Tips for Choosing the Best Commercial Mortgage Broker

When you decided to work with a commercial mortgage broker, you definitely made a smart choice.

However, it is more important for you to realize that if you get the right broker to work with, it can save you thousands of dollars but working with the wrong one can cost you just the same.

The basic things that a broker should assist you with include preparation of loan package, selection of lender, loan package submission to multiple lenders, loan package evaluation and preparation for closing.

Get Recommendations from Trusted Individuals

To begin your search for a commercial mortgage broker, you can first ask around for recommendations from your established connections of business associates.

Get in touch with the smartest and most successful commercial investor that you know and get contacts from them if possible.

Given that they are smart and successful, then there is a great chance that they did work with a reliable commercial mortgage broker.

Look for Someone with Commercial Mortgage Expertise

You must of course select someone that has demonstrated experience and education in the industry of commercial mortgages and does not focus on residential mortgages because those are two very different things.

Find out if the broker has the experience and the contacts that will give you better chances in closing your loan in a timely manner.

Remember, there is a wide range of commercial property types out there and you need to be working with someone who was already able to close a deal that is particular to what you require.

Look for someone who specializes in the type of investment property that you prefer. An example of which is if you want an apartment complex, then you must find a broker who specializes in apartment complexes.

Know that you are paying for expertise so you have to make sure that you are working with an expert.

Start Your Search Ahead of Time

A good idea would be to select a broker even before you need one. In doing so, you are giving your broker ample time to conduct additional research for your property type and loan options before you are ready to pursue the application.

Commercial mortgage closing sometimes need to happen fast and you do not want to be caught in a situation where there is no one to look after your best interests.

Familiarize Yourself with the Commercial Mortgage Process

Having said this, you have to make sure that the broker you are working with is really looking after your best interests and not about the interest of the lender or themselves. Keep your eyes open during the whole process and be sure to ask questions if things are not clear to you.

Clarify your concerns such as the points they charge, fees, how many lender contacts they maintain, among other things, so you will have an idea more or less as to how the broker works.

Do not be in the dark about the whole process and educate yourself. Learn about the commercial industry and the basics of the loan process yourself. Find time to talk to a few brokers about the options they may offer you for your specific property type.

Benefits of a Commercial Mortgage Broker

Hiring a commercial mortgage broker can prove very beneficial, especially if you do not have experience or knowledge about this type of mortgage, the fees involved and terms, among others.

People tend to think that when it comes to real estate or property matters, they should do it themselves only because they feel like it is the right thing to do – after all, it is their own property and there really is no need to involve a third party.

What they do not know is that dealing with real estate issues, especially mortgages, involves tons of effort and a lot of time that it becomes too overwhelming to handle for someone who has absolutely no experience in real estate properties as well as mortgages.

In such situations, getting a broker would be a lot of help.

Here are some of the benefits of working with a commercial mortgage broker:

Because brokers are experienced and they have already established their contacts in the financial industry, they will surely be able to give you expert advice when it comes to your property.

Aside from the advice, brokers can also help you find loans which may fulfill your needs in a personalized manner.

Commercial mortgage brokers can definitely offer you help in getting a loan even if you have a history of late payments causing you to have bad credit rating.

Moreover, since they have a pool of contacts, they have gained access to more specialized information which can be helpful in finding you a loan that has low interest rates and fees.

Looking for a lender that can meet your needs is very time consuming but a good broker can even help you compare the loans offered by lenders so you can choose which one will be more appropriate for you.

When taking out a loan, you would have to prepare various documents, information and forms that are necessary for the application.

This process can be very confusing especially for someone who does not really know where to start and how to go about the whole thing.

Since a broker is already an expert in gathering information and summing up the paperwork, it will surely save you a lot of time and headaches making you capable to focus more on other important work.

When applying for a loan, there are times wherein you will come across legal terms that cannot be avoided for such transactions.

Mortgage brokers will prove to be handy in this matter because they can easily explain to you the legal terms that are way beyond the comprehension of most amateurs.

Given that intermediaries such as agents and brokers do not get paid unless a loan is closed, brokers make sure that they follow the different lending policies of banks and other financial institutions.

They already know which lenders are really funding loans and which ones do not, therefore, they will not waste any of their time or yours applying for a deal with someone who they know won’t close it in the end.

This increases your chances of getting your loan application approved. Brokers will use all their contacts and exhaust all means just so they can close your loan.

 

Bank Balance Sheet Loans

Traditional introductory economic textbooks generally treat banks as financial intermediaries, the role of which is to connect borrowers with savers, facilitating their interactions by acting as credible middlemen.

