Want to know exactly what factors go into determining the risk of a Sharestates deal? This determined risk helps to create an estimated percent for your gross annual ROI (return of investment); making the Risk Matrix one of the most important tools we use.
Underwriting a Real Estate Crowdfunding Deal
The Risk Matrix is applied to each and every Sharestates Real Estate Property. This matrix helps us to determine a grade for the property which will provide us with the estimated return that is given to the investors.
First, let’s look at the Risk Matrix (best viewed in desktop):
As you can see on the left side of the matrix, there are nine categories from which we gather risk points. Assessment in each category will yield a risk point value. The sum of points in all nine categories will render the letter grade that you see in the risk rating section of the investment project summary.
- A credit score of 680 (0 points)
- Completed 8 previous projects in similar markets (1 point)
- A track record of $200 million (1 point)
- Our personal guarantee (hint: all of our approved borrowers will have our personal guarantee) (-1 point)
And if the property is…
- A value-add (2 points)
- In first lien (-1 point)
- A high occupancy (1 point)
- An LTV of 37% (1 point)
- Located in an Urban Market (1 point)
Then this property has a total of 5 points.
We can see that 5 points will give us a grade of A+. The baseline interest starts at 8%. There is 0% adjustment. If you were to invest in this property, your estimated gross annual ROI will be 8%. The higher the risk associated with the investment property, the higher your estimated ROI will be.
How did the idea for Sharestates come about? An Interview with Allen Shayanfekr
The big idea for Sharestates originally came out of a dinner conversation that I was having with my partners.
What problems did you set out to solve?
We wanted to create a platform where people could invest across the country in real estate assets without needing the local expertise. They would rely on the platform to provide all of the data necessary to make an informed decision, and we’d lower the investment size. We were talking about how fragmented the real estate market was, and we saw a couple of major issues.
- One, unless you had a local presence or experience in a particular market, you couldn’t access deals there. Instead, you end up looking at other asset classes whether it be stocks, bonds, commodities, or currencies where you can easily go online and invest.
- Another major issue that we saw as a barrier to entry in real estate investing was the cost. Furthermore, in order to invest successfully, you needed to have an intimate understanding of real estate finance and how leverage works to properly structure deals.
Why did you settle on debt investing instead of equity?
As we started to build the business, we realized that debt was the preferred investment opportunity because it gave investors access to real estate without some of the risks associated with equity investments.
Early on in the business, we switched from an equity-based platform to a debt-based platform. We made that change for two reasons.
- First, it was easier to frame each loan, which ultimately made it easier for the individual investor to understand it.
- Second, it came with a fixed interest rate, so investors knew what they were going to get as opposed to a floating target return of fifteen to thirty percent depending on the performance of the property.
The debt product was easy to put a box around by clearly defining: the loan to value ratio, the borrower’s credit score, how long they have they been in real estate, how many projects they completed, etc. When we put that box together, it’s easy for institutional investors to check those items off and provide a discretionary commitment for loans that meet their criteria.
How does what you do compare to traditional hard money lending?
For our borrowers, the business that we were disrupting was what was traditionally known as the hard money lending market, which had historically been dominated by local mom and pop shop type of lenders. They were not very tech savvy, and in some cases, just a few people sitting in a room with paper files. They had zero sense of how to scale their borrowers’ business.
We were able to build a technology platform for borrowers looking for hard money that streamlines the entire financing process. They can submit an application online or on their phone from a project site. They’ll be able to see a live checklist of what they need to provide in order to get the loan cleared. We’re building tools that help speed up the process for borrowers so that they can get a loan closed within ten days or less if necessary.
How did the JOBS act affect your business?
I had just completed my law degree with a concentration in securities law. The timing was perfect because President Obama had just put the Jobs Act in place which directed the SEC to create new rules around securities offerings that would ultimately allow us to create an exemption called Regulation D Rule 506 C. This new exemption allowed us to overcome a major hurdle that existed in the old regulations which were primarily related to public advertising and the number of investors that could accept an offering. The old rules wouldn’t allow us to publicly market and solicit to investors for a particular investment product. The presence of an online investment platform is inherently marketing and soliciting, so without that change, we wouldn’t have a business.
