the Hotel Costa Verde doesn’t lack for great sights. But few are as amazing as its own 727 Fuselage Suite, a salvaged 1965 Boeing 727-100 that looks as if it’s crashed into the Costa Rican jungle (it’s actually mounted atop a 50-foot pillar and reached via a spiral staircase). The jet’s interior was once able to hold up to 125 passengers, but there are few reminders left of its days in the service of South African Airways and Colombia’s Avianca Airlines. The suite’s two bedrooms, dining area, and sitting room are now covered over entirely in teak to match the surroundings. Guests can play “spot the toucan” on the small wood deck that sits on top of the right wing.

 

Your escape pod awaits

Colored bright-orange for easy visibility, the ’70s-era escape pods that make up the Capsule Hotel once hung outside oil rigs, ready to be deployed in case of an evacuation. Recycled by self-proclaimed “garbage architect” Denis Oudendijk, the fleet of pods now rotates among different moorings in the Netherlands and elsewhere in Europe. At the moment, two are in the western Dutch town of Vlissingen and another is in The Hague. For a kind of James Bond-meets-Barbarella twist, opt to book your pod with a disco ball and all the spy’s movies on DVD. It’s a super-kitschy nod to a similar pod’s appearance in “The Spy Who Loved Me.”

 

Where the penthouse is a trailer park

Cape Town‘s sleek Grand Daddy hotel has a surprise on its roof: a fleet of seven Airstream trailers, six of which were imported from the U.S. The aluminum-clad “rooms,” which sleep two people, have been done in playful themes that incorporate icons like “Goldilocks and the Three Bears” (a blonde wig and a bear suit are available for dress-up), and John Lennon and Yoko Ono (the room’s white-on-white furnishings include an enormous bed, natch). If you don’t want to stray as far from the trailers’ original looks, there’s the Pleasantville model, an Eisenhower-era fantasia with chintz, harvest-gold curtains, and flower-covered throw pillows.

Effectivness of Print Ads in Real Estate Listings

In today’s economy, it’s more important than ever to make the most of your advertising dollars. Problem is, it isn’t easy to gauge the effectiveness of an ad campaign or determine which parts of it work best.

“Advertising is not a science — it meets the classic definition of an educated guess,” says Nancy Haynes, a principal at Collins, Haynes & Lully Advertising in Charlotte.

The best way to measure advertising effectiveness is through a research-intensive tracking study, notes Mike Scardino, chief creative officer at Barnhardt, Day & Hines, a Concord-based advertising firm.

But that can be costly.

Still, there are several inexpensive steps small-business owners can take to help determine if they are spending their ad budget wisely.

For example, says Kent Panther, vice president of strategic planning at local ad agency Wray Ward, ask callers and shoppers how they became aware of your company. You can sometimes accomplish that by putting a code on your coupons or making special offers in particular media outlets.

Panther also recommends setting specific objectives for your ads. For instance, your goal could be to increase customer traffic 5% or to boost sales among repeat customers. Then monitor what actually happens.

Scardino suggests running ads with two different themes — say, one focusing on price, the other on your company’s reputation — with a different phone number for customers to respond to each one. The line that rings more frequently will tell you which ad works better.

If you advertise in the Yellow Pages, consider listing a different phone number in that publication to see how often it is used.

Haynes suggests a similar approach. Run the same basic ad in different media, but feature a different Web-site address for each individual medium you advertise in. Each Web address can take the user to a common portal, such as your standard company Web site. But you can track where the hits come from to measure each media outlet’s effectiveness.

“You want to fish where the fish are,” Haynes says.

However, she notes, customers don’t make purchasing decisions in a vacuum. They may hear your radio commercials for several weeks, then see a print or billboard ad for your company before they decide to contact your company or go to its Web site.

That’s one reason why it’s difficult to measure the effectiveness of a particular ad.

Ultimately, “the proof of the pudding is in the bottom line,” Scardino says.

You need to be patient in seeing results. Haynes suggests letting a campaign run 13 weeks before trying to determine whether it is producing an acceptable return on investment.

If you don’t achieve the sales you want, be sure you understand why. Lackluster sales could be the result of poor customer service, for example.

“Advertising is only one part of the marketing mix,” Haynes says. “Be prepared to give good value. Make sure when people get there, they are happy. If people have a good experience, they’ll tell one or two people. If they have a bad one, they’ll tell everyone.”

Also, remember that “the only thing advertising can give you is traffic,” Haynes adds. “If you are not converting traffic to sales — if there is a huge disparity between traffic and sales — your ads may be drawing in the wrong people. For a good return on your investment, make sure you are advertising the right product to the right market.”

