When it comes to investing in real estate, most would-be buyers have a significant decision to make about how they’re going to source the right finance. In recent years, the real estate finance industry has seen increased pressure on risk retention rules and reserve requirements. This has pushed alternative lenders, like real estate crowdfunding platforms and real estate investment trusts to rise to the service and offer other forms of capital.
Real estate crowdfunding offers deals for investors online by raising various amounts of cash from several investors and pooling it together into the right capital amount for a purchase or refinance. To eliminate crowdfunded transactions not being fully funded until the full amount is supplied by investors, most platforms will pre-fund a loan.
Through many of these platforms, lenders and borrowers are matched, leading to quicker access to funds at better terms than those traditional lenders can offer.
Online Real Estate Financing and the Tax Reform
While the options available for online real estate financing have seen an increase in popularity in recent years, the recent tax reform of 2018 could mean that this officially becomes the year of online investment. Thanks to the new tax plan, real estate crowdfunding platforms”RECF” have plenty of reasons for celebration. Similarly, so do real estate investment trusts “REITs”.
REITs are the companies that make profits by financing, owning, and operating in real estate. A REIT functions similarly to a mutual fund. The only difference is that instead of bringing together a portfolio of stocks, people invest in a selection of real estate assets, including mortgages and buildings. These solutions pay no separate business tax but instead are asked to pass their taxable income over to shareholders who pay the tax when they file their returns.
The Change in Online Marketplace Lending
RECF is a great example of how people can benefit from online real estate financing this year, thanks to the improvement to marketplace lending strategies. The tax proposal will lower the top tax rate on the income that REIT and RECF platforms, and similar lenders, pass onto shareholders and owners. In fact, the rates have gone from a maximum of 39.6%, down to 29.6%. That’s a huge saving for potential property investors.
People who borrow money to invest in RECF can even deduct the interest paid on the loan at the highest individual rate. This creates new shelters in the tax world for people who might be interested in getting deeper into the real estate investment or development market.
As the market for alternative lending platforms and online real estate financing continues to grow, it’s worth considering all your options before you put your money into a real estate option. These platforms are filling a significant void in the marketplace, by making sure that people can put their money into profitable real estate solutions, without having to worry as much about the issue of taxes.
When executed properly, online lending platforms are an efficient and effective way to fund loans for commercial real estate and bring capital sources that were traditionally unavailable into the marketplace.
At first glance Bitcoin does not seem closely related to the world of real estate. Other than the fact that some individuals might have made enough profit on their holdings to buy a house, the two topics appear unrelated. This is a serious misunderstanding of what Bitcoin means for the real estate market in general and transactions in particular. The fact is that Bitcoin demonstrates a technology that has the potential to completely disrupt the real estate industry.
Bitcoin Demonstrates – Blockchain Works
Bitcoin is a cryptocurrency, which means it is protected by encryption (crypto) and that it is used as a medium of exchange (currency). What makes cryptocurrencies so unique is that they are recorded and transferred using a decentralized ledger referred to as a blockchain. This is the new technology that can impact the real estate sector.
Decentralized ledgers store information on multiple copies of the ledger on multiple computers. The validity of each entry is checked against each copy of the ledger, and copies that disagree with the majority are removed from the blockchain. This prevents someone from altering their copy of the ledger and getting that change stored on other copies.
A real estate example demonstrates this point. Currently, ownership records for real estate are kept at the county where the real estate is located. It is possible for someone to break into the Recorder of Deeds office and alter the records for a particular parcel, in effect stealing it from the rightful owner. In the case of an abandoned property or an absentee owner, there would be no one to contest the subsequent illegal sale of the parcel.
However, if there are multiple copies of the database recording the ownership stored on different computers, changing the ownership in one place would be discovered when the transfer of ownership took place. The blockchain would prevent the theft. The value of Bitcoin has been protected by blockchain, proving the technology works. Cook County, Illinois is launching a pilot program for 5.2 million records covering the city of Chicago.
Smart Real Estate Contracts on Blockchain
Blockchains can do much more than just transfer value by storing the information on ownership. They can set the conditions on when the transfer takes place through a feature called a smart contract. This is a self-executing contract that transfers value when both parties agree that the conditions have been fulfilled.
Smart contracts have the potential to significantly change real estate closings. Instead of a real estate agent for both parties, and in some cases a bank representative for both parties, and a representative of the title insurance company all coming together in the same place at the same time, there is only a self-executing smart contract.
