Disruption in the Real Estate Industry

These days, it seems like industry and social changes are happening at a faster pace than ever before.

Take the emergence of companies like Uber and Lyft. Unheard of just a few years ago, these businesses allow everyday drivers to repurpose their cars and moonlight as freelance drivers to earn some extra change.

While the rise of ride-sharing companies has been great for people who want to put their cars to use, as well as people who need a convenient, affordable ride, it’s been a major disruption to the taxi industry.

In this episode of The Real Estate Guys™ show, we’ll examine nine major disruptions to the traditional real estate industry and discuss the way these changes affect YOU.

On the show, you’ll hear from:

  • Your champion-of-change host, Robert Helms
  • His right-hand man, Russell Gray

Listen




Subscribe

Broadcasting since 1997 with over 300 episodes on iTunes!

real estate podcast on itunesSubscribe on Androidyoutube_subscribe_button__2014__by_just_browsiing-d7qkda4

 

 


Review

When you give us a positive review on iTunes you help us continue to bring you high caliber guests and attract new listeners. It’s easy and takes just a minute! (Don’t know how? Follow these instructions).

Thanks!


Major disruptions to traditional industries

Most disruptions don’t appear out of nowhere … even if it seems like they do.

Major trends tend to evolve slowly.

The upside? You have time to react and get in on the game before you’re left behind.

The downside? If you aren’t keeping your eyes wide open, it’s easy to miss what’s going on.

Our first major trend is one that gained popularity quickly over the past few years … and is now on the tip of every vacationer’s tongue.

  • Trend #1: Short-term vacation rentals

Airbnb. Everyone’s heard of this company, and for good reason.

Companies like Airbnb allow homeowners to rent their homes to vacationers for a night or a fortnight.

For regular homeowners, say a person who’s purchased a vacation rental they only use two months out of the year, short-term vacation rentals offer a way to make money in today’s sharing economy.

And for real estate investors, Airbnb offers a completely new model for hospitality … and often, a drastically higher rate of return.

But for competitors in the traditional hospitality industry, Airbnb presents an unwelcome disruption to an established market.

After all, hotels can’t usually match the amenities, home-like ambiance, or affordable rates of Airbnb options.

So the hotel industry is responding … often by attempting to quash short-term vacation rentals in a given area.

  • Trend #2: Modular housing

When modular housing first appeared, it was synonymous with “shoddy.”

Today, modular housing means something totally different.

In fact, in many ways modular housing has become the best option for low-cost, high-quality homes.

New technology has allowed modular building companies to become hyper efficient, producing consistent results with less overhead than traditional building methods.

Obviously, this trend is also disrupting a big industry … traditional building and construction businesses.

These companies know what they’ll do about this trend… try to stop or circumvent it. The real question is, do you know what you’ll do?

  • Trend #3: Worker housing

In some cases, it isn’t a new technology that’s disruptive … it’s the economy. Consider overcrowded, high-priced areas booming with new companies like San Francisco and Vail, Colorado.

In these markets, the demand for housing is there … but the market isn’t responding (or can’t respond, due to geographic barriers).

In some cases, this has opened up a new industry … worker-specific housing, created solely to provide homes for workers flocking to burgeoning technology markets.

In the most extreme cases, however, no one is stepping up to the table. Take Google, for example.

The company recently installed modular homes near their Silicon Valley campus to provide temporary, affordable housing to new employees.

But Google’s solution isn’t permanent … it’s a patch on a problem that will only get worse.

The real solution? Either someone has to figure out a way to add affordable housing to already packed markets … or companies have to make the move to more affordable markets.

As with any trend, we want you to take note … and look for the opportunity in the situation.

Changing technology tools offer new techniques

Although in many ways, the real estate industry hasn’t changed significantly compared to years past, technology tools for homebuyers have expanded dramatically in the Internet age.

First, it was online MLS programs that expanded access to home listings. Today, technology is racing to fill needs and wants as they arise, changing the way real estate works every day.

  • Trend #4: Online property analysis and walkthroughs

It’s easier than ever before to buy a property without ever stepping foot in it.

Advances in technology, like virtual reality programs that let potential buyers examine homes from a distance, have made physical walkthroughs unnecessary.

Buyers also have a vast array of constantly improving data available to them online.

Sites like Zillow show home values, and it only takes a push of a button to find an area’s crime rates and school statistics.

  • Trend #5: Social media marketing

While online technology rapidly increases the information available to potential homebuyers, some sellers are taking advantage of Internet trends to get a competitive edge.

Real estate professionals like our friend Ken McElroy use popular social media sites to create interest instead of relying on traditional advertising techniques.

This approach allows sellers to reach key audiences … while driving the costs out of marketing and acquisition.

What’s the benefit of being able to cut edges this way? Well, we hope it’s obvious … finding ways to cut overhead only increases your bottom line … and will help you stay above water if and when we hit a tight market.

Financing, lending, and brokering like never before

Along with new ways to research and market homes come new ways to buy and sell them.

