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Experts are increasingly acknowledging that the tech talent and start-ups are where the big money is in real estate. Only it’s not in the property or the destinations you might think.
Making A Killing On Tech By Taking Control Of The Right Real Estate
Technology is ever increasingly becoming a part of every moment of our lives. There is no escaping that. Many new tech startups are dipping into the world of real estate, and the two worlds are becoming ever more intertwined.
There seems to be a new real-estate-related start-up popping up every few minutes today. Almost so many you want to ax your Twitter feed. Of course, most are doomed to fail because they don’t get the property world. Ninety percent of them or more have done no market research and are trying to recreate what is already there, and with less money and less of an understanding of what people want.
Fortunately, at the same time, many other advances are being made in technology that will certainly pay off and become incredibly profitable. Still, for now the best move for 99% of investors remains in real estate and cashing in on the distressed property and non-performing note market.
However, it’s the convergence of the two that really offers the most opportunity and rewards. So where is that?
Tech Talent Migration Pinpoints Next Real Estate Hot Spots
Tech publication G-Code Magazine began forecasting the ability to predict rising property values based upon the presence of new co-working office spaces, which are a breeding ground for new start-ups.
Since then, over the last few weeks, this idea has been seconded by a number of high profile real estate gurus – from the author of the #1 real-estate investing book on the Kindle, Sean Terry, to the Fortune Builders team from A&E’s reality TV show “Flip This House.”
Now one of the largest and most established real estate brokerages and analytics firms in the world, CBRE Group, issued a new report citing “robust concentrations of technology professionals” as boosting demand for property.
A recent comment by one media outlet tried to temper this and proclaimed that it was the presence of existing, established businesses that was critical to staying solvent. Yet, the most affluent and successful investors and advisers have long warned that these businesses and metropolitan areas can’t survive, and will become nothing more than decaying urban wastelands overrun by distressed property, unwanted REO, and non-performing notes without access to great talent. And lots of it.
The two – existing business centers, and tech talent and lean start-ups – need each other. One side needs the capital injection and connections, the other access to innovation, hustle, and rapid growth.
We all know that small businesses are responsible for almost half of the jobs in the U.S. The location of these start-up hubs indicates where the most jobs will be, which economies will grow the fastest, where more people will want to live and invest and, ultimately, where the best rental and home-price growth will be realized by investors.
So where are these rising hot spots and treasure troves of returns?
Where To Bank Big On Distressed Property Now
The best real-estate returns may not be where you expect.
According to the recent CBRE Group report, the firm gave some of the best tech talent rankings to the usual suspects including Seattle, Boston, San Francisco, San Jose, and Washington D.C. No big surprises here, and many of you are probably already cringing from knowing these markets are some of the most expensive, with the tightest inventory and cap rates.
Cassidy Turley data, covered in a CCIM Institute Market Trends report in September 2013, reports the top five U.S. markets for year over year office rent growth were:
This begins to reveal what the top analysts have been tracking: a trend in faster growth in secondary markets, and even tertiary markets.
This is happening due to a combination of factors including businesses seeking more affordable digs for themselves and employees, as well as investors recognizing better returns (and growth) can be found in these less competitive markets.
So there may be more opportunities in the areas surrounding stable business centers, but also in rising business hubs that are attracting young tech talent and are bidding hard to bring in companies, fanning the entrepreneurial flames.
With this in mind, real-estate investors may find the following emerging start-up zones interesting to watch:
Other factors can change the game in markets quickly, too. Start-up NY and the establishment of new tax-free zones in the state along with millions in grants and venture capital could attract many. Meanwhile, underdogs like Naples, FL are launching their own start-up centers backed by one of the wealthiest communities in the world, with seven-figure distressed beachfront real estate selling for a fraction of previous values.
This only really leaves the question of what type of distressed property and non-performing loan notes investors should be looking for in these areas…
Reviving Exciting Real Estate Trends
Since last year, both U.S. residential and commercial real estate markets have been picking up with all sectors improving in performance. Some are doing better than others obviously, and analysts are quick to point out a significant disparity in velocity, especially in relation to the above destinations. However, it isn’t just resuscitating dilapidated strip malls and run down foreclosure homes that are taking off. We are now seeing the exciting revival of some of the hottest trends that were really just emerging at the end of the last housing boom, and some which have just been birthed in the wake of it.