The transfer of the title to the parcel and the transfer of funds can be handled without intermediaries with complete security, confidentiality and speed. This reduces closing cost and the time required to close.
And this is just the tip of the iceberg on how blockchain can be applied to the real estate market. Buyers already have access to some property information through websites such as Zillow. Smart contracts can protect additional information such as terms of an offer from casual viewers. Storing information like this on blockchain also prevents disputes between the parties as the transaction moves forward.
Like many new technologies, blockchain has its detractors and naysayers. However, the real estate sector is ripe for disruption, and blockchain has the information management capabilities to do just that. Major financial institutions are already exploring the value of blockchain. It is only be a matter of time before real estate companies do the same.
Catching Up Quickly
Technology does not always advance evenly. The real estate industry has seen developments in internet marketing, the use of drone photography, and the use of predictive analytics. These have changed the industry in many ways. However, many facets of this important sector of the economy still have room for improvement. Here are four areas that are likely to get a remodeling job compliments of new technology.
Title insurance is a requirement of most real estate closings for a very good reason. Every buyer wants to be certain that they have a clear and valid title to the property they are buying. Title insurance provides that certainty. It insures against errors in the recording of a title that can cause financial harm to the new owner.
Blockchain technology can provide the same assurance at a very low cost. Records entered on a blockchain cannot be altered or lost. Recording real estate titles on blockchain will give the new owner the absolute assurance that there are no errors. This will also eliminate the need for and expense of title searches.
Keep in mind that this is far more than simply digitizing ownership records. Blockchain is a new way of storing information, and any new approach has to have a way to transition from the old way of doing things. Moving title information onto a new platform from a legacy filing system may require a separate and creative technological solution.
Heating, Ventilation and Air Conditioning
Every business looks for “low-hanging fruit”. This is the easy-to-implement solution that pays big dividends in terms of cost savings or other efficiency. Heating, ventilation and air conditioning (HVAC) is the low-hanging fruit of building maintenance. Spending on this one item accounts for almost a third of all maintenance expenses, and over twice the next largest line item for commercial real estate. In addition, HVAC has the largest carbon footprint of any operating system in a building.
The opportunity exists because most HVAC work is still done by hand. Personal inspections and personal opinions serve as the primary sources of information. Comparative analytics are all but absent from the management and maintenance of HVAC systems. Not all situations are properly identified, resulting in costly emergency repairs.
Rravti, a technology start up firm, is working to change this. They have created a data management system that evaluates energy use and the effectiveness of HVAC systems. Identifying efficiencies and employing predictive analytics which has resulted in savings for both property managers and owners who use their proprietary models.
Hard Money Lenders
Real estate financing is moving forward more quickly than other areas, but still has some way to go before it can be considered up-to-date. The problem is that the traditional source of real estate financing, banks, are ill-equipped to deal with the demands of the modern fix-and-flip real estate investor or even a homeowner who needs a quick answer to close a quick sale.
This bottleneck started to open with the JOBS Act which became law in 2012. This allowed crowdfunding and opened new avenues for real estate investors to secure funding. Hard money lenders (HML) entered the financing space with an innovative blend of financial underwriting, interest rates and risk sharing. Real estate investors now have access to capital in a new and more efficient manner.
This improvement is spreading to the residential sector. Retail banks still play a significant role in the home mortgage sector, but online companies like Quicken Loans are using technology to disrupt the business. As more financial data becomes readily available through automated requests, Artificial Intelligence (AI) will conduct more financial underwriting without direct human involvement, speeding up the process and reducing costs.
Real estate closings also represent a real opportunity for cost savings, but have an even greater hurdle to overcome than real estate records. The simple fact is that there is a compelling economic reason to gather representatives of the buyer and the seller in one place at one time. That reason is the need to get everything done correctly.
Smart contracts on blockchain have the capability to do this same thing at a much lower cost. These self-executing computer programs can transfer value and record information, which is the basic operation of a real estate closing. However, it will probably be necessary to record real estate titles on the blockchain in order to reap these benefits.
Women make up the majority of residential real estate agents, according to the National Association of Realtors, and the median income of that group in 2016 of $111,400 in 2016 was just under 3 times the better than the national average of $38,376 for those with a similar level of education. It is fairly obvious that women are very successful in real estate and would be a great addition to any office, but the real question is why.