How did the business model evolve over time?
We officially launched in February of 2015, and from the onset, we realized the need to pivot with the marketplace. We started with a plan to build a syndication-based platform but ultimately had to be receptive to the market. We started by strictly offering equity investments to non-accredited investors through an exemption in the securities laws called Regulation A. We qualified with the SEC to offer Regulation A and launched it, but it failed to take-off. It wasn’t a bad idea on paper, but we had zero credibility at that point in time. We were asking people to give us their money without a demonstrated track record of success.
We pivoted from non-accredited investors to accredited investors, from Regulation A to Regulation D. The Regulation A model required us to take every offering that we were doing through SEC qualification, which at the time was taking between eleven to twelve weeks. Given the fast-paced nature of real estate, it wasn’t efficient. With Regulation D, we didn’t have to go through the qualification process every time; we could send a notice filing to the SEC, instead.
How did Sharestates become profitable?
Unlike many of our peers in this space, we did not raise any capital to build the business. We funded the company ourselves and generated enough business to break even in just 13 months. After we broke even and were profitable, we’ve been reinvesting the profits to continue driving growth. The more loans we close, the more profitable we are, and we have been able to increase our staff. We continue growing the business with further technology development.
Why choose Sharestates over another marketplace lending platform?
For investors, it boils down to a couple of things.
- First, relative to other players in the space, we’ve had an almost spotless track record. We’ve had less than a two percent default rate on our total volume of loans originated, and we’ve had zero loss of principal to date.
- Aside from that track record, we also provide investors with a broader selection of loans to invest in across the country, in different asset classes, and phases of development. Other players in the space are focused either geographically, by asset class or by the phase of development. We offer our investors diversification across all of these different elements.
For borrowers, we offer a few competitive advantages over traditional hard money lenders.
- Our technology has automated processes that allow us to offer lower rates and quicker closings. We’re also a one-stop shop for our borrowers. Local lenders have limited access to capital.
- Sharestates has so many different capital sources that there is no limit to what we can originate on a monthly basis. As long as you’re a good borrower with the deal flow to support the loans, we will fund it for you.
- Additionally, we cover all asset classes for our borrowers: residential, multi-family, mixed-use, commercial assets, and ground-up construction. Over time, we grow with our developers.
As we’ve written recently, the New York real estate market is competitive yet ripe with opportunity. Sharestates was founded in the New York metro area and has completed a lot of deals here. We’ve funded everything from ground-up new construction to residential fix-and-flip projects. Year-over-year, Sharestates deal activity has increased by 28% in New York during the period from January through September.
Sharestates Real Estate Activity in New York
- Sharestates has funded 694 New York loans to date for a total funded volume of $705,211,500
- 434 of the loans funded were for residential properties
- 6 of the loans funded were for mixed-use properties
- 155 of the loans funded were for multi-family properties
- 90 of the loans funded were for commercial properties
- 9 of the loans funded were for land deals
- Average loan size: $1,017,621.21
- Average loan to value (LTV): 67%
- Average renovation budget: $1,009,558
- Average after repair value (ARV): 54% or $2,807,890
Residential Project Success Stories
The first residential project presented below successfully underwent a renovation project covering four individual units. The borrower acquired the property with the intent to “fix and flip” the units. The borrower structured their loan to receive five individual draws of capital over the course of the renovation project which included demolition, flooring, electrical, plumbing, HVAC, windows, doors, cabinetry, tiles, bathroom fixtures and more.
- Appraised value: $1,300,000
- loan amount: $1,080,000
- LTV: 62%
- After-repair value: $2,000,000
- ARV: 54%
This residential property is located in the Bedford-Stuyvesant neighborhood of Brooklyn, NY. Bedford-Stuyvesant or “Bed-Stuy” is well known for its picturesque Victorian architecture, elegant brownstones and vibrant culture. The area is also noted for its proximity to many different New York City public transportation options which is ideal for commuters who work in the city’s central business districts. According to StreetEasy, the median sale price in Bedford-Stuyvesant is $716,000 with an average of 84 days on the market and a median rent price of $2,300. Compared to other brownstone Brooklyn neighborhoods, such as Park Slope with a median recorded sales price of $1,405,000, Bed-Stuy contains many value-add opportunities for real estate developers.