TOPTIPS
Try a variety of ways to discover how customers found out about your company or what drove them to you.
Advertise in different media or with different messages, then compare the results to see what works best.
Give your ad campaign plenty of time –13 weeks or so — before deciding whether it is meeting your objectives.
Explore whether your sales problems are caused by factors other than your company’s ads.

What Makes Real Estate one of the Best Investments?

I. Introduction

As the “baby boom” generation ages, concern about adequately funding retirement has reached a fever pitch. Social Security looks less and less likely to provide any semblance of former benefits in the near future, driving individual investors to take charge of their own financial future. Investors are looking for the simple answer, the “magic bullet,” to funding a long and happy retirement. What type of investment will give the best performance over the long haul?

Many financial “experts” argue that over the long term, the stock market has outperformed all other investments. This claim is based on the assertion that from 1926 to 2005, the S&P 500 returned an average annual 10.46% gain. Putting aside for a moment the veracity of that assertion, we’d argue instead that real estate has been and, in fact, remains the world’s best investment. 

The ownership of small income properties (such as single family homes, duplexes, and small apartment buildings) is a path to wealth building that you can count on. A real estate investor uses small properties to grow wealth in six key ways:

1. Collecting a dependable and growing income (rents)

2. Value increases (appreciation)

3. Mortgage payoff (amortization)

4. Value creation (property improvement)

5. Instant gain (bargain purchase price)

6. Government benefits (tax credits, tax deductions, rent vouchers, advantageous loans, etc.)

In the lines that follow, we’ll take a brief look at the components of a “good” investment. What factors must you consider as you strategically try to grow your wealth and build your retirement nest egg? How can you evaluate an individual investment opportunity? We’ll then use these criteria to compare a typical investment in small income properties and investments in stocks. You will see how real estate can offer you a clear path to prosperity.

 

 

II. What Makes a Good Investment?

No specific class of investment is always better than another. A shrewd investor looks carefully at several aspects of each investment opportunity and considers relative price, yield, and risk. While market trends and indices can provide some helpful information, you certainly shouldn’t base your investment decisions on such broad markers. Your goal as an investor is to protect and grow your wealth by making individual investment decisions that help you achieve your own unique goals.

Let’s examine the factors that help determine what kind of a return you’ll earn on a particular investment and how likely that investment is to help you achieve your personal investment goals:

• Income flow

• Accumulation of equity

• Protection against inflation

• Preservation of capital

a. Income Flow

One component of the total return earned by an investment is the value of any cash flows that asset is expected to produce over time. For instance, in the case of stock ownership, income is obtained through the distribution of dividend payments. In the case of a small income property, income is obtained  hrough rent paid by tenants.

When evaluating the overall value of an asset, an investor will consider both the expected price appreciation and the present value of expected future cash flows. That is, estimating the current worth of an asset based specifically on the amount of cash the investor expects to receive in the future by virtue of owning that asset

b. Accumulation of Equity

The overarching goal of investment activity is to build your wealth by accumulating equity over time. Several factors impact how well and how quickly a given investment helps move you toward this goal:

• Appreciation: One fundamental way to earn money on an investment is to purchase an asset then sell it at a later date for more than you paid for it. Appreciation refers simply to the increase in the price of an asset over time. Appreciation is one component of total return on an investment. For instance, a piece of artwork purchased for $1,000 in 2000 and sold for $1,500 in 2002 has appreciated $500 (50%) over two years.

• Leverage: The ability to leverage refers to an investor’s ability to control an asset of greater value than the cash invested, generally by using borrowed money. Shrewdly using leverage is a powerful way to magnify returns.

• Creating value: An investor may be able to increase the value of his investment by altering the asset in a strategic manner. Such improvements might increase the price others are willing to pay for an asset, or increase the income that asset produces.

• Tax advantages: Certain types of investments and investment techniques allow an investor to take advantage of opportunities to avoid undue taxes. The less tax you pay, the higher your return will be on a given investment.

c. Protection Against Inflation

One of the single biggest threats to long-term investments is inflation (the general increase in the overall level of prices over an extended period of time). Historically, inflation can be counted on to reduce the value of your money by about 3.2% per year. When considering the value of different investment options, you must account for the impact inflation—often experienced at variable and unpredictable rates—will have on expected future returns.

d. Preservation of Capital

Volatility refers to the tendency for an asset price to fluctuate sharply within a given time period. Assets that experience rapid rises and falls in price over short time periods may be difficult investment choices for individuals with a low risk tolerance or for those who are looking at a shorter investment time horizon. The relative volatility of an investment impacts the risk that the price of the asset will actually fall below your purchase price. For instance, had you invested in a Nasdaq index fund around the time of the market’s peak in March 2000, you could have lost a significant proportion of your original investment as prices declined dramatically and (effectively) permanently.