  • Trend #6: Online brokerages

The online-only trend doesn’t just stop at walkthroughs … these days, companies like Reali operate real estate brokerages entirely online.

As technology advances have made information more readily available to the interested public, traditional realties have seen an overall decrease in commissions.

There are two things real estate agents can do … find a way to redefine their role in the market, and/or find a way to do more transactions.

As new business models facilitated by technology emerge, it’s your job to consider how you’ll re-position yourself to maintain your value proposition.

Although your position and tasks may change over time, your income doesn’t have to change if you adapt.

  • Trend #7: Crowdfunding

When it comes to buying and financing real estate, new lending models have proved a big disruption to a major industry … the banking world.

In particular, crowdfunding and peer-to-peer marketing allow people to exchange money without utilizing banks at all.

Instead, buyers and sellers can come together without a middleman.

Refiguring traditional ‘rules’ for a changing world

It’s easy to fall asleep and miss the little ripples technology makes in the real estate world … but we think it’s more fun to stay awake and watch them turn into waves.

If you want to be active and efficient in a slow market, NOW is the time to make your move.

That way, you’ll have a competitive advantage when you really need it.

In a constantly changing world, it’s YOUR job to rework the rules.

  • Trend #8: Nomadic workers

While workers are still flocking to big companies in overcrowded cities, on the other end of the spectrum, technology has enabled many folks to work nomadically.

For more people than ever before, it’s possible to work wherever the heck you want.

How is this trend a disruption? It forces sellers to look beyond local buyers and consider the amenities that will draw nomadic workers to an area.

If investors take this trend into account, they may find demand in places they never would have suspected otherwise.

A changing world requires you to consider so much more than just the roof you put over tenants’ heads. You have to look at the bigger picture.

  • Trend #9: Cryptocurrencies

Last, but not least, we find the rising cryptocurrency trend of the past few decades intriguing.

There are over 2,000 cryptocurrencies … and in markets with unstable (or even potentially unstable) currency, investors often find cryptocurrencies a logical option.

In our constantly evolving world, there’s so much to think about!

It’s YOUR job as investor to avoid being complacent … to stay aware so you can counter disturbances before they arise … or even better, turn them to your advantage.

Coming up on the radio show, our best ideas on how to navigate when there are storm clouds on the horizon.

Until then, go out and make some equity happen!


More From The Real Estate Guys™…

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources to help real estate investors succeed.

Clues in the News – Market Peaks, Credit Scores, and Student Loans

This edition of Clues in the News is coming to you from Bozeman, Montana, where we just wrapped up an insightful weekend at the Red Pill Expo with thought-provoking author G. Edward Griffin and other amazing speakers.

Perhaps the mention of this conference provokes skepticism. Why attend, you ask?

We’ve learned that as real estate investors, it’s crucial to examine information from all sides instead of taking a single account at face value.

That’s why we found the expo so exciting. It’s also why we read the news every day … and then examine it with a critical eye to see what lies between the lines.

In this all-new edition of Clues in the News you’ll hear from:

  • Your at-the-helm host, Robert Helms
  • His (tired of being kicked in the side!) sidekick, Russell Gray

Listen




Subscribe

Broadcasting since 1997 with over 300 episodes on iTunes!

real estate podcast on itunesSubscribe on Androidyoutube_subscribe_button__2014__by_just_browsiing-d7qkda4

 

 


Review

When you give us a positive review on iTunes you help us continue to bring you high caliber guests and attract new listeners. It’s easy and takes just a minute! (Don’t know how? Follow these instructions).

Thanks!


The rise (and fall?) of short-term vacation rentals

We find it helpful to look at the real estate investing world from both a big-picture perspective and a smaller local perspective. Often, local news gives us helpful insight into currents running underneath the big waves that make national headlines.

That’s why we took a look a Bozeman’s local newspaper, the Bozeman Daily Chronicle, where we found an interesting article about short-term vacation rentals.

Short-term rentals are a craze that has been sweeping across the nation over the past couple years … and local governments have responded in various ways as these rentals have risen in popularity.

Although Bozeman isn’t a large town, many residents and businesses are concerned about this issue.

Why? Well, think about who’s threatened by rentals offered through companies like Airbnb. Hotels.

A pragmatic investor or businessperson is aware they may meet resistance to their business model … and that’s what’s happening in Bozeman.

Companies threatened by these smaller rentals are taking the issue to local politicians … who are backing them up.

Think about it … who has a bigger influence on local economics, and thus a bigger say in local politics? The one-property Airbnb owner, or the hotel operator?

Investing is more than just making deals. An important piece of being a successful investor is being aware of the local political environment, including tenant-landlord laws and local issues that may affect you.

The lesson? It’s great to be optimistic and hope for sunny skies, but always pack an umbrella in case you run into rain (or resistance).

Market peaks continue to soar higher

When we took a step back and zoomed out to see the nation as a whole, we noticed a trend we’ve been seeing for a while … escalating home prices across the board.