Pre-construction exterior appearance
Post construction exterior appearance
Pre-construction interior bathroom unit
Post construction interior bathroom unit
Pre-construction interior kitchen unit
Post construction interior kitchen unit
The next project success story funded by Sharestates was a 1-unit residential real estate loan. The borrower acquired the property with the goal to “fix and flip” the house. The borrower received $64,000 and structured the loan to include four individual draws of capital over the course of the renovation project which included everything from siding, plumbing, electrical, heating, insulation, wood floors, cabinetry, ceramic tiles, bathroom accessories and more.
The single-family home is located in Hempstead, New York. Hempstead is the oldest and largest town of Nassau County in Long Island, New York. The Nassau County area is immediately east of New York City and has often been known as a white collar commuter area with an average commute of only 48 minutes by Long Island Railroad. According to Realtor.com the average list price for a home in Nassau County is $598,000 and the average days on the market total 112.
- Appraised value: $150,000
- Loan amount: $184,000
- LTV: 80%
- After-repair value: $350,000
- ARV: 53%
If you have a project that you would like to submit to Sharestates for consideration, click here. Sharestates is now funding loans in 46 states Nationwide.
Post construction appearance
Real estate market trends for the NY metropolitan area in the most recent quarter of 2018 are showing some very interesting movement. The overall market direction is deviating significantly in different areas, providing some great investment opportunities.
One of the standout pieces of data across Manhattan, Queens, Brooklyn, Westchester, and Nassau is the inventory numbers. With the exception of Westchester and Nassau, the number of available properties for sale has increased in double-digit figures. This is a significant increase in supply that will provide a wider range of property types for investors to choose from. It also reduces the chances of bidding wars occurring, leading to more favorable price negotiations for buyers.
An interesting trend to look at with the above-mentioned increase in supply is the continuing decline in closed sales in Manhattan and Westchester, which were in the high double digits at 16.6% and 17.7% respectively. In most areas, the overall median prices are still close to or near record prices, with Queens showing the highest increase in year by year median prices of 11.6%. At the same time, Manhattan and Brooklyn have experienced a slight to a moderate decline of 1.9% and 7.5% respectively.
This summary data shows some uncertainty, especially in the higher-end markets, because of pending federal tax law changes as well as increasing lending rates. For a closer look at the trends in the most popular areas of New York, we have analyzed and broken down the data sets individually.
Median prices in the most expensive borough were down 7.5% year over year to $1.1m. The main underlying reason for this was a 19.2% decline in closing prices for new developments. Resale homes, on the other hand, remained very stable. This price decline in the new development market is also accompanied by a 36.7% decline in closed sales. The reason for this drastic decline is that legacy development contracts are drawing to a close with very few new ones coming on the market.
The number of closed sales were down across the board, with condo sales down over 20% and co-ops down over 13%. On the opposite side of the declining demand side is a significantly increasing supply with an inventory rise of 10.7%. This has resulted in an eight-year high inventory total.
The overall result is the lowest rate of bidding wars since 2012, which marks a great opportunity for investment as negotiations are more straightforward. Properties are now available in highly desirable areas which have been inaccessible for several years.
Unlike Manhattan, median price declines in Brooklyn have been relatively small at -1.9% to $984,000. With prices still about 50% higher than their pre-2008 crisis levels, this is still proving to be an extremely hot market. At the same time, there have been signs of a trend reversal. Total days on the market for all properties has increased by 14 days year over year. However, the majority of the increase has come since Q1 of this year with quite a large spike from 84 days to 107.
The number of total closed sales is down 5.7% while at the same time inventory numbers are up over 18.5%. This significant shift in the balance of supply and demand could lead to many opportunities to snap up properties in a very sought-after area.
Most of the above downward trend in sales and prices is seen in the multi-family market including condos and co-ops, while the single-family data is still holding stable to slightly increasing trends. For investors looking for single-family opportunities, the good news is that the supply side is up over 50%, meaning there is more availability in a larger range of prices.
