If the assumptions change, and financing is included, cash flow would look like this: Similar cash flow considerations must be made for any investment, with the brokerage reviewing trends in the various industries and investment opportunities for the region. For example, new construction may be a good ten-year investment in some areas, while reconstruction and renovation might be better considerations in another. Besides cash flow, concerns for urban property investment include:
Real Estate Industry Background Real estate is a cyclical industry, reacting to macroeconomic trends such as interest rates, population growth, and economic strength.
Real estate soared in the post-World War II economic boom of the s, sank in the inflation-riddled s, rose again in the early s until the depression at the end of that decade, and was prosperous again by the end of the century. Low interest rates in the mids allowed residential real estate to boom even when the economy was slow - until the mortgage crisis hit, and prices collapsed.
The real estate industry consists of three primary fields: Real Estate Brokerage Real estate brokers bring together buyers and sellers of property, assist in price negotiations, and facilitate the work involved in deals from initial interest expressed through money being exchanged at closing.
Examples of services provided include property appraisals and inspections.
Generally, the seller of a piece of property pays a commission based on a percentage of the sale price usually 5 or 6 percent. Since commission is based on property value, brokers make more money for higher-priced deals.
Factors controlling the value of a location include public transportation access, the quality of the roads and schools, income levels and the strength and stability of the local economy.
Real estate brokers must be licensed in the state in which they work, and while it is estimated that there are over 1 million licensed brokers, most are either inactive or consider brokerage activity as a secondary line of work. Leasing Agents and Management Companies Leasing agents work with property owners to handle the complexity involved with finding, vetting and signing tenants for their properties - and handling all the paperwork!
Management companies operate buildings and other properties, making sure they are running properly, paying utilities, hiring staff and performing maintenance.
Many management companies will also act as leasing agents for the property. Since most property expenses are fixed, maintaining low vacancy rates is critical to management companies profitability.
State of the Real Estate Industry in The real estate industry is divided into residential and commercial real estate services, although some brokerages and management companies engage in both.
Both the residential commercial segments are quite fragmented. In each, the fifty largest companies make up about thirty percent of the industry's total revenue. In the real estate industry these include but of course are not limited to!
Macroeconomic factors beyond the control of the business owner, such as downturns in the local or national economy Changing demand - a location once coveted can change quickly and properties can become less desirable. Of course, the reverse is also true - skilled selection of properties can reap profits in up and coming areas.
Changing priorities or requirements for building management companies, particularly for aging properties. For instance, indoor air quality liability can be a serious legal issue, as can required removal of mold growth. Real Estate Industry Opportunity More than ninety percent of people use the internet before purchasing real estate, and brokers have embraced online marketing with pictures of properties and virtual tours in order to prime their potential customers.
Better educated purchasers, while potentially more discerning, can also speed up the sales cycle by knowing what they want and need. There is an expertise and skill to correctly marketing and showing a property - and it takes a lot of time.
Property owners, particularly homeowners, can not dedicate the time to sell a home on their own, even with online tools smoothing out the process. There are a number of hot real estate markets throughout the US, including St. Looking for more franchises? Take our franchise quiz here.
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6 PwC Real Estate Building the future Six predictions for and beyond – in brief: The changing real estate landscape will have substantial implications for the real estate investment community, which we highlight below and describe in more detail in Part three: Implications for real estate strategies.
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Previous studies in the real estate market have identified three investment categories (rather than styles): sectors, administrative regions and economic regions.
However, the low explanatory power reveals the need to extend this analysis to other investment styles.