Although home prices continue to rise, there’s a lot of variation in different markets. A close look at the data in Harvard’s Annual Housing Report tells us that while home prices in the 10 most expensive metro areas have risen a whopping 63% since 2000, while prices in the 10 cheapest areas have grown by only 3%.

That’s a big difference!

We think it’s important to dig deeper and find the over-performers. Looking at information at the macro level is great … but it’s up to you to take that information and move toward the micro.

Look at the nation … then examine your specific town. You may find surprising disparities, even between different neighborhoods in one city!

We zoomed out even further to see if the housing boom was a U.S.-only trend and found an article from an Irish newspaper that stated the average cost of buying a house was €338,000 (about $384,000).

That amount is nine times the average Irish salary!

Big, overheated markets aren’t a problem specific to America. They’re a worldwide trend.

As this trend becomes more obvious, journalists are taking note and coming up with their own interpretations of the data to satisfy the curious public.

We find it helpful to remember news isn’t hard data, and it isn’t the answer … it’s really the question.

The news gives you a starting place to ask yourself: Does this topic affect me? And what does this article really mean? How can I dig deeper?

We went through this process with a CBS article that contained advice for home buyers in the current market.

Many of the article’s statements were simply the opinion of the journalist. And although the journalist offered some helpful advice, we often find professional journalists don’t have the buy-in to catch some of the most important dynamics active in the marketplace.

That’s why as an astute investor, YOU have to be prudent and pay attention.

Rising home prices may mean it’s time for you to take some chips off the table. Depending on trends in income versus rent prices and other numbers, they may mean something else.

Either way, it’s up to you to do the math!

The cost of renting versus buying

If you’re a landlord, you know it may not make sense to buy rental properties in areas where tenants can afford to buy homes.

We found this infographic eye-opening. Although it only cites average numbers, it’s obvious that today buying a home is more affordable compared to renting than it ever has been.

What does that mean for you? It means you have to watch your numbers.

Analyze your own tenant base. Ask yourself the following questions:

  • What is the income-to-price ratio?
  • How affordable is your housing for your tenants?
  • Do you have tenants with high credit scores who will be able to get easy loans?
  • Do you have a competitive advantage over other housing options?

The overall idea is to find tenants that have income durability, but won’t skip when they can buy a house. One option is to invest in rent-to-own properties.

Finding that balance can be tricky, but if you’re paying careful attention to your numbers, it’s doable.

Rising mortgage rates and plummeting credit scores

Credit rates affect new homebuyers’ abilities to get loans and buy houses. In a recent article, we read that for every increase in mortgage rates, credit scores go down.

As real estate investors, we always want to understand the ratios of mortgage rates and interest rates.

We have no control over these rates … but they definitely affect what we do as investors.

So what do these changing numbers mean? Is there any correlation? We don’t necessarily think so.

What we do know is when lenders lower barriers to entry by decreasing the credit score required to get a loan or nudging the required debt-to-income ratio, it can be a warning sign credit markets are starting to get desperate.

When you start to see lenders giving borrowers up to 50% of their income, that’s when you know something problematic is happening.

A dimming outlook for brick-and-mortar retail stores

We’ll look at this next issue with the assumption that with the rise of mega-sized online retailers (think Amazon), retail is not the greatest place to be right now.

With this dimming retail outlook comes a push for shorter leases.

When retail tenants consider their options, they ask themselves a basic question: Do I pick a longer lease for more stability, or a shorter lease I can get out of sooner?

The trade-off of choosing a longer lease is that the landlord decides what the future 5-10 years will look like in terms of rate increases, even if those don’t match up to reality.

Retail tenants also have to consider how the location they choose will drive traffic.

If big-box stores pull out, can smaller retailers expect the same regular traffic? Uncertain about the future of these stores, more smaller retailers are pushing for shorter lease terms.

If you’re not in the retail business, you may be wondering how this affects your residential properties. Ask yourself, How many of my residents work at these stores? What will happen when local retailers shut down and my residents are out of work?

Big sea changes for retailers can also mean big changes for you. Retailers typically choose to close stores in places that are weak for core drivers. If you have a tenant demographic similar to the store’s shopper demographic, it may be insightful to look at where stores are shutting down, and why.

As an outsider, you’re not privy to why the big dogs do what they do, but you can observe what they’re doing and come to your own conclusions.

New options for homebuyers with student debt

We all know student debt is increasingly becoming a bigger issue amongst millennials.

This younger generation often forgoes buying homes due to high amounts of student debt.

An article in the Wall Street Journal reported on a new option backed by Fannie Mae that allows homebuyers with student debt to refinance and convert their student loan debt to housing debt.

This program gives younger buyers collateral … and may make them more likely to choose to buy a home.

The program could also drive home pricing in your area, depending on the makeup of the local population.

If you don’t have student debt, this program may not seem relevant … until you stop to consider the bigger picture.

That’s it for now until next week, when we talk about a major disruption in real estate markets!


More From The Real Estate Guys™…

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources to help real estate investors succeed.