Queens is the main NY borough that has shown a significant increase in median prices of 11.6% year over year to $629,000. These prices in all areas and across all property types are at or very close to record highs. The total number of listings is up 8.9% year over year, but what’s more interesting is the 16% increase since Q1 alone. On the demand side, closed sales were down 6.5% year over year. However, in the last quarter, that trend has been reversing with a 3.6% increase in sales.
This shows that demand for properties across Queens is still very high with a moderate increase in available listings. While the increased number of properties is positive for buyers, the high demand is still making it difficult for investors to find great deals.
Practically all of the price rises are coming from single family homes as well as new developments, with condos and co-ops showing the largest declines in sales. From an investment point of view that would make the multi-unit properties a possible better opportunity.
The trends in Westchester County are somewhat unique when compared to the above boroughs. Prices are up 5% to $676,000 but the total number of closed sales are down 17.7% and inventory levels year over year have remained stable.
The main reason for the price increases in a negative demand and stable inventory environment comes from the fact that since Q1 2018 closed sales are up a huge 28.9%. That closer view of quarterly data says a lot about potential trends in this county.
Overall, prices are barely at pre-2008 crisis levels. However, it’s also important to note that post-crisis prices in Westchester did not see the same fall as elsewhere. The majority of demand is still in the single-family home market where prices are rising compared to a slight drop in the price of condos. Total sales also remained significantly higher for single-family units.
While the overall level price stability of the past 10 years is not ideal from an investment perspective, Westchester remains a very popular place for young families to rent. This provides for a great rental market of young professionals.
The trend data for Nassau County is overall very similar to that of Long Island in general. Median prices for the more popular North Shore are up 7.7% while South Shore is up 3.4%. The interesting thing about these trends though is in the numbers since Q1. North Shore data shows that median sales prices since the first quarter are up 12.9%, which means that this area is significantly hotter.
With pre-2008 crisis prices only exceeded last year, current median prices of about $500,000 for the county as a whole are still very close to record levels. Year over year listings are up right around 5%, but again, since Q1 those figures have jumped to 35.9% for North Shore and 17.6% for South Shore. The accompanying increase in closed sales has maintained this upward trend in prices.
New York overall remains a market with huge potential in many areas. While places like Manhattan and Brooklyn are showing signs of some trend reversals, these are times where just the right type of investment can be found to improve a portfolio.
- Manhattan: https://www.elliman.com/pdf/63978c27e625f9367e8bfd8f0e026d01cf805609
- Brooklyn: https://www.elliman.com/pdf/1819a33cf5a75996b141a6d0adbb0ce27753daa2
- Queens: https://www.elliman.com/pdf/c632c854e132373edefd7a8a3a2d27510683b84c
- Westchester: https://www.elliman.com/pdf/bf85ea1e1706a6984bd19af7b961d386fbbdba2c
- Nassau: https://www.elliman.com/pdf/ec806b6948ef91e1cd97749b8da02eb35d847c43
Sharestates has announced that the company will begin financing Non-Performing Loans (NPLs) in 46 states. NPLs, a vital component of the mortgage market, have traditionally only been available to investors with liquidity to purchase the note through institutional trading desks. Sharestates’ NPL loan product now provides private real estate investors access to leverage, allowing for participation in the market and expanding their investment portfolios into this segment of the marketplace.
“As part of our mission and commitment to our community of real estate professionals, we are actively creating a streamlined financial participation matrix for borrowers and our buyers; starting prior to acquisition and evolving through the hold period of the asset(s)” said Sharestates Co-Founder and CEO, Allen Shayanfekr. “Our capital markets team has been working diligently to structure the right programs, covering all asset classes for borrowers, giving them the flexibility they need to grow their portfolio of holdings.”
As we’ve written recently, the Atlanta real estate market continues to show strong signs of growth. Sharestates deal activity in the Atlanta metro area, in turn, has kept apace. Multi-family projects, in particular, have kept Sharestates busy in 2018 with 125% more Atlanta loan applications than the same time last year. Below, we’ve aggregated some of our internal loan statistics for the Atlanta metro area and highlighted a few recently funded success stories.
