“Experience” Real Estate

Understanding the experience economy will position real estate professionals to deliver a unique customer experience. Over the past decade, a monumental shift has occurred in the way consumers are experiencing real estate. With the advent of online travel agencies, the mobility of the millennial generation and consumers’ desire for unique experiences, traditional real estate has been going through a transformation.  Understanding and adapting to these market dynamics will create newfound wealth for individuals who position their real estate assets to deliver a unique consumer experience. What’s Driving the Shift It used to be that if you were traveling for business, vacation or other personal reasons, you would book a room at a hotel.  Today, companies like Airbnb, HomeAway, Booking.com and Travelocity, which are referred to as online travel agencies, are giving the consumer access to properties that have been adapted to compete against traditional hotels. The short-term rental market, which consists heavily of single-family homes, condominiums and townhomes, used to be a cottage industry, but it has exploded into a mainstream industry. This past decade was simply the “coming out party” for an already proven option for consumers to experience real estate while traveling.  The short-term vacation rental industry’s rate of growth is 3.5 times the growth rate of the traditional hotel industry. By the end of 2020, the short-term vacation rental industry is projected to topple the hotel industry, according to Matt Landau, founder of VRMB, a leader in the short-term vacation rental industry. The Appeal of Short-Term Vacation Rentals Consumers are increasingly choosing short-term vacation rentals due to the amount of space they offer for the price, as compared to a traditional hotel room. Properties that are converted to short-term vacation rentals are usually more family friendly. As a guest, you have more control over your stay and what you want to experience. You get to choose what type of “hyper local” experience you want to have. You can choose to rent a property in a middle-class neighborhood or the urban center. Or, you can even rent a luxury home and live like you’re a rock star for the weekend. There is also the opportunity to share the cost with fellow travelers. Online Travel Agencies The internet has transformed many industries, especially the travel and hospitality industry. It used to be that traditional hotels had the primary access to mass media marketing channels to drive guest bookings to their properties.  The internet has given birth to online travel agencies, which allow owners of a single property to market their property for rent to a global market.  In addition to market reach, online travel agencies give the property owner the ability to showcase their property in a simple way and to secure bookings from the consumer.  From the consumer’s perspective, online travel agencies give the consumer confidence to book properties owned by a third party due to the amount of information they provide, including reviews from previous guests. Eighty-two percent of all travel bookings in 2018 were made online via mobile apps or websites, without human interaction. 148 million travel bookings are completed online each year, according to TrekkSoft. And, Google data shows that travel-related searches, including “today” and “tonight” have grown by more than 519% in the past five years. Millennials and “Experience Real Estate”? Unlike previous generations, millennials have grown up with mobile devices. They are an extremely tech-savvy generation. In addition, millenials are not content with the traditional approach to work and living—they are living while they work. They are searching to create experiences through their work environment. This is referred to as “bleasure travel,” which is the activity of combining business travel with leisure time. Millennials also spend more money on travel compared to other age groups. In fact, they are predicted to spend $1.4 trillion on travel in upcoming years, according to Hospitality Net. In their pursuit to create experiences, millennials increasingly rent properties. How to Deliver a Unique Real Estate Experience The individual managing the property creates the unique experience. The property manager brings the human, local touch that is all about giving the guest something they haven’t experienced with a traditional hotel.  The consumer needs to feel like the experience was created just for them. An example most people can relate to is Disney’s guest experience. If you have ever visited Disneyland, you know you are experiencing it with thousands of other people, but you also feel like it was created just for you. The small things in the guest experience create the magic.  For example, communication is very important to the guest. An effective manager delivers nurturing communication tracts to guide the guest from the moment they book to after they check out. The complete experience should communicate to the consumer “be our guest”!  Really good managers do many small things that make a difference. They consider the layout of the furnishings in the property, the smell of the property, the ease of property access, the linens, and the speed of response to the guest if there are any issues that arise during their stay. We’ve heard about managers who even cook local, authentic cuisine for their guests as part of their experience. Not only does the short-term vacation market give the consumer an opportunity to experience real estate in a different way while traveling, it also provides an opportunity for property owners to create wealth. Property owners generate recurring revenue from their bookings and realize increased equity over time as they pay down the mortgage with booking revenue. The property owner also has the flexibility to block out time to use their own property. Those who effectively combine real estate ownership with hospitality will capture this exciting market opportunity.

