Real Estate Investing

Realtors these days are a little less busy than in the past. Although the spring boost will hit the housing market soon, many realtors currently have far more free time than they would like. So how is a real estate agent to survive? The Arizona Republic recently offered some ideas.

Diversify your skills. Realtors probably already have a diverse set of skills that they aren’t even acknowledging. Identify and develop some of those, and see if they might be applicable in another field or another niche of the real estate industry.

Become a professional negotiator. Help homeowners negotiate with lenders to avoid foreclosure and stay in their homes. Not only can this work be lucrative and personally rewarding, but it can also lead to referrals and more clients.

Go commercial. The commercial real estate market is staying pretty strong in most areas of the United States, so realtors should try their hand in that arena. They may find it suits them even better than the residential market.

Market mortgages. There is certainly a growing demand for reverse mortgages, as baby boomers search for income streams other than social security. Marketing these can be lucrative enough to help realtors through the slow real estate times.

While residential real estate investing gets the most mainstream attention, commercial real estate investing is a major profit avenue in its own right. Make no mistake — both investment options can be very profitable and neither are easy. However, the best option for you depends on your personal preferences.

Here are the pros and cons of residential real estate:

PROS

-These units are generally easier and quicker to rent than commercial property.

-There are plenty of tax breaks available.

-Residential units are fairly easy to finance.

-With multi-unit housing, you can not only diversify your income to soften the blow if a tenant moves out, but you can also live on site and keep a closer eye on the property.

CONS

-With single-family property, one lost tenant is a significant blow to the monthly income.

-The lease terms are typically shorter, which means you spend a lot of time marketing and looking for new clients.

-These properties can be extremely time- and labor-intensive. Unless you hire a property manager, you are essentially “on call” for emergencies at any hour of the day or night.

Here are the pros and cons of commercial property:

PROS

-Longer leases mean more stable income.

-There are tax breaks here, too.

-Management requirements are much less demanding, and facilities are typically not open 24 hours.

Often, tenant will pay a “pro-rata” share of expenses like maintenance and upkeep or property taxes.

CONS

Downpayment requirements and interest rates tend to be higher for commercial financing.

Finding tenants can be a more difficult task.

Process of obtaining financing is much more complicated.

We previously discussed how Kroger is eyeing real estate development in India. Though it sounds very random for a U.S. grocery chain giant to enter a foreign market like that, the real estate market in India is on fire right now. Besides, such a move would provide Kroger with some very strategic advantages in any future international expansion.

Now real estate might be bandied about by the Target Corporation as well, though for a slightly different reason. According to the Minneapolis Star-Tribune, activist hedge fund manager William Ackman predicted Target’s stock value could improve 240% with a few strategic business moves, including the liquidation of their roughly $42 billion in real estate holdings. In an unusual retail decision, Target has chosen to own 95 percent of its retail locations in order to “maintain control over stores and avoid complicated leases,” the article states. Ackmann wrote a Dec. 27 letter to his investors that stated the following:

“In our view, the stock market gives Target no credit for its large and valuable real estate portfolio… We believe that there are transactions that will enable Target to monetize the company’s real estate and development business in a tax-efficient manner.”

Ackmann plans to meet with Target to discuss his analysis of its real estate options early this year. He met in August with the company to discuss his suggestions that it amp up the share buyback initiative and sell off its credit card business. The company soon announced it was considering plans along those lines. So Ackmann’s opinion holds considerable sway, which explains why he bought nearly 10 percent of Target’s total shares. As it turns out, it’s not just because his family shops there, as he had previously alluded to.

It may seem an odd time to look at U.S. real estate as a boost to corporate value, but as previously noted here, commercial real estate is doing just fine, with retail space being one of the strongest sectors.