newyorkThere is a difference between selling real estate to investors and selling to would-be homeowners. Real estate is usually not presented as an investment product, instead there are long listings of features interesting for the homebuyer. Real estate agencies and online listings focus on physical and legal features, and scarcely mention the current market and potential income.

However, a completely different set of criteria are relevant to investors who are considering real estate as a business. They are looking for the long-term capital appreciation of the asset, general inflation in the area, potential to increase the value by adding to the building or renovating it, and of course cash flow, that is rental yield.

It may not even occur to an Owner how their property can be used as a revenue-generating asset, depending on where it is located, what function the new owner may give to it, and how the interior space is creatively utilized.

Experts are the key

As soon as motivated Experts are involved, the unsellable space is transformed into a concept, an attractive business idea which sells itself. The creative touch of designers and architects, coupled with the market knowledge of researchers and industry experts lays the foundation for a new product in the same physical space. An investment product instead of a piece of property for sale. An investment product is traded on a different market. There are investors who are looking for a McDonald’s franchise, for example, and not merely some commercial property near a gas station. Even if it is not yet built.

A real estate market expert and an economist will quickly make calculations regarding how much investment can go into the property to justify a higher return. Another group of Experts does the manual work, and after the interior design team, stone mason, plaster board specialist, carpenter, electrician, plumber, HVAC expert, landscaping professional, gardener, and project manager have all completed their contribution to the investment product, the property is transformed. As a result unused and expensive-to-maintain warehouse space may have been converted into a prestigious office building, increasing the equity value and rental potential of the asset. A large apartment may have been split into two smaller units much easier to rent.

The goal is to create sustainable revenue streams

Experts at the DealWorkshop will consider the total value of the asset, the needed capital for the changes, and the type of real estate: residential, commercial, plot of land for development, industrial, resort, agricultural, and many other categories. The “location, location, location” of the immovable asset is the core element which all the other investment criteria are hinged on, and the fact that you cannot move it, is understood more as a potential for creativity, and not as a limitation. The time frame of the investment is considered. Then we come to one of the key investment markers, the return on investment (ROI), which is the percentage of the invested capital the investor hopes to receive in return after the investment period. If this is not known, we cannot yet speak of an investment product. Here is where annual yield is also discussed and the question investors always want to know: How is it possible to take out equity, to cash-in, to realize profits? Equally important is the capital appreciation per annum.

Subsequently, other questions are explored, like guarantees, and whether any financing (leverage, grants, subsidies, tax exemptions) is available. One of the most important inquiries by investors is whether there is a potential to expand the property, maybe build a floor on it, or increase the built-up area. How much can/needs to be invested?

The conditions for purchase, legal eligibility, and general risk factors (marketing, weather, economic crisis, crime, unstable government, socio-economic trends in the neighborhood, etc) must be openly disclosed, they will be discovered by the investor’s team anyway. The reason for selling and any available exit options must also be laid out. Only after all these have been determined do we go into the metrics of how many square meters, hectares, quality and other measurements.

The DealWorkshop creates the environment where individual properties are tested against the above investment criteria, and the Owner gets an objective picture of how much their property is worth, based on its revenue-generating potential. No property stays the same, it is either taken off the investment market, or the price changes significantly, or it goes through a complete transformation to be able to step into an entirely new market. Then it becomes a deal and the DealWorkshop has achieved its goal.

Note that investment real estate does not only compete with other investment real estate, it competes with every other investment product which promises a return on investment.