- Sharestates has closed 34 of those loans to date for a total funded volume of $76,465,000
- 33 of the Atlanta real estate loans funded by Sharestates were for multi-family properties
- The remaining loan was for a commercial storefront building
- Average loan size: $2,248,970
- Average loan to value (LTV): 69%
- Average renovation budget: $655,618
- Average after repair value (ARV): 63% or $3,226,749
Commercial Project Success Story
The Sharestates commercial success story (pictured) was for a private loan in the Cascade Heights Commercial District. Cascade Heights is a southwest neighborhood of Atlanta with many amenities that Atlanta residents look for: proximity to downtown, parks, green space, and a rich cultural history that mirrors other desirable Atlanta neighborhoods. The subject property is a 1 story commercial building with 7 storefront units and a basement accessory unit for a total of 11,842 rentable square feet.
- As is value: $710,580
- Preliminary loan amount: $500,000
- LTV: 70%
- Total loan amount: $840,000
- After-repair value: $1,302,730
- ARV: 64%
The borrower previously acquired the subject property and will begin to renovate with a $340,000 budget that includes: sprinkler systems, plumbing, HVAC, interior finishes, electrical, masonry, exterior siding, roof structure, exterior lighting, landscaping, grease traps, windows and doors, and grading. The borrower intends to complete the rehab plans and stabilize the investment, then refinance with traditional financing to repay this loan.
Pre-renovation commercial loan in Atlanta
Post-renovation commercial loan in Atlanta
Multi-Family Project Success Story
The Sharestates multi-family success story (pictured) was for a loan in the Hunter Hills neighborhood of Fulton County, Atlanta. Hunter Hills is west of Downtown Atlanta and consists mostly of single-family residences. The neighborhood is only feet away from the west side of the new Atlanta Beltline that will connect nearly 45 neighborhoods via railroad. The subject property is a 63 unit multi-family apartment building with an office unit. The property sits on 2.1 acres of land and is 49,776 square feet in size.
- As is value: $2,260,000
- Loan amount: $1,880,000
- LTV: 70%
- Total loan amount: $840,000
- After-repair value: $2,835,000
- ARV: 66%
The borrower previously acquired the subject property and will begin to renovate with a $300,000 budget. The borrower intends to complete the rehab plans and stabilize the investment, then refinance with traditional financing to repay this loan. Pictured below are some of the completed renovations to date.
Below are some additional before and after renovation photos of a recently funded Atlanta loan. If you have a project that you would like to submit to Sharestates for consideration, please click here. Sharestates is now funding loans in 46 states Nationwide.
Pre-renovation multi-family exterior loan in Atlanta
Post-renovation multi-family exterior loan in Atlanta
Pre-renovation multi-family unit kitchen
Post-renovation multi-family unit kitchen
Pre-renovation multi-family unit bathroom
Post-renovation multi-family unit bathroom
Pre-renovation multi-family unit bedroom
Post-renovation multi-family unit bedroom
For investors looking to diversify their portfolios, the field of real estate presents a few unique strengths. Between its higher than average stability, high rate of appreciation, and reliable cash flow, the field of private lending has a lot to offer. It’s a great time to invest, too; the Joint Center for Housing Studies of Harvard University has projected that, between 2015 and 2025, 13.6 million more households will be established. Some investors look to real estate as a way to supplement social security and secure reliable income for retirement. Even younger investors looking to build a stable foundation have plenty to gain from real estate investing. Stock markets are volatile and high-risk, and while rewards can be great, stock market investments lack the security of a solid real estate investment.
Many investors prefer to keep their hands relatively free of their real estate investments by using REIT mutual funds or crowdfunded real estate investments instead of digging into the private ownership and rental market. This allows them to keep their focus on other investments by reducing the load that real estate takes on their time. Throwing in on a real estate crowdfunding investment can be as simple as signing a check and writing yourself a note to remember when taxes roll around that year, but it needn’t be that simple, either.