- Women are Better Listeners: A study from the prestigious Cambridge University clinically certified that women are better at listening to others than men. This would certainly put them at an advantage when trying to figure out what a buyer is looking for in a home, which is the first step in showing them houses that meet their criteria. From a buyer’s perspective, an agent with good listening skills is worth working with because they save time by showing only homes that “fit the bill”.
- Women are Better Under Pressure: The Harvard Business School did a study of elite tennis players and found that women respond better than men to competitive pressure. This would certainly be a benefit in the field of residential real estate, where competition for listings, prices and clients can be intense. Where men might respond by walking away from a transaction or listing because it is “not worth it”, a woman may actually thrive on the challenge of overcoming the obstacles.
- Women are Team Players: Better still, women may be able to bring this sense of enjoying competition to the entire office without creating a competition. Science has proven that women are better team players than men, which can be a real benefit in the real estate market where coordination with other professionals is absolutely critical. This is also a valuable skill when a listing agent and the agent for the potential buyer need to coordinate activities such as showings.
- Women are Better Multitaskers: Recent studies of brain activity have shown that women can actually multitask better than men.. With all the different aspects of a residential real estate transaction, this almost qualifies as a super-power. The ability to effectively coordinate a loan closing with the delivery of an inspection report and title insurance would give an agent a competitive advantage by impressing other professionals involved in the closing, leading to more referrals and more closings.
- Women are More Empathetic: In addition to being able to simply listen better, women can emotionally identify with their clients more readily than men. This empathy, with either the buyer or the seller, can be the key element in pursuing a closing or negotiating a sale price. Women feel the emotional needs of a buyer or seller more keenly than men, and so will do more to reach a successful conclusion since they are more emotionally invested.
The Real Benefit
Of course, any evaluation of the comparative skills of women and men is most likely wrong, which means that none of the reasons listed here are valid or relevant. After all, each of these skills would be just as valuable in commercial real estate where women are underrepresented. If women were actually better real estate agents because of natural, feminine abilities it would be reasonably expected for them to lead in all sectors of real estate.
Which suggests that the real reason women are an asset to any real estate office is they see an opportunity to compete on a level playing field with other professionals and work hard at making the most of that opportunity. Women have been accepted as residential real estate agents since 1938. This is not the case with commercial real estate, which is still widely regarded as an ‘old boys’ network.
Any real estate office that wants to add hardworking professionals to their agency force would be well advised to drop any remaining sexist attitudes and bring women on board.
Importance of Diversity
“If all you have is a hammer, everything looks like a nail.”
This saying, attributed to Abraham Maslow, sums up the value of diversity. The ability to see something from a different point-of-view is valuable. It can help an individual or a business honestly evaluate what is happening. Without it, they may view everything in the same way and miss the changes that are taking place around them and in the market.
This is particularly important for any real estate company because change that comes to real estate can either create or destroy value. An inability to see change as it is happening will cause a real estate firm to lose touch with potential buyers, and cause sellers to take their business to firms that have a better sense of the market.
Why Diversity Matters
The easiest example of diversity in real estate is ethnic diversity. It is easy to understand because it changes the demographic nature of a neighborhood or area, with one group moving out and a very different group moving in. Sometimes the change is complete, leaving real estate firms that lack an understanding of the new ethnic group unable to operate in that area.
In its most extreme form, this can be a problem that looks like racism, but that appearance is often deceiving. It is simply a natural affinity for doing business with someone who looks like, or has a similar background, to oneself. It is the reason women make up the majority of residential real estate agents. Women tend to make the buying decisions on a home and are more comfortable working with other women. It is not sexism. It is human nature.
The easiest way to offer real estate services to a diverse community is to have agents of diverse backgrounds in the office. At the most basic level, it is useful to have agents who can speak the language of the new ethnic group moving into a neighborhood. But diversity goes well beyond basic communication. It includes cultural understanding.
This means that certain features of a residence may be more highly valued by the new ethnic group than the group moving out. A large backyard, for example, might be prized by a group that has large family gatherings. Staging the house to showcase the yard would improve the marketability of the house. An agent unfamiliar with the cultural traditions of the new ethnic group would not see the value in the backyard and miss this opportunity.
How to Achieve Diversity
The most basic rule of any business is to know your customer. This certainly applies to real estate, and can be very important in ethnically changing or diverse areas. A good real estate agent keeps themselves informed about the cultural traditions of the different groups in an area, and pays close attention to any changes in the ethnic mix. An influx of new buyers in any group could mean better market prices reflecting the interest of those buyers.