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Technology Is Crucial to Lower Your Property Management Risk

Relying on a firm that uses modern technology and data not only mitigates risk but also creates significant trust and transparency between property managers and their management firms. The property management industry has needed a tech infusion for quite some time. Until recently, the property management space has been inefficient because many companies still manage in a very manual way. They’re mainly reactive, consisting of small and nonscalable teams managing an average of 300 properties and utilizing minimal data and automation. This lack of automation and data results not only in inefficiency but also in increased cost and a high probability of human error. Inefficiency is the main reason for slim profit margins for property owners. It also contributes to lack of trust and predictability. All of this adds up to a bad experience for tenants, which causes higher turnovers, shorter tenancy terms and extra costs. What does this mean for property owners and investors? Higher risk probability. A large part of managing risk in the property management industry is understanding data, which is the primary reason why property owners should be looking at property management companies that are moving forward and integrating technology in their management models. Using the latest technology can streamline communication and enhance the overall experience of both property owners and their tenants. The key services to look for in a property management firm when you are trying to mitigate risk are: Guaranteed income, even when the property is vacant. Efficient communication strategies. Fixed monthly rates. Proactive technology. Reliability. Let’s take a closer look at each one. Guaranteed Income According to the latest 2020 industry report by property management software company Buildium and the National Association of Residential Property Managers (NARPM), the No. 1 reason property owners said they want to own rental property is to have an active stream of income. Although most property management firms do not offer guaranteed income, it’s important to seek out the few that do. A company that provides guaranteed income ensures that property owners never have the burden of leasing their property to a renter. This is especially helpful for property owners and investors who live in another state or even reside outside the U.S. A company that offers a rent-guarantee program protects a property owner’s income by covering the rent in case of vacancy, moving the burden of leasing the property from the landlord to the property management company. Property management firms that offer guaranteed income ensure that the entire investment in real estate is a predictable hassle-free experience for their clients. Efficient Communication Strategies Data shows that the top challenge property managers face today is providing efficiency and top-quality customer service. As previously mentioned, for many small management firms, streamlining communication and customer service has become nearly impossible because so many still operate their firms manually. Without integrating technology, it’s difficult for these businesses to provide exceptional service in a world that now demands it, thanks in part to companies like Amazon, Uber and Apple. According to the report, more than 70% of property owners and tenants feel that it’s important that their property managers are easy to work with and quick to communicate. They want issues and repairs with the home resolved quickly. Property owners desire regular updates on their rental properties, with 43% preferring updates in real time. Enhanced communication between all parties can also improve overall customer service, which more than half of renters consider to be the most important quality of a property manager. Several tools and technologies are available for removing frustration from the equation. They expedite the communication and repairs processes. For example, look for companies that provide the option to communicate through an app for convenience and increased efficiency. This is especially useful when tenants request repairs, which according to the industry report, is a property manager’s most requested service. Using intuitive technology to streamline communication between tenants and service providers, all parties can track the entire process of the repair through a real-time mobile video and communications platform to ensure top-quality service and timeliness. Fixed Monthly Rates Investors and property owners often take on an exorbitant amount of risk because of unexpected fees. Air conditioning units break, roofs get damaged and pipes leak. Generally, property owners are forced to reach into their pockets to pay for repairs. However, there are some management firms that offer a one-rate monthly fee that never increases, providing a safety net against the inevitable costly repairs. Mitigate risk with a firm that uses intuitive technology to provide you with a fixed rate. Some of this technology uses a sophisticated algorithm that underwrites dozens of different property- specific data points and generates an all-inclusive, one-rate monthly fee for each individual property. Such a plan guarantees the net-operating profits for any rental because it includes a full operating expense protection. Paying a fixed monthly rate guarantees that the management firm will pick up the tab when claims are submitted. But most important, it also helps to remove the risk of repairs, turnovers, maintenance, advertising, listing and other fees. Proactive Technology More and more property management companies are turning to high-tech solutions for predicting repairs and maintenance, which is nearly impossible to do while operating manually. By using high-tech services and aggregating data from the home itself, it is much easier to avoid risk and costly updates. Some companies partner with smart sensors manufacturers to notify property owners of significant updates or repairs to the home before tenants even notice them. The sensors in the home monitor in real time the vital home systems and provide alerts about any changes that can’t be as easily detected by residents. That includes changes in the vibrations of the air conditioning and heating unit, blockage in plumbing systems, electricity pull and more. Reliability All the above can be narrowed down to one significant component that property management companies should have—reliability. The more technology is integrated into a company’s management model, the more dependable and consistent is the company’s communication,

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The Evolution of the Single-Family House Space