III. How Does Real Estate Stack Up?

Let’s take a look at how an investor can evaluate different types of investment opportunities according to the components of a “good” investment that we just described.

a. Income Flow

The worth of an investment is measured in part by the amount of annual income it can be expected to generate—now and in the future. Many investors have the explicit goal of creating a healthy annual income during their retirement years.

Let’s first look at the income flows generated by stock  ownership. What do we know about the dividend yields of stocks (the annual income that stocks can be expected to provide)? In June of 2006, average annual dividend yield for the S&P 500 was at 1.8%. The average dividend yield of the Dow Jones Industrial Average was 2.3%. The owner of a small income property, by contrast, can expect to earn an annual net operating income of between 6 and 12 percent. With careful roperty selection and management, rents can provide a generous and steady annual cash flow.

With such low dividend yields, how are stocks going to provide you with an inflation-adjusted annual income for a long retirement? To draw a significant retirement income, you would need to invest a tremendous amount of capital. One million dollars invested in stocks might pay you $20,000 per year; that same amount invested in a small apartment building could pay you $60,000 or more each year.

b. Accumulation of Equity

Appreciation

When we look at the past to inform our future decisions, we often give more weight to the events of the more recent past. Our collective memory, therefore, tends to emphasize a period of incredible price appreciation in the stock market.

The years between 1981 and 2001 saw tremendous price growth (the Dow-Jones Industrial Average grew by nearly 14% annually) in the stock market. During such periods, shrewd investors are able to take advantage of rapid price appreciation while focusing on preserving their capital (consider the “dot com” boom). Over the very long haul, however, we see that there are periods in which stock prices appreciate much more slowly, or even fall. From 1906 to 1981 the DJIA experienced only about 2.75% compound annual growth.

So how does real estate price appreciation compare to the observed appreciation in the stock market? Because of the private and unique aspects of the ownership of small income properties, it’s far more difficult to generalize about price appreciation. However, one piece of data that we can examine for comparison over time is the median price of a single-family home in the United States. While not a perfect measure, it can give us an idea of overall trends in the broad U.S. market. If we compare home price appreciation over time to stock market appreciation, we see that in some periods (1960 to 1982, 2000 to present), single-family home prices have appreciated faster than stocks; while in others (1982 to 1999), stocks have appreciated faster than home prices. Overall, and over the very long term, the growth in price is fairly similar.

However, appreciation alone does not tell the whole story. Although overall long term growth in price is comparable, investors in income properties can accumulate equity much more quickly and predictably than investors in stocks. To understand why, let’s look at the effects of leverage.

Leverage

Leverage is a powerful reason for investing in small income properties. If an investor uses 100% cash to acquire a house worth $100,000, and the house increases in value by $5,000 in one year, the investor makes a return of 5% (assuming no other costs). However, if the investor obtains 90% financing, only $10,000 cash is required at the closing table, and a bank or other lender loans the remaining $90,000 to acquire the property.

Assuming the same $5,000 increase in value, the investor’s cash contribution of $10,000 yields an increase in equity of $5,000 in one year—a 50% return. Readily available f inancing at favorable terms helps the real estate investor buy, and earn, significantly more than he or she otherwise would.

These favorable lending terms make it possible for small investors to grow acorns into oak trees over time. Imagine this fairly conservative scenario: Joe Smith purchases a small apartment building in his hometown. He puts 20% down and finances the remaining 80% of the purchase price with a 30-year mortgage. Joe’s rental revenue is just enough to cover his mortgage payments and operating expenses. He isn’t bringing home any additional income from owning the property.

Isn’t Joe merely breaking even?

Far from it. Joe has purchased a predictable accumulation of equity. Even in the unlikely scenario that the property doesn’t appreciate, and rents do not go up in the future, equity is built up with each mortgage payment—with no additional money coming out of Joe’s pocket. As Joe’s equity grows, he can consider borrowing against it and using those funds as a down payment on another incomeproducing property. In this way, Joe—and other savvy real estate investors—can “pyramid” equity into more wealth.

Leveraging cannot be applied so effectively when investing in other types of assets, such as buying stocks on margin. At around 1.8% to 2.3%, the dividend yield from stocks is generally not sufficient to cover interest payments on the debt (typically around 6-10%). This means an investor will have to pay money out of pocket to cover finance charges. Further, if a stock price falls enough, even temporarily, the lender may demand that you provide additional capital. If you fail to provide the

 

additional capital, you will be considered in default and the broker may sell your shares. A mortgage lender, by contrast, cannot require that you provide additional capital if the market goes into a temporary downturn.