Individuals who earn an income above their immediate consumption needs can deposit their unused income in a reputable bank, thus creating a reservoir of funds from which the bank can draw from in order to loan out to those whose incomes fall below their immediate consumption needs.

While this story assumes that banks need your money in order to make loans, it is actually somewhat misleading. Read on to see how banks really use your deposits to make loans and to what extent they need your money to do so.

Banks are thought of as financial intermediaries that connect savers and borrowers.

However, banks actually rely on a fractional reserve banking system whereby banks can lend in excess of the amount of actual deposits on hand.

This leads to a money multiplier effect. If, for example, the amount of reserves held by a bank is 10%, then loans can multiply money by up to 10x.

According to the above portrayal, the lending capacity of a bank is limited by the magnitude of their customers’ deposits. In order to lend out more, a bank must secure new deposits by attracting more customers. Without deposits, there would be no loans, or in other words, deposits create loans.

Of course, this story of bank lending is usually supplemented by the money multiplier theory that is consistent with what is known as fractional reserve banking.

In a fractional reserve system, only a fraction of a bank’s deposits needs to be held in cash or in a commercial bank’s deposit account at the central bank.

The magnitude of this fraction is specified by the reserve requirement, the reciprocal of which indicates the multiple of reserves that banks are able to lend out. If the reserve requirement is 10% (i.e., 0.1) then the multiplier is 10, meaning banks are able to lend out 10 times more than their reserves.

The capacity of bank lending is not entirely restricted by banks’ ability to attract new deposits, but by the central bank’s monetary policy decisions about whether or not to increase reserves.

However, given a particular monetary policy regime and barring any increase in reserves, the only way commercial banks can increase their lending capacity is to secure new deposits. Again, deposits create loans, and, consequently, banks need your money in order to make new loans.

This is the current money multiple in the United States banking system, as the Federal Reserve currently mandates a 10% reserve requirement.

In today’s modern economy most money takes the form of deposits, but rather than being created by a group of savers entrusting the bank withholding their money, deposits are actually created when banks extend credit (i.e., create new loans).

When a bank makes a loan, there are two corresponding entries that are made on its balance sheet, one on the assets side and one on the liabilities side. The loan counts as an asset to the bank and it is simultaneously offset by a newly created deposit, which is a liability of the bank to the depositor holder.

Contrary to the story described above, loans actually create deposits.

Now, this may seem a bit shocking since, if loans create deposits, private banks are creators of money. But you might be asking, “Isn’t the creation of money the central banks’ sole right and responsibility?”

Well, if you believe that the reserve requirement is a binding constraint on banks’ ability to lend then yes, in a certain way banks cannot create money without the central bank either relaxing the reserve requirement or increasing the number of reserves in the banking system.

The truth, however, is that the reserve requirement does not act as a binding constraint on banks’ ability to lend and consequently their ability to create money.

The reality is that banks first extend loans and then look for the required reserves later. Perhaps a few statements from some notable sources will help to convince you of that fact.

Fractional reserve banking is effective, but can also fail. During a “bank run,” depositors all at once demand their money, which exceeds the amount of reserves on hand, leading to a potential bank failure.

So, if bank lending is not restricted by the reserve requirement then do banks face any constraint at all? There two sorts of answers to this question, but they are related.

The first answer is that banks are limited by profitability considerations; that is, given a certain demand for loans, banks base their lending decisions on their perception of the risk-return trade-offs, not reserve requirements.

The mention of risk brings us to the second, albeit related, answer to our question. In a context whereby deposit accounts are insured by the federal government, banks may find it tempting to take undue risks in their lending operations.

Since the government insures deposit accounts, it is in the government’s best interest to put a damper on excessive risk-taking by banks. For this reason, regulatory capital requirements have been implemented to ensure that banks maintain a certain ratio of capital to existing assets.

If bank lending is constrained by anything at all, it is capital requirements, not reserve requirements. However, since capital requirements are specified as a ratio whose denominator consists of risk-weighted assets (RWAs), they are dependent on how risk is measured, which in turn is dependent on the subjective human judgment.

Subjective judgment combined with ever-increasing profit-hungriness may lead some banks to underestimate the riskiness of their assets. Thus, even with regulatory capital requirements, there remains a significant amount of flexibility in the constraint imposed on banks’ ability to lend.

Expectations of profitability, then, remain one of the leading constraints on banks’ ability, or better, willingness, to lend. And it is for this reason that although banks don’t need your money, they do want your money.