There are a few big changes that are about to happen in the real estate market, and private lenders should definitely be aware that these changes are happening and what these shifts in clientele will mean for the business. There are a few things to keep in mind from the JCHS study mentioned earlier. While renter households are expected to increase in the next few years, they aren’t going to do so at the same pace they have in the past few years. New homeowners will almost double the number of new renter households that will be created over the next seven years. What’s more, new minority households will outnumber new white households by one-third over that same time span.
Upcoming Millennial Home Buyers
The major demographic changes that approach for the pool of potential home buyers are notable, first, for their age. The millennial generation is approaching the home buying age over the next ten years, and many will be looking to move from their rental situations to something more permanent. Lenders need to be vigilant and innovative in their outreach to this new customer base, whether they’re looking to fix-and-flip a house or put down roots.
Millennials’ use of technology impacts how businesses are run, and the mortgage industry is no exception. If a lending company hasn’t started tapping technology to learn about and reach their clientele, then they’re going to lose out in the future. For instance, traditional mortgage lenders have been very slow to take advantage of services like eMortgage. Compare that to the performance of tech-savvy real estate crowdfunders, who have seen great success in the last five years with the aid of algorithms that provide online investment platforms and real estate lending. Even if private lenders don’t have the kind of capital backing that venture capital-funded real estate crowdfunding platforms enjoy, they’ll need to find ways to use technology to both attract and keep millennials who will expect to perform their transactions over smartphones and tablets.
A More Diverse Future for Private Lending
Many of the millennials entering the prime home-buying age range are Hispanic, Asian, African American, or of another non-white race or ethnicity. The Mortgage Bankers Association presented figures that, if race-specific household formation rates remain at 2014 levels, demographic changes alone would add 5.5 million Hispanic households and 2.4 million more African-American households. By 2024, the housing market will see a total additional 10 million minority households.
The Pew Research Center has indicated that Blacks and Hispanics face extra challenges in getting home loans in the past, but this presents a unique opportunity in the real estate financing market for private lenders. Many banks have gotten a bad reputation for higher rates of interest and bad lending practices in African-American communities, which means that many members of minority communities might look to alternative lending options when they look to purchase a home. As this buying market grows, those who present innovative and accessible options to these communities will find a loyal and large customer base.
A Booming Clientele
Between millennials and minorities, lenders have a host of opportunities, along with some challenges. However, the baby boomers are still having a big impact on the real estate market. They’re getting older, of course, which means they’ll be making decisions about assisted living, owning-versus-renting, and downsizing in the next few decades. Because that generation is so large, it’ll have a massive impact on the private lending business.
For instance, if most boomers decide to age in place, that will mean the construction of new homes will need to be funded to meet demand since investors can’t count on a pool of older houses that can be resold to new buyers. If they put their homes up for sale and become renters after retirement, though, the market might have a lot of older houses available, providing a lot of options to sell to a wider clientele. No matter what, private lenders will have to consider what must be done to attract boomers. Wherever they live, they’ll be older clients, and so accessibility, maintenance and nearby amenities (such as grocery stores) will all be on the list of concerns.
As the market shifts, private lenders need to be ready to modify their strategies and adapt to its needs. It will be essential for lenders to use innovative methods for reaching an ever-changing demographic with lending products that meet their needs. What’s more, they’ll need to speak to savvy investors who understand how to capitalize on the shifting landscape of the real estate market. These trends can change quickly, and the future for housing growth will be bright in the coming years. Investors and lenders need to make sure they’re ready for the boom.
When it comes to financing your investments, whether it be your real estate projects or your other business investments, your options are growing by the day. Business owners and project sponsors are no longer tied to the bank loan. In fact, with the number of marketplace lenders on the rise, there are plenty of real estate investment financing alternatives. Here are five that are easier to obtain, often present better terms for the borrower, and are effective in bettering your financial position.
5 Real Estate Investment Financing Alternatives to Bank Loans
- Cash out refinance – If you own real estate properties now, instead of taking out a bank loan for your next investment property, take one or more of your existing properties and refinance them, extracting any built up equity you have in those properties. This can be beneficial in a number of ways. For starters, you may be able to refinance at a lower rate, especially if you are combining to two existing mortgages into one. Secondly, you can take your equity from existing properties and acquire your new one, or lower your financing by using your equity as down payment on a new project.