The most direct method of achieving diversity in a real estate office is to have agents of different backgrounds working in the office. So long as the “token” representative syndrome is avoided, this strategy works well. It is particularly effective if each agent is willing to share their expertise with other agents without compensation, knowing that the service will be reciprocated in the future.
However, the most fundamental way to achieve diversity is to value it. Communicating in a non-judgmental way with every client can teach a real estate agent what they need to know about any potential buyer and their ethnic group.
The real estate market is always changing, and what appeals to a buyer as they pull up to look at a potential home changes over time. This means that successfully staging the exterior of a property “curb appeal” requires flexibility. In addition, the real estate market is local and is fragmented. This means that what works in one area may not work in another, and that what appeals to one buyer may not work with another.
Successful real estate investors know this, and are able to identify what adds to the curb appeal of any specific residential real estate property. They also understand that the time of year strongly influences both which buyers are most likely to look at a home and know how to appeal to that buyer without alienating the atypical buyer.
Seasonal Curb Appeal Adjustments To Consider
Seasonal adjustments are part of the job of economists analyzing the real estate market, but they are part of the job for anyone looking to sell a home in the fall. The first basic fact that needs to be recognized is that buyers with children are less likely to move during the school year. This means that fall and winter staging can be directed at empty-nesters and other potential buyers without children.
Well maintained exteriors are a good example of this approach. While they are always a good idea, they have particular value to empty-nesters who want to fill their lives with something other than household chores. Lowering storm windows in northern climates and doing all the gardening necessary will add to the look that a house is ready for the coming season.
That season includes upcoming holidays, and small but colorful decorations can add a festive, welcoming air that translates into curb appeal. Naturally, sensitivity is critical here, and secular decorations are less likely to offend than those which touch on the religious nature of a holiday. It’s important to remember that small touches go a long way. Not every empty nester is glad the children are grown and gone, and overdone holiday decorations can bring a touch of sadness by evoking memories.
Color Trends Of 2018
The official color of 2018 has been announced by the Sherman Williams company. This serves as a great reminder that painting the front door is the most time-tested method of increasing curb appeal. Using an up-to-date color can increase the effectiveness of this idea. Be certain that the deep hue chosen for 2018 does not clash with the other colors of the house visible from the curb.
While most backyards are not visible from the curb, setting out weather-appropriate chairs around a fire pit is an excellent idea. It is a great way to showcase a patio or deck, particularly for empty nesters that do not have to contend with homework or bedtimes. Most home improvement stores have self-contained patio fireplaces that comply with building codes. Remember to add a small stack of firewood to complete the picture.
None of these ideas makes a house any less desirable for a buyer with children who has to move during the school year. This is the definition of good curb appeal. By understanding the tastes and goals of all potential buyers it is possible to stage for one without ignoring another.
Kitchen renovations continue to top the list of home remodeling projects that give the best payoff in resale value. While there are some time-tested rules for a bringing an old kitchen into the modern era, there are also many new ideas that add both functionality and beauty to this heart and soul of a home. Better still, there are ways to push the envelope of the tested rules in order to add even more value to the project.
Time Tested Rules For Renovating The Kitchen
The first rule of any kitchen renovation is to leave the plumbing in place. This also applies to bathroom remodeling. Plumbing is a challenge for even the experienced do-it-yourselfer, and professional plumbers can significantly add to the total cost of the job. Leaving water lines and drain lines in place is a great shortcut to maximizing the renovation value by minimizing the cost.
The second rule is to critically evaluate the “work triangle” that is formed by the sink, stove and refrigerator. Each leg of this triangle should be between 4 and 9 feet if possible, but the most important rule is that each leg should be intact. This means it should not be broken by an island or peninsula countertop or by a major traffic flow area.
New Kitchen Renovation Ideas
Modern kitchen ideas start at the top and work their way down. The top, in this case, is the ceiling, and that is where you will typically find the kitchen lighting. Replacing a standard since lighting fixture with track lighting adds as much light to a kitchen as necessary while providing an incredible amount of flexibility in where that light can be directed. Low voltage systems also throw energy costs into to the mix.
Racks for hanging pots and pans can be suspended from the ceiling inside or outside the track lighting system. Because these take up a significant amount of storage space – always at a premium in a kitchen – putting them in the air can be a remarkable space saving strategy. Just keep in mind that while pots and pans hang easily by their handles, covers and lids do not. Kitchen designs should allow for keeping these important cooking utensils together and next to the stove or cook top.