As noted above, banks lend first and look for reserves later, but they do look for the reserves.

What Is Equity Financing?

Equity financing is the process of raising capital through the sale of shares. Companies raise money because they might have a short-term need to pay bills or they might have a long-term goal and require funds to invest in their growth.

By selling shares, they sell ownership in their company in return for cash. Equity financing comes from many sources; for example, an entrepreneur’s friends and family, investors, or an initial public offering (IPO). Industry giants such as Google and Facebook raised billions in capital through IPOs.

While the term equity financing refers to the financing of public companies listed on an exchange, the term also applies to private company financing.

Equity financing is distinct from debt financing, which occurs when a business borrows funds.

Types of Equity Financing

Equity financing involves the sale of common equity but also the sale of other equity or quasi-equity instruments such as preferred stock, convertible preferred stock, and equity units that include common shares and warrants.

A startup that grows into a successful company will have several rounds of equity financing as it evolves. Since a startup typically attracts different types of investors at various stages of its evolution, it may use different equity instruments for its financing needs.

Later, if the company needs additional capital, it may choose secondary equity financing such as a rights offering or an offering of equity units that includes warrants as a sweetener.

How Equity Financing Is Regulated

The equity-financing process is governed by rules imposed by a local or national securities authority in most jurisdictions.

Such regulation is primarily designed to protect the investing public from unscrupulous operators who may raise funds from unsuspecting investors and disappear with the financing proceeds.

Equity financing is thus often accompanied by an offering memorandum or prospectus, which contains extensive information that should help the investor make an informed decision on the merits of the financing.

The memorandum or prospectus will state the company’s activities, information on its officers and directors, how the financing proceeds will be used, the risk factors, and financial statements.

Key Takeaways

Companies seek equity financing because they might have a short-term need for funds or they might need to finance a long-term growth strategy.

Companies raise capital through equity financing by selling common equity, preferred stock, convertible preferred stock, and equity units that include common shares and warrants.

• A startup that grows into a successful company will have several rounds of equity financing as it evolves.
• An IPO occurs when a private company decides to issue stock to the public.
• Equity financing is heavily regulated by national and local government.

Investor appetite for equity financing depends significantly on the state of the financial markets in general and equity markets in particular.

While a steady pace of equity financing is a sign of investor confidence, a torrent of financing may indicate excessive optimism and a looming market top.

Cash Flow vs. Asset-Based Business Lending: What’s the Difference?

Cash Flow vs. Asset-Based Business Lending

Whether a company is a startup or a 200-year-old conglomerate like E. I. du Pont de Nemours and Company (DD), it relies on borrowed capital to operate the way that an automobile runs on gasoline.

Business entities have many more options than individuals when it comes to borrowing which can make business borrowing somewhat more complex than the standard personal borrowing choices. Companies may choose to borrow money from a bank or other institution to fund its operations, acquire another company, or engage in a major purchase.

To do these things it can look to a multitude of options and lenders. In a broad generalization, business loans, like personal loans, can be structured as either unsecured or secured. Financial institutions can offer a wide range of lending provisions within these two broad categories to accommodate each individual borrower. Unsecured loans are not backed by collateral while secured loans are.

Within the secured loan category, businesses may identify cash flow or asset-based loans as a potential option. Here we will look at the definitions and differences of the two along with some scenarios on when one is more preferred to the other.

Both cash flow based and asset-based loans are usually secured with the pledge of cash flow or asset collateral to the lending bank.

Cash Flow Lending

Cash flow-based lending allows companies to borrow money based on the projected future cash flows of a company. In cash flow lending, a financial institution grants a loan that is backed by the recipient’s past and future cash flows.

By definition, this means a company borrows money from expected revenues they anticipate they will receive in the future. Credit ratings are also used in this form of lending as an important criterion.

For example, a company that is attempting to meet its payroll obligations might use cash flow finance to pay its employees now and pay back the loan and any interest on the profits and revenues generated by the employees on a future date.

These loans do not require any type of physical collateral like property or assets but some or all of the cash flows used in the underwriting process are usually secured.

To underwrite cash flow loans, lenders examine expected future company incomes, its credit rating, and its enterprise value.

The advantage of this method is that a company can possibly obtain financing much faster, as an appraisal of collateral is not required. Institutions usually underwrite cash flow-based loans using EBITDA (a company’s earnings before interest, taxes, depreciation, and amortization) along with a credit multiplier.

This financing method enables lenders to account for any risk brought on by sector and economic cycles. During an economic downturn, many companies will see a decline in their EBITDA, while the risk multiplier used by the bank will also decline.