- Hard money – Hard money lenders have their own criteria, but these make great loans for short-term projects. They are often high interest, so make sure you pay them back on time, but the benefit is you can fund a project using hard money, then refinance the project and pay your hard money loan back upon completion of the project. Hard money lenders usually fund projects they believe in without making the borrower jump through a lot of hoops.
- Get a partner – If you get the right partner, you get a lot more benefit than funding for your real estate project. You could get a valuable partner with experience that you don’t have. A mentor who believes in your project and comes to the table with capital to see the project through the completion is a real estate investor’s dream, but it’s not just a dream. It does happen. Tap into your network.
- 1031 exchange – A 1031 exchange allows you to sell one property and purchase another one of equal or greater value as long as you follow a few simple rules. The big benefit to these exchanges is you can defer your capital gains on the sale of your investment property. Then you can take those gains and buy a bigger property that will provide you with bigger returns. This is a great option to bank lending if you are a rental property investor who wants to grow a portfolio while increasing passive income.
- Marketplace lending – Marketplace lending is another option. With this funding vehicle, you list your real estate project on a platform that allows individual and institutional investors an opportunity to invest in it. There are two types of investments that make this option good for the both the capital seeker and the funder. Equity-based investment allow real estate project sponsors an opportunity to fund a project while giving up some of the equity in that project to the investors. The benefit is you do not have to pay back a loan in the event your project does not succeed. Debt-based investments mean that investors lend you the money and you pay back the loan over time, which means you get to keep all the returns on the back end of the deal.
There are plenty of ways to finance a real estate deal in today’s fast-moving market. Be sure to perform your due diligence on any lenders, funders, or platforms you intend to work with.
One recent trend in real estate is to convert religious houses of worship into residential spaces. In New York City alone, there are no less than 16 such conversions. But it’s not just happening in New York. All around the world, churches, temples, and synagogues are being converted into houses, condos, co-ops, and apartment buildings. While there are challenges to converting religious worship centers into residential spaces, it’s not as difficult as it seems. If this is where you’d like to take your real estate investing business, here are a few tips to help you think more clearly about these conversions.
Tips for Converting Religious Buildings Into Homes
The biggest concern in converting a church into a living space is the architecture. Many old churches are works of art on both the interior and the exterior. The typical home does not have a steeple, arches, vaulted ceilings, large stained glass windows, huge open spaces, and bell towers. These accouterments can make your church renovation a fun project, but they can also be a huge headache if you don’t put together a carefully thought out plan. You may want to consult an architect to help you in the idea stage, and especially if you want some creative work-around ideas.
You’ll want to be careful about renovating too much beyond the historical look of the building. For one thing, historical societies can be quite nit-picky, especially if the church is a registered historical place or sits in a neighborhood that has a particular historical significance. Plus, churches often have huge sentimental value to communities. Nearby residents could make your development difficult if you get too crazy with the changes.
Sanctuaries can often be vaulted, high open spaces with a lofty feel. Keeping that open space can make a home spectacular, but you lose a lot of living space. This is one of those areas where you’ll have to balance aesthetics, practicality, and your budget.
On the other hand, lofts and mezzanine can create opportunities for an upstairs bedroom, den, or a second living space.
If the church has a kitchen, that will make your development easier, but if the building has been out of use for a long time, you may have to install new plumbing. The same goes for the bathrooms. Speaking of which, churches usually have two of them, and they may or may not be next to each other, but they don’t typically include bathtubs or showers. You’ll have to decide if you want to keep two bathrooms or combine them into one, and then decide where you’ll add the tub and shower features that residential units long for. Large churches may have more facilities, especially if they have multiple wings.
The older the building the more renovating and updating you should plan to make. This is especially true if the building has been vacant for some time. Things run down, and if no one is there to maintain it, things can fall apart quickly. If the church is made of stone, stucco, or other heavy material, you’ll have to make decisions about whether the material can be acquired to fix broken or rundown infrastructure, and if not, what is a reasonable work around?
One other thing that might get forgotten is zoning. You don’t want to get half way through your renovation before you find out the property you are renovating is zoned commercial. You may have to seek a special use permit or ask for the property to be rezoned. Check your local zoning ordinances before you begin.