The new asset class on Wall Street is single-family homes, with a new focus on build-to-rent communities. In 1979, I purchased my first single-family investment property. It was located in Williamsville, New York, and I paid $23,200 for it at a mortgage foreclosure. After investing slightly more than $10,000 to renovate it, I sold it for $57,000, netting a profit of $20,000. That deal changed my life. I’ve been involved in more than 3,000 transactions across 12 states and 50 cities since then. According to Zillow, that first house in Williamsville sold for $289,900 on Sept. 24, 2017. That is exactly why we all invest in real estate, particularly single-family homes. One of my early mentors, Chuck Gorrow, told me that he wishes he’d kept every house he bought rather than selling them. It should be obvious that a rental portfolio can replace your job income, and eventually you can choose to work. And that’s what I did. I acquired houses one at a time at foreclosures, from distressed owners or off the multiple listing service (MLS). Times Have Changed The single-family housing business used to be relegated to mom and pops. The more sophisticated real estate investors would acquire apartments and commercial space. Well, we all know that isn’t the case anymore. The new asset class on Wall Street is single-family homes, with a new focus on build-to-rent (B2R) communities. The reality is that the hedge funds, family office and entrepreneurs resurrected the single-family housing business when they entered this space around 2012. At that time, mortgage foreclosures were prolific, and the entrance of these large, well-capitalized companies helped absorb massive amounts of defaulted properties. This stabilized communities, cities and regions of the country. It clearly expedited the resurgence of the U.S. economy through massive investment of time, materials and laborers to fix and rehab these properties and make them available for rent or sale. Everyone started to make money from realtors, mortgage brokers, lenders, laborers of all kind, appraisal companies, home inspection companies, property managers, materials providers as well as the entrepreneurs and the hedge funds themselves. These were good times. A lot of money was made and invested back into local communities. All this activity made it very difficult to find and keep good laborers. Laborers of all kinds were able to achieve higher wages as a result of the strong demand for services. The tremendous shortage of skilled labor is still a problem in the U.S. Because of that challenge, we hear often about the need to make businesses more efficient. Technology has leveled the playing field for all of us at one level or another. There is an application for almost everything. Technology allows us to access more information to make informed decisions faster than we could in the past. And I’ve got news, the speed of information will continue to increase, allowing all your competitors to get the same information as fast as you get it. Thus, the ability to make fast decisions and take action is more important than ever. The Problem Starting in 2009, U.S. single-family house investors acquired distressed and foreclosed properties to create single-family home rental portfolios at record rates. Today, distressed and foreclosed properties comprise only 2% of the residential real estate market. Seven years ago, I had a team of five people looking at auction houses in eight counties in the Atlanta metro area. We would purchase 8-22 houses each month. I can still remember how I would look at up to 55 houses a day, five days a week before auction. It was a lot of work, but I loved it and we did quite well. Once we rehabbed the property and placed a tenant, we would sell within weeks to overseas investors or hedge funds for cash. It was the best of times, because our cash was recycled every 60-75 days. I’ve never experienced anything like that. In the end, we bought, sold and managed more than 1,000 houses in a six-year period. Something very interesting also happened at this time: I acquired hundreds of lots. Hey, I was never a “lot” buyer because lots don’t pay rent. What I observed was an incredible opportunity to stockpile lots and wait for the market to turn. It didn’t take long! I sold one community undeveloped in Douglasville, Georgia, to DR Horton. I had 78 lots in the second phase of a community. Since that time, they’ve completed the community. I also contracted with a builder to build eight houses in a community in Fairburn, Georgia, that I had pre-sold to Australian inventors who had pre-sold to Chinese investors. At that same time, I had 56 lots in the subdivision of Regency Park in Hiram, Georgia. This was my second B2R community to be built out. The beauty of the transaction was in the details and the outcome. I did a joint venture with an experienced builder on B2R properties. The Paxis Group, led by John Wojtas, built 52 of the houses that we had pre-sold to Jay Byce, who was involved with American Residential at that time. Due to the quality of the builder and the buyer, we went from start to finish on 52 houses in one year. The Newest Asset Class on Wall Street Little did I know that B2R would take off. Now, many hedge funds are clamoring for it. Literally, it’s exploding. At the November 2019 IMN conference for single-family houses, everyone was involved, or trying to get involved, with B2R. You see, there are simply not enough homes to rent in the U.S. The last recession really shook up American homeowners, especially the ones who lost their equity through foreclosure. Higher home costs, fear and the desire to maintain freedom and flexibility has changed the landscape of home ownership in the U.S. In fact, homeownership is at its lowest level in 60 years, and it’s not necessarily the American dream anymore. There is not a negative stigma with being a renter.

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Hamilton Zanze Acquires Two Maryland Apartment Communities

San Francisco-based real estate firm Hamilton Zanze has acquired two apartment communities in Columbia, Maryland, including the Timbers at Long Reach apartments and the Chimneys of Cradlerock. The deal closed Dec. 31, 2019, with seller Aimco. HZ now owns and operates six residential apartment communities in the D.C. metro area. HZ’s capital improvements plans for the properties include exterior maintenance and improvements, landscaping and interior unit renovations. At the Chimneys of Cradlerock, the property will receive upgrades to its community amenities and security systems as well.

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Phoenix American Financial Services Announces New Client Partnership

Phoenix American Financial Services has announced a new client partnership with Old Greenwich, Connecticut-based Forum Partners. Phoenix American will support Forum with its full fund administration services suite, including fund accounting as well as its investor services platform. Forum invests in and alongside specialized middle market real estate companies with a demonstrated ability to add value. Phoenix American Financial Services provides fund administration, back office outsourcing services and sales and marketing reporting services to companies in the alternative investment industry. Phoenix American was founded in 1972, has five offices worldwide, including its headquarters in San Rafael, California.

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Roc Capital Rebrands

Roc Capital, the New York-based capital provider for private lenders serving small and middle-market real estate developers, has formed Roc360, a holding company for the suite of products and services it will provide to its clients. The new name communicates the firm’s offerings as a full life-cycle platform for real estate investors and accompanies the broadening of Roc360’s suite of products and services. These include lending (this business will continue to operate under the Roc Capital brand), property insurance, title insurance and benefits offered by Roc360’s corporate partnerships.

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