The combination of these two declining numbers can reduce the available credit capacity for an organization or increase interest rates if provisions are included to be dependent on these criteria.

Cash flow loans are better suited to companies that maintain high margins on their balance sheets or lack enough in hard assets to offer as collateral.

Companies that meet these qualities include service companies, marketing firms, and manufacturers of low-margin products. Interest rates for these loans are typically higher than the alternative due to the lack of physical collateral that can be obtained by the lender in the event of default.

Asset-Based Lending

Asset-based lending allows companies to borrow money based on the liquidation value of assets on its balance sheet.

A recipient receives this form of financing by offering inventory, accounts receivable, and/or other balance sheet assets as collateral. While cash flows (particularly those tied to any physical assets) are considered when providing this loan, they are secondary as a determining factor.

Common assets that are provided as collateral for an asset-based loan include physical assets like real estate, land, properties, company inventory, equipment, machinery, vehicles, or physical commodities.

Receivables can also be included as a type of asset-based lending. Overall, if a borrower fails to repay the loan or defaults, the lending bank has a lien on the collateral and can receive approval to levy and sell the assets in order to recoup defaulted loan values.

Asset-based lending is better suited for organizations that have large balance sheets and lower EBITDA margins. This can also be good for companies that require capital to operate and grow, particularly in industries that might not provide significant cash flow potential.

An asset-based loan can provide a company the needed capital to address its lack of rapid growth.

Like all secured loans, loan to value is a consideration in asset-based lending. A company’s credit quality and credit rating will help to influence the loan to value ratio they can receive.

Typically, high credit quality companies can borrow anywhere from 75% to 90% of the face value of their collateral assets. Firms with weaker credit quality might only be able to obtain 50% to 75% of this face value.

Asset-based loans often maintain a very strict set of rules regarding the collateral status of the physical assets being used to obtain a loan. Above all else, the company usually cannot offer these assets as a form of collateral to other lenders. In some cases, second loans on collateral can be illegal.

Prior to authorizing an asset-based loan, lenders can require a relatively lengthy due diligence process. This process can include the inspection of accounting, tax, and legal issues along with the analysis of financial statements and asset appraisals.

Overall, the underwriting of the loan will influence its approval as well as the interest rates charged and allowable principal offered.

Receivables lending is one example of an asset-based loan that many companies may utilize. In receivables lending, a company borrows funds against their accounts receivables to fill a gap between revenue booking and receipt of funds.

Receivables-based lending is generally a type of asset-based loan since the receivables are usually pledged as collateral.

KEY TAKEAWAYS

Both cash flow-based and asset-based loans are usually secured.

Cash flow-based loans consider a company’s cash flows in the underwriting of the loan terms while asset-based loans consider balance sheet assets.

Cash flow-based and asset-based loans can be good options for businesses seeking to efficiently manage credit costs since they are both typically secured loans which usually come with better credit terms.

Business Loan Options and Underwriting

Businesses have a much wider range of options for borrowing than individuals. In the growing business of online financing, new types of loans and loan options are also being created to help provide new capital access products for all kinds of businesses.

In general, underwriting for any type of loan will be heavily dependent on the borrower’s credit score and credit quality.

While a borrower’s credit score is typically a primary factor in lending approval, each lender in the market has its own set of underwriting criteria for determining the credit quality of borrowers.

Comprehensively, unsecured loans of any type can be harder to obtain and will usually come with higher relative interest rates due to the risks of default. Secured loans backed by any type of collateral can reduce the risks of default for the underwriter and therefore potentially lead to better loan terms for the borrower.

Cash flow-based and asset-based loans are two potential types of secured loans a business can consider when seeking to identify the best available loan terms for reducing credit costs.

A Real Estate Investing Guide

When you think about buying real estate, the first thing that probably comes to mind is your home. But physical property can play a part in a portfolio too, especially as a hedge against the stock market.

However, while real estate has become a popular investment vehicle over the last 50 years, buying and owning brick and mortar is a lot more complicated than investing in equities and bonds. In this article, we’ll examine the leading options for individual investors, listed in approximate order of how direct a real estate investment they are, and reasons to invest.

Basic Rental Properties

This is an investment as old as the practice of land ownership. A person will buy a property and rent it out to a tenant. The owner, the landlord, is responsible for paying the mortgage, taxes, and maintenance of the property.