Creating value

It’s not possible for the typical small investor in stocks or bonds to exert any substantial control over the performance of the purchased asset. The savvy owner of a small income property, on the other hand, can take advantage of opportunities to create value by making strategic improvements or employing a shrewd market strategy.

Tax advantages

A real estate investor is able to take advantage of a number of tax avoidance techniques and strategies. If a small investor sells stock to purchase more, he or she will lose part of the investment through taxation. A real estate investor, on the other hand, is frequently able to reinvest the proceeds of a sale to take advantage of the 1031 (or “like kind”) exchange and avoid capital gains taxes.

c. Protection Against Inflation

No investor should underestimate the investment-eroding power of everclimbing prices. Even moderate rates of inflation can significantly diminish the buying power of your future income.

 

 

Because stock market investments offer such low dividend yields, an investor must count on price appreciation that consistently outpaces inflation rates. But has that been historically true? If we look at the performance of the stock market during America’s greatest inflationary period (1965 to 1982), it’s clear that stock prices failed to keep pace with inflation. Unlike stocks, real estate can offer dependable increases in both price and income— even during inflationary periods. While no national index can capture these trends perfectly, it’s clear from experience that home prices rarely sink like stocks and that rents persistently rise. In fact, a reasonable estimate of an annual rate of rent increase is 4 to 6 percent—the rate of inflation plus the annual increase in national productivity. Typically, property prices only fall temporarily during periods of serious recession or unemployment, during times of local overbuilding, or after periods of increased speculation. Not only do properties maintain their value during periods of rapidly rising prices, they also maintain value during times when prices rise more slowly. When the inflation rate is high, value is maintained because costs increase and the supply of new property is restricted. When rates of inflation are low, values still rise as lower interest rates increase affordability.

d. Preservation of Capital

As we’ve seen in recent years, it’s possible for stock prices to soar beyond the biggest optimist’s predictions. It’s also possible (and probable) that prices will suffer unimaginable downturns. Stock prices are comparatively volatile, with lots of dramatic up- and downturns. The prices of small income properties, on the other hand, show a more gradual, steady rise through time. While real estate prices are certainly subject to cycles, it historically takes some very special circumstances (such as large-scale recession or unemployment) to make residential prices and rents fall significantly. In addition, while some of the value of real estate investments is found in price appreciation, much of the worth of the investment is tied to the annual cash flows (rents) it can generate.

Recall that a key component of successful investing is making sure that an investment preserves your capital. Imagine a stock market investor who has the unfortunate timing of investing a good amount in a Nasdaq index fund in early 2000. Prices are rising almost as fast as analyst’s “dot com” earnings estimates.

The market is reaching previously unimagined heights and our investor has already started shopping for a retirement home. Then, suddenly, our investor is hit with staggering losses. Over the next two and a half years, the value of his portfolio sinks by 40 percent—and his portfolio is now worth less than he paid for it.

This plunge in stock prices is possible because the prices are not tied closely to the income-producing power of the asset. Unlike companies that can “go broke,” well-selected properties and locations are rarely subject to permanent declines in prices. As we saw earlier, housing prices are much less volatile than stock prices and, as such, are better able to help you preserve capital.

 

IV. Conclusion

While no single class of investment is always a better choice than another, it’s easy to see how investment in small income properties can help you build your wealth and meet your retirement goals. Real estate investment offers steady appreciation and delivers a strong, inflation-adjusted annual income. In addition, leverage and tax advantages are powerful investment tools.

A small investor who takes the time to build his knowledge and skills is much more likely to make good, fact-based buying and selling decisions about investment properties than he is about stocks. No small investor is going to beat Wall Street insiders or be able to buy stocks below market value. The knowledge and influence required is simply not accessible to the small investor.

In real estate investing, on the other hand, a small investor can conduct thorough research and analysis of individual properties. An investor can learn about a market by walking the neighborhood and talking to property owners. He or she can head down to city hall and look up sales and tax information and use that knowledge to help acquire properties at bargain prices. The small real estate investor is even able to negotiate price with sellers—something inconceivable in stock market investing!

As more and more individual investors recognize the wealth building potential of investing in small income properties, earning high returns will become more and more challenging. To succeed, an investor must be more educated and more entrepreneurial than his competitors. Knowledge is the key to your achievement in real estate investments.

No matter which channel you use to grow the value of your real estate investments, you must be able to:

• Use leverage wisely

• Strategically analyze local markets

• Negotiate shrewdly

• Make targeted improvements that increase property value

• Manage properties strategically