New Time Tested Rules
A modern update of the work triangle is the concept of the grouped work area. This has been developed to recognize that kitchens include more than just three appliances anymore. For example, “stoves” now include microwave ovens, specialty grills and stand-alone ovens. Furthermore, cooking has become a communal activity so more work areas are being added to kitchen designs. Modern kitchen designs group these work areas and locate them strategically.
Communal work areas can mean adding a second sink, such as a specialty sink for washing vegetables. At a minimum this requires extending existing plumbing and can mean cutting into existing lines. However, for a larger kitchen a second sink in an island is a major improvement. The added functionality may very well make the expense worthwhile.
Renovation to increase apartment rents is a fraught proposition, and is becoming even more worrisome as the vacancy rate has increased for the first time since 2009. This has made attracting tenants more important than ever, since a vacant apartment is the single largest drain on cash flow that a multi-unit owner can have.
However, renovating an apartment is another expense that must pay off in either a rental or an increased rent in order to be worthwhile. While this is true of any renovation directed toward real estate market value, rental apartment renovations are under the same immediate financial pressure as a fix and flip strategy in the residential market. Fortunately, some of the same ideas that apply there can help assure a payoff in the rental apartment space.
Spruce up The Entranceway
Everyone likes to come home, and landlords can maximize the rent on an entire building by making it nicer for every tenant as they walk into the building. Simple landscaping in the front of the building and a clean, welcoming foyer go a long way toward accomplishing this goal. Exterior lighting also makes a more welcoming exterior and adds an element of security. A “dummy” security camera directed at the front entrance can be a very cost effective addition.
Solar Panels on Rooftops
Solar panels continue to fall in price, and adding them to reduce tenant energy expenses commands a higher potential rent. In other words, not all of the cost savings have to be passed on to the tenants. Solar panels also raise the important issue of income taxes, since alternative energy projects are often eligible for tax breaks. These may also include credits on property taxes, depending on the community where the building is located.
Utilize Exterior Wall Space
A well maintained exterior is an important feature of any apartment complex, particularly if the building is located in a higher crime area. All lines for cable and internet services should be properly installed and kept out of sight as much as possible. A building with great visibility may even be an opportunity for renting advertising space on the exterior walls.
Specialize to Tenants’ Needs
Maximizing rents means attracting the ideal tenant to the building. One way to do that is to provide the unusual amenity that the ideal tenant wants. To do this means having a well developed profile of the ideal tenant and knowing what services are, and are not, being provided by rental alternatives in the area. A laundry room, storage space and outdoor patios are all options that a building can offer that will attract a particular type of tenant.
Remodel to Stand Out
Often a multi-unit building will be located adjacent to, or in a complex with, other buildings that have the exact same floor plan for every apartment. This makes it more difficult to command a rent differential for any one apartment. Remodeling to create a unique feature such as a study or nursery may attract a tenant who is willing to pay more for the amenity.
Keep in mind that changes to an individual apartment will bring a possible rent differential for that unit. Changes to the entranceway, or the addition of an outside patio, can command a rent differential for the entire building. While the economic calculation would clearly favor the latter additions, if the ideal tenant requires an interior feature, the math changes and needs to be recalculated.
The key in all these ideas is to know the ideal tenant and the maximum rate they will pay. This keen market insight requires research and diligence. That effort can pay great dividends for the landlord who spends wisely in order to maximize their rents.
Curb appeal is a critical part of marketing real estate investment properties, and each season brings its own unique challenges and opportunities. The need to make a great first impression in the fall is just as great as any other time of year, but the distinct quality of fall presents some fantastic opportunities that are just not available in the winter, spring or summer.
Maintain The Lawn and Garden
Of course, well maintained plants that can be seen from the car are a great way to make a warm welcome to a prospective buyer. This is true even if they are in planters or other temporary containers. Cold overnight temperatures can kill ornamental plants even if the day before was warm and sunny. If possible, cover plants overnight with a drop cloth to protect them and preserve the curb appeal of a well planned and tended garden.
If this is too labor intensive, just be sure to remove dead plants as quickly as possible. Nothing gives a worst first impression than greeting buyers with a job to be done. Consider replacing annual flowers with hearty Mums that withstand the early frost and provide a brilliant splash of color. A fall decoration like corn stalks or pumpkins can add a festive touch as well.