Ideally, the landlord charges enough rent to cover all of the aforementioned costs. A landlord may also charge more in order to produce a monthly profit, but the most common strategy is to be patient and only charge enough rent to cover expenses until the mortgage has been paid, at which time the majority of the rent becomes profit.

Furthermore, the property may also have appreciated in value over the course of the mortgage, leaving the landlord with a more valuable asset. According to the U.S. Census Bureau, real estate in this country has consistently increased in value from 1940 to 2006.

While there was a dip during the subprime mortgage meltdown of 2008 to 2010, it has now rebounded and has been increasing overall.

An investor must know the market in which he is searching for property or hire an expert to help. For investors seeking an income stream from rental properties, the most important aspects to consider are property location and market rental rates.

As for location, many successful rentals are located in close proximity to major schools. For example, if you buy a property near a state university, students are likely to want to rent it year after year.

There are also many other features of a profitable rental property, and some take time to learn.

There are, of course, blemishes on the face of what seems like an ideal investment. You can end up with a bad tenant who damages the property or, worse still, ends up having no tenant at all. This leaves you with negative monthly cash flow, meaning that you might have to scramble to cover your mortgage payments.

There is also the matter of finding the right property. You will want to pick an area where vacancy rates are low and choose a place that people will want to rent.

Once you’ve found an ideal property in an area where people want to rent, use a mortgage calculator to determine the total cost of the property with interest. It’s also worth researching different mortgage types in order to secure a favorable interest rate for your rental.

Perhaps the biggest difference between a rental property and other investments is the amount of time and work you have to devote to caring for it.

If you don’t want to, you can hire a professional property manager. But his or her salary then becomes an expense that impact’s your investment’s profitability.

The Flip Side: Real Estate Trading

This is the wild side of real estate investment. Like the day traders who are leagues away from a buy-and-hold investor, the real estate traders are an entirely different breed from the buy-and-rent landlords.

Real estate traders buy properties with the intention of holding them for a short period, often no more than three to four months, whereupon they hope to sell them for a profit. This technique is also called flipping and is based on buying properties that are either significantly undervalued or are in a very hot area.

Pure property flippers will not put any money into a property for improvements; the investment has to have the intrinsic value to turn a profit without alteration, or they won’t consider it.

Flipping in this manner is a short-term cash investment.

If a property flipper gets caught in a situation where he or she can’t unload a property, it can be devastating because these investors generally don’t keep enough ready cash to pay the mortgage on a property for the long term. This can lead to continued losses for a real estate trader who is unable to offload the property in a bad market.

The second class of property flipper also exists. These investors make their money by buying cheap or reasonably priced properties and adding value by renovating them. They then sell the property after renovations for a higher price.

This can be a longer-term investment, depending on the extent of the improvements. The limiting feature of this investment is that it is time-intensive and often only allows investors to take on one property at a time.

Real Estate Investment Groups

Real estate investment groups are sort of like small mutual funds for rental properties. If you want to own a rental property, but don’t want the hassle of being a landlord, a real estate investment group may be the solution for you.

A company will buy or build a set of buildings, often apartments, and then allow investors to buy them through the company, thus joining the group.

A single investor can own one or multiple units of self-contained living space, but the company operating the investment group collectively manages all the units, taking care of maintenance, advertising vacant units and interviewing tenants. In exchange for this management, the company takes a percentage of the monthly rent.

There are several versions of investment groups, but in the standard version, the lease is in the investor’s name, and all of the units pool a portion of the rent to guard against occasional vacancies, meaning that you will receive enough to pay the mortgage even if your unit is empty.

The quality of an investment group depends entirely on the company offering it. In theory, it is a safe way to get into real estate investment, but groups are vulnerable to the same fees that haunt the mutual fund industry. Once again, research is the key.

Real Estate Limited Partnerships

A real estate limited partnership (RELP) is similar to a real estate investment group: It is an entity formed to purchase and hold a portfolio of properties, or sometimes just one property – only it is in existence for a finite number of years.

An experienced property manager or real estate development firm serves as the general partner. Outside investors are then sought to provide financing for the real estate project, in exchange for a share of ownership as limited partners.

They may receive periodic distributions from income generated by the RELP’s properties, but the real payoff comes when the properties are sold – hopefully, at a sizeable profit – and the RELP dissolves down the road.

REITs

Real estate has been around since our cave-dwelling ancestors started chasing strangers out of their space, so it’s not surprising that Wall Street has found a way to securitize it, turning real estate into a publicly-traded instrument.

A real estate investment trust (REIT) is created when a corporation (or trust) is formed to use investors’ money to purchase, operate and sell income-producing properties. REITs are bought and sold on the major exchanges, just like any other stock.