Religious buildings can be fun to work with, but you’ll have to do a lot of planning to convert one into a residential living space. If you do, the rewards are incredible.
What is sustainable investing and how can it contribute to increased returns from your real estate investment projects? Pursuing green strategies can bring you tremendous investing rewards without considerable additional cost or complexity in your operations. Planning early for sustainable design allows green features to be integrated from the outset, reducing long-term operational and maintenance expenses. Here we will talk about energy efficiency, durability, reducing waste, and the health of people and the environment.
Energy and Water Efficiency
Sustainable investing and design brings with it reduced energy costs and lower bills. If you manage or own rental property, you know how much power and water tenants are apt to use. Installing low-flow water efficient fixtures can reduce use and expenses, while also doing a good thing for the environment by reducing the embodied energy involved in the transportation and treatment of water. If your leases leave expenses to the tenant, it will be a tremendous selling point that their utility cost will be reduced thanks to the sustainable features of your property. This also saves tenants from the need to install these features themselves, further adding value and appeal for the prospective tenants and buyers.
Energy efficient upgrades can immediately improve the value of your property. If your goal is to renovate the property and either refinance or resell the asset, green upgrades can add substantial appraised value by increasing the NOI through reduced expenses. The income approach utilized by appraisers will recognize this increased margin and yield a subsequently greater valuation. Units with sustainable features are in strong demand by buyers and earn a 5-9% premium, according to research by the National Association of Realtors. The additional upfront expense of sustainable features is offset by the savings earned during the pay-back period, the time required to recover the additional expense compared to conventional designs.
Sustainable Investing, Durability, and Reduced Waste
Maintenance is another sizable expense category that can benefit from sustainable strategies. Green products and materials generally last longer than conventional products and are designed to create less waste and employ less construction materials. When selecting product for your build or renovation, look for those that have longer life ratings. Consider this when you’re shopping for paint, flooring, counters, appliances, and other products that frequently require maintenance and repair. Using higher quality materials upfront will reduce long-term expense and lead to greater tenant satisfaction.
Waste is a very important consideration that is often overlooked in the design process. How much does this waste impact the profitability of your projects? With the increasing costs of building materials, excessive construction waste can easily result in thousands of dollars of lost potential profit. The under-utilized resources also contribute to landfill proliferation and purposeless energy use and pollution created by the original production and subsequent removal of waste. Advanced framing and project management strategies can keep waste to under 10%, and allow significant additional capital to be allocated to sustainable design initiatives and high-quality builds.
Human and Environmental Health
Designing homes and business using green approaches supports human health. Using low VOC materials and designing for ergonomics and psychological well-being contributes to happier tenants, lower-turnover, and less risk of legal liability for injuries and health conditions resulting from toxic substances and hazardous conditions. People are very sensitive to temperature, lighting, layout, and views. Green rating organizations such as the U.S. Green Building Council encourage and reward designs that consider these human factors and provide innovative integrated solutions. What’s more, is you’ll also command a higher lease rate on your rental and better future resale value.
The health of the environment is also an important consideration that can influence your long-term revenues. When your project has a positive impact on the surrounding environment, it improves the quality of life for all in the ecosystem and community. Pragmatically, it leads to improved community appeal, lower medical expenses for local government, saved public funds that would otherwise be spent on remediation efforts, and enhanced social capital for conscientious developers. Strategies that support environmental health include providing natural habitat, using native vegetation, preventing storm water runoff, minimizing waste, using locally sourced and sustainably produced materials, and emphasizing public transportation within the community.
More Green by Going Green
The key point here is that employing green strategies and sustainable investing will provide benefits for people, the environment, and not least importantly, your bottom-line. All the strategies discussed will improve your profits in the long-run and help maintain goodwill for your organization within the community. When planned from the outset using integrative design, green building strategies require minimal additional expense, while providing significant long-term value. As real estate investors, we’re always looking for new opportunities to improve the value and cash flow from our properties; green design presents an excellent solution that supports the financial success of the venture, occupant demand, and the environment.