Be sure the lawn is cleaned of leaves regularly. Again, raking leaves is a chore and while a lawn full of them is colorful and is unique to fall, not everyone appreciates the beauty. A lush green lawn is appealing at any time of year, so if you have invested in one be sure to show it off to prospective buyers as they pull up in their cars. Also, be absolutely sure that the gutters are cleared of leaves as well.
Stage Inside The Investment Property For Fall
Although anything inside the house is technically not curb appeal, there is a fantastic strategy for staging a house in the fall that needs to be mentioned. Bring in a dining room table and set it for a holiday dinner! Any buyer looking at a house in the fall is considering what it would be like to live there at Thanksgiving and other upcoming holidays. Setting a table with some decent china bought at Goodwill or other second hand store helps them easily see themselves living in the house at the holiday.
Of course, before prospective buyers can see inside they have to come in the front door, and this portal can be seen from the curb. Decorating the lawn with cornstalks and pumpkins was already mentioned, but the opportunity to add a door decoration should not be passed up. Think of someone living there would welcome visitors to Thanksgiving dinner. An appropriate door decoration featuring this theme, even well before Halloween, can get the prospect thinking how nice it would be to live there in the coming months.
Invest in Proper Lighting For The Real Estate Property
Outdoor lighting is a more significant upgrade, but one that is well worth considering. Keep in mind that fall means shorter days, and prospective buyers may well be coming by in the evening after the sun has set. A well-lit porch or entranceway is very inviting and adds a touch of security as well. Just be sure the lights are on when buyers are expected. In fact, leaving them on will add little to the electric bill and welcome unexpected buyers.
Of course, it is better if real estate agents call before showing a house, but marketing a residential real estate property means being ready for prospective buyers at all times. In fact, a real estate agent who has the listing can be a true ally in the fall or any time of the year. They may be able to be at the house to point out the benefits at a moment’s notice.
There are times in the career of every real estate investor that can be looked back on as pivotal. Transactions that went awry, situations that turned bad, and problems that turned up. These are all inevitable for anyone in the real estate business for any length of time. Sometimes they are the reason beginning real estate investors decide to get into another line of work. Sometimes they are the real beginning of a long and successful career investing in real estate.
The clearest example of this sort of make-or-break transaction is a renovated house that languishes on the market. There are many things that an investor can do wrong in selecting, renovating and marketing a fix-and-flip property. Sometimes they have done everything right and the house just does not sell. There are even situations when less marketable houses in the same area sell at a higher price than the renovated home. These are the times when a real estate investor has to know what to do next.
Know The Numbers of Your Real Estate Investment Beforehand
Every fix-and-flip investor should know their return on a transaction. The return on a transaction is a function of both the amount of money they put in and the time it takes to get it back out and into their pocket. Waiting for a house to sell reduces this percentage even if there are no monthly out-of-pocket expenses for interest, utilities or property taxes. Of course, there are always monthly outlays. A property that sits on the market both requires a larger investment while it is taking longer to provide a return.
The real estate investor needs to know these numbers like the back of their own hand. Success means knowing the reduced percentage earned for each month the property sits on the market, and the reduction caused by a current sale at a reduced price. There are online financial calculators that can be used to compute various “what-if” scenarios, but it does not matter if the investor uses a high or low tech method of doing the actual calculation. What matters is that the investor knows the numbers.
Those numbers include any upcoming balloon payments on hard money loans used to finance the transaction. Communicating with a lender about the status of a property nearing the end of a loan term may be a difficult but vital conversation. Hard money lenders in the fix-and-flip sector have probably encountered this problem before. Some may be more willing to reach an accommodation than the real estate developer expects.
Make Smart Decisions About Your Real Estate Investment
Knowing the numbers and the timing of any upcoming events – like the aforementioned balloon payment – is important. These facts can only tell the investor what they should probably have known before they bought the property. What the numbers cannot do is predict the future. The numbers can show the return at the a lower price this month in comparison to the current market price next month. The numbers cannot say if the house will sell at either price or in either timeframe.
The real estate investor cannot tell this either, but they can evaluate the emotional toll that pushing for one result or the other will take on themselves. Sometimes this intangible – but very real- cost is too high. A smart real estate investor will get out of the deal at a financial loss before the emotional cost has to be paid. In these situations the lesson to be learned is not to get involved in transactions of that size again. There is value in this that should not be discounted.
However, sometimes this emotional reality check turns up a surprising – and previously unknown – reservoir of inner strength. Some real estate investors discover they can weather storms better than expected. Some investors go so far as to take a significant loss on a project while still remaining committed to a real estate investment career. There is value in this lesson too.