To keep its status as a REIT, this entity must pay out 90% of its taxable profits in the form of dividends. By doing this, REITs avoid paying corporate income tax, whereas a regular company would be taxed on its profits, thus eating into the returns it could distribute to its shareholders.

Much like regular dividend-paying stocks, REITs are appropriate for stock market investors who want regular income, though they offer the opportunity for appreciation too. REITs allow investors into non-residential properties such as malls (about a quarter of all REITs specialize in these), health-care facilities, mortgages or office buildings. In comparison to the aforementioned types of real estate investment, REITs also are highly liquid.

Real Estate Mutual Funds

Real estate mutual funds invest primarily in REITs and real estate operating companies. They provide the ability to gain diversified exposure to real estate with a relatively small amount of capital. Depending on their strategy and diversification goals, they provide investors with much broader asset selection than can be achieved in buying individual REIT stocks, along with the possibility of fewer transaction costs and commissions.

Like REITs, these funds are pretty liquid. Another significant advantage to retail investors is the analytical and research information provided by the fund on acquired assets and management’s perspective on the viability and performance of specific real estate investments and as an asset class.

More speculative investors can invest in a family of real estate mutual funds, tactically over weighting certain property types or regions to maximize return.

Why Invest in Real Estate?

Real estate can enhance the risk and return profile of an investor’s portfolio, offering competitive risk-adjusted returns. Even factoring in the subprime mortgage crisis, private market commercial real estate returned an average of 8.4% over the 10-year period from 2000 to 2010, based on data from the National Council of Real Estate Investment Fiduciaries (NCREIF). And usually, the real estate market is one of low volatility especially compared to equities and bonds.

Real estate is also attractive when compared with more traditional sources of income return.

This asset class typically trades at a yield premium to U.S. Treasuries and is especially attractive in an environment where Treasury rates are low.

Diversification and Protection

Another benefit of investing in real estate is its diversification potential. Real estate has a low, and in some cases, negative, correlation with other major asset classes – meaning, when stocks are down, real estate is often up. In fact, in 14 of the 15 previous bear markets, going back to 1956, residential real estate prices rose, according to data from Yale University’s Robert Shiller, the co-creator of the Case-Shiller Home-Price Index. Of course, there are exceptions: real estate tanked along with equities during the Great Recession (though this was an anomaly, Schiller argues, reflecting the role of subprime mortgages in kicking off the crisis).

This means the addition of real estate to a portfolio can lower its volatility and provide a higher return per unit of risk. The more direct the real estate investment, the better the hedge: More indirect, publicly traded, vehicles, like REITs, are obviously going to reflect the overall stock market’s performance (and some analysts think the two will become ever more correlated, now that REIT stocks are represented on the S&P 500). Interestingly, though, this also has been changing of late. The correlation between listed REITs and the broad stock market hit a 12-year low in 2015, according to research by the National Association of Real Estate Investment Trusts (NAREIT), “suggesting that whatever factors happen to drive the non-REIT part of the market will not necessarily spill over to affect the REIT market,” an article on Reit.com, the association’s website, concluded.

Because it is backed by brick and mortar, real estate also carries less principal-agent conflict or the extent to which the interest of the investor is dependent on the integrity and competence of managers and debtors. Even the more indirect forms of investment carry some protection: REITs for example, mandate a minimum percentage of profits be paid out as dividends.

Inflation Hedging

The inflation-hedging capability of real estate stems from the positive relationship between GDP growth and demand for real estate. As economies expand, the demand for real estate drives rents higher and this, in turn, translates into higher capital values. Therefore, real estate tends to maintain the purchasing power of capital, bypassing some of the inflationary pressure on to tenants and by incorporating some of the inflationary pressure, in the form of capital appreciation.

The Power of Leverage

With the exception of REITs, investing in real estate gives an investor one tool that is not available to stock market investors: leverage. If you want to buy a stock, you have to pay the full value of the stock at the time you place the buy order – unless you are buying on margin. And even then, the percentage you can borrow is still much less than with real estate, thanks to that magical financing method, the mortgage.

Most conventional mortgages require a 20% down payment. However, depending on where you live, you might find a mortgage that requires as little as 5%. This means that you can control the whole property and the equity it holds by only paying a fraction of the total value. Of course, the size of your mortgage affects the amount of ownership you actually have in the property, but you control it the minute the papers are signed.