5 of these trends to watch include:
- Co-working office spaces
- Niche multifamily properties
- Custom built luxury single-family homes
- Establishing new resort and second-home communities
- Developing live-work and live-work-play communities
Multiple expert reports from the CCIM Institute cite a big growth spike between now and the end of 2014, especially in commercial real estate rents and in the areas around start-up hot spots as laid out above. Only these destinations that continue to attract high concentrations of top tech talent will enjoy higher and extended growth spurts.
There are many ways to profit from these trends as an investor. You can invest in residential, commercial, or mixed-use properties; invest directly in brick-and-mortar or in the debt backed by them; flip; acquire-improve-resell; develop new projects from the ground up; or hold them for the long run.
Maximizing Real Estate Returns In An Improving Market
Those that griped about the state of the market between 2005 and 2011 are now kicking themselves as their wishes for a stronger market come true. Recently many have been bitterly ranting across online forums that competition has increased and inventory is limited.
Still, as we are about to see there is no reason to play the fool; buy at the top of the market, gamble on spec, or purchase negative cash flow properties. There is just no need for it. In 99% of cases those that are playing the fool, are just being lazy. Some will still manage to bank millions. More of these investors will lose millions and end up being feed for those that are being a little smarter with their acquisitions.
CNN Money recently ran a piece on foreclosures drying up. Give us a break! It’s like the media and realtors who are perpetuating these stories still think people don’t have access to the internet or something. Maybe they’ve never heard of Facebook or BankProspector?
The market has been improving in many ways. There are many reasons to be positive, but misleading the public is only going to bite them back.
Let’s look at what the raw data is showing. The latest round-up of figures being reported by U.S. banks reveals:
a) 3,762 banks are reporting residential REO balances right now at about $7B
b) 4,814 banks are reporting 30 times that amount in residential late and non-performing loans ($210B)
c) The amount of residential REO on the books (only a percentage of which is actually being marketed’) represents only 3% of what’s out there
This is just the residential side!
Commercial and construction REOs actually make up more than double the distressed REO property on U.S. bank balance sheets right now than residential does. Then there are many more non-performing mortgage notes and REOs being controlled by credit unions and asset management companies.
Residential clearly offers a lot of potential, at least for those with access to information on off-market properties and notes. Much of it can probably be re-zoned easily right now as local governments are starving for more revenues and are hungry to grow their tax bases for the future, while eliminating blight and devaluation now.
However, for those really ready to do something big and bank on market trends, non-performing commercial loans and non-performing construction loans and property can be where some of the biggest money is.
All get-rich-quick-schemes aside, being flush with mountains of cash isn’t a hurdle that has to hold investors back. Incredible amounts of capital are out there and all sorts of short-term money to lock up, acquire, re-position and turn these distressed bank assets into high performing investment vehicles.
Long-term rates remain low too, and once properties are turned around and are proving themselves can be refinanced with more attractive loans.
So don’t believe the hype, and continue to seek out significant spreads on , and stick to sound investment principals.
The Pivot for Investors Who Think Big
Of course not every investor wants to put much thought into their investments. They have cash parked and just want to secure it better and gain some yield. They aren’t desperate for it to deliver a stellar performance. Others have very modest aspirations and are too mentally occupied to get serious about their portfolios and distressed asset investing.
However, for those that can be bothered, this could be a pivotal moment which can not only take their wealth and income to a whole new level, but truly enrich their lives by being a part of something really big.
Those that are too lazy or ambivalent to try and tap into the best data, connect with a couple bankers online to snap a deal together, and have no dreams or aspirations can stick to what they are doing now and stay there comfortably (maybe).
For those that do want to do something huge, whether it’s for the money, bragging rights, to give it away to charity and solve social issues, to create a legacy for their children, have the funds to get more out of life, or at least so that they can say that they hit their full potential in life – opportunity isn’t just knocking at the door – it’s screaming out, sticking its head through the doggy door, and begging for you to take it for a run – will you?
DistressedPro.com’s BankProspector actually makes this incredibly easy. It shaves hundreds of hours and thousands of dollars off of what many are spending on prospecting for deals and evaluating them, as well as streamlining the contact and negotiation process.
BankProspector offers a complete system for sourcing off-market non-performing notes and REO deals and provides data on credit union and asset managers, in addition to thousands of U.S. banks. All in one place. What makes it even sweeter is that you can even take it for a free spin and try it out. Are you ready?