This is what emboldens real estate flippers and landlords alike. They can take out a second mortgage on their homes and put down payments on two or three other properties. Whether they rent these out so that tenants pay the mortgage or they wait for an opportunity to sell for a profit, they control these assets, despite having only paid for a small part of the total value.

The Drawback of Real Estate Investing: Illiquidity

The main drawback of investing in real estate is illiquidity or the relative difficulty in converting an asset into cash and cash into an asset. Unlike a stock or bond transaction, which can be completed in seconds, a real estate transaction can take months to close. Even with the help of a broker, simply finding the right counterparty can be a few weeks of work. REITs and real estate mutual funds offer better liquidity and market pricing, but come at the price of higher volatility and lower diversification benefits, since they have a much higher correlation to the overall stock market than direct real estate investments.

What You Need to Know About Emergency Plumbing Services

The plumbing system in your house is significant however relatively few individuals understand this until an issue has sprung up.

Preventing it is in every case superior to searching for an answer where there is as already an issue in the home plumbing systems which is the reason it is ideal to put in estimates that keeps your system fit as a fiddle.

By being cautious with what goes down your drain channels and routinely checking plumbing equipment and guaranteeing everything is in the right working order, you can avoid so many issues that the homeowner suffers from.

But, when the plumbing problem is already visible, there are emergency plumbing services to deal with the situation and get things back to normal. Contingent upon the issue you are confronting, you could have routine plumbing service done or you may think that it is important to get emergency services.

The two are somewhat different and there are facts that you need to know about emergency plumbing services.

They are essential for things you cannot deal with

The important fact is that there are plumbing issues that are minor and you can without much effort to deal with or monitor until you get an expert to help it out. Prior to call the emergency plumber, make sure that it is genuinely an emergency of an issue that is beyond you.

The emergency service covers various issues

Knowing when to call the plumbing services very crucial. Some of the problems that truly require the assistance of an emergency plumber include gas spills, pipes burst, running toilets or sewage issues.

This service is for issues that truly cannot hold up for a longer period because of the possible damage delay in rectifying the situation that may prompt.

In the event that your problem is presenting harm to your property and valuable or is posing a health risk, at that point it goes for an emergency.

Additionally, sometimes warranties act an important part here. If you claim for the Home warranty plan, it covers the plumbing issues too.

They are offered whenever quickly

The emergency services are often called emergency because of the fact that the plumbers are adaptable enough to deal with them when as soon as it occurs.

So, whether it is on an end of the week or an occasion or the wee hours of the night, the emergency plumbers will come to help you.

This is why it is important to ensure that you call in just when it is a genuine and important issue that essentially cannot wait.

They will, in general, be increasingly costly than general services

Plumbers essentially drop everything else to take care of emergency calls and will come to where you are at any given time and day.

For this, the emergency plumbers will cost you more than the standard general administrations that can hold up somewhat longer to be dealt with.

This is one more reason regarding why you ought to guarantee that your pipes issues are extremely an emergency before proceeding to call in the experts.

Benefits of hiring an emergency plumbing service

• A plumber will find a permanent solution
• When any plumbing emergency happens, people always get panic. But, instead, hiring professional plumber will assess the situation and get a permanent solution out of it.
• Hiring an emergency plumber will save you money
• It is a onetime investment. It can be expensive for the first time but it is reliable and can save you for the long haul.
• An emergency plumber has professional training in handling various emergencies

As mention “professional”, they are the hero in plumbing services. They are well trained and can work with proper fixing.

Getting a professional plumbing contractor can keep you safe from issues

Carrying out plumbing tasks at your home, especially in the emergency period can be risky. As a professional plumber are well trained with safety equipment, they can keep you safe from dangerous situations

The plumbers are constantly prepared to offer help and ensure your plumbing system turns back to its functionality.

Emergency administrations will spare you the stresses and efforts and in turn very valuable and quite beneficial.

It is essential to keep contacts of dependable and trustworthy plumbing contractors offering emergency and professional plumbing services so you can get instant help when the situation is terrible.

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How to Retire Early Through Real Estate Investing

Real estate investment can be a tricky business, but when it’s done right, it can be rewarding for you and your retirement account.

Whether you are thinking of investing in real estate or you already have a few properties under your belt, with the right steps, it is possible for you to build a successful early retirement fund. Of course, this sort of goal doesn’t happen overnight.

This takes a great deal of prep work, planning and careful choices. But if you are smart about your real estate selection, stay actively involved with your property and keep an eye on your finances, early retirement could be in your future.

When done well, you can build a comfortable nest egg much sooner than you think. If you are curious about real estate investment and the idea of early retirement, here are seven tips that can help you get that fat savings account.

Establish financial independence.

It can be difficult to retire early if you still have the burden of debt. The first step toward early retirement is making sure you are debt-free or have as little debt as possible.

It can be difficult to retire early if you need to make credit card payments or pay off a loan.

Take steps to manage your expenses, such as limiting high-dollar purchases and avoiding charging items or taking out loans for projects or items you may not need. It’s hard to retire if your distributions are going to someone else.

By paying off your debt, you can ensure that all money coming in will go to your living expenses.

With lower debt, you can also take steps to buy more rental properties. Stay in control with these purchases.

Careful debt management can help you retire early.

Mind your income.

Retiring early requires monitoring your income. Having a successful portfolio isn’t enough to warrant pulling out of the job market early.

There are additional steps you need to take. Once you’ve cleared out your debt, it’s time to look at your current income and expenses.

How much money do you need to generate to cover your expenses? How much should you set aside for emergencies? Know how much you need to live comfortably before you rely on your real estate information.

Know your rental property numbers.

Another step toward early retirement is planning your investment. If you already own rental properties, how many do you have? Keep track of how much each property generates and set a goal for the amount you need to achieve.

Factor in the money required to keep your properties in favorable condition and to care for any upgrades. Be prepared for emergency repairs, as well.

You never know when an issue could happen with your property.

Find the right number.

After paying off any debt, getting a grasp of your income and checking out your assets, it’s time to think up your game plan. How many properties do you need to maintain your expenses?

Consider everything you need to care for your personal life:

• Health.
• Daily care.
• Bills.
• Livelihood.
• Spouse and family.

To retire early, you must be able to master your current finances and be prepared for anything that might come up.

The last thing you want is to be blindsided by an expense you can’t afford. Of course, you can always have assets ready to sell in case of an emergency.

In addition to your personal costs, consider what needs to be cared for through your investments:

• Upkeep.
• Repairs.
• Upgrades.
• Taxes.

With these numbers in mind, what is the right number to keep all those expenses in balance?

Decide on a number that is achievable and comfortable for your retirement.

Reinvest in your properties.

If your plan is to retire using real estate investment, keeping your properties pristine is imperative for your livelihood. If you aren’t maintaining your properties, your investment pool will not last.

To retire early, you must put money into your investment to make money long-term. The key is to build up net worth on your properties. You can’t retire on rentals that aren’t able to bring in money.

Choose your real estate wisely.

In addition to investing in your property, it’s important to choose your real estate wisely. You will not retire early by flipping houses.

The risk of purchasing, fixing and selling will likely not bring in consistent long-term wealth. Select property somewhere people are moving to, not away from.

Choose an area with decent schools, a good neighborhood and good property value. Also, make sure it’s in a spot that you can sell easily if need be.

Vet your tenants.

The final step toward early retirement is selecting reliable tenants and setting up your rent requirements.

When choosing how much rent to charge, it’s important to make it fair; otherwise, you may miss out on decent tenants.

Tenants can make or break your investment. Don’t pick just anyone to rent your home. As the landlord, you really need to vet your tenants and pick the best one.

If your tenant is costing you money by not paying rent, take steps to remove them (keeping in mind any legal notification requirements). Real estate depends on long-term, steady income.

Building a foundation takes patience.

Real estate investment is not for everyone. It takes time and patience, and it can be costly. However, if you are willing to put in the effort, it is possible to build a successful retirement fund and even retire early.

Maximizing Apartment Building Investments

Real estate investors, especially those that invest in residential apartment buildings or entire complexes, have a wide range of products and services at their disposal to help ensure they keep their units filled and properly maintained.

As we all know, each time an apartment turns-over it costs money in order to prepare the apartment for the next resident. It must be cleaned, often updates may be necessary, such as replacing counter tops, appliances, carpeting and tiles.

The better resident you can place and the longer they stay the more money you save. One of the main ways to maintain residents is to provide a wide range of amenities and keep the property well maintained. Not just the interior, but the exterior and the surrounding grounds like fountains, playgrounds, pools, gym-facilities and dog areas.

There are several products and services that can help building management find the right residents. Other than screening and conducting the proper credit procedures, having a company in place to take care of the maintenance is another key area of importance.

Hiring the right property management firm can be instrumental in helping apartment building owners keep their properties attractive to the right kind of renters and maintain the property inside and out in order to maintain the integrity of the asset.

Many property management companies offer a wide range of products and services that will keep a property well-maintained. They can create a schedule of services to make sure that all units get seasonal maintenance several times a year.