REI Wise Blog

The Long Road to a Brand

Everyone wants a brand. If I were to ask you to think of cereal, what pops into your head? (Highlight over to see mine) I think of Kellogg, Post, Honey Bunches of Oats, Frosted Flakes, and Cheerios within a second.

When you think of technology, what do you think of? (Highlight for my answer). I think of Apple and Sony. So what does this mean?

These brands have become synonymous with certain terms and integrated into our memory. We may not interact with these brands or products everyday, but they are so much a part of culture as well as our history that we remember them.

In Commercial Real Estate, the goal is to build a personal brand. You may have fantastic financial analysis services, but unless people know you, your skills won't help you. Even if you are a representative of a company: Marcus and Millichap, Keller Williams Commercial, NAI Global, and others, you want active and prospective clients to recognize and want your services. The company brand is your foot-in-the-door. You are both a representative of the company but also the company is a qualifier of your services. Your end goal is to build a personal brand based on your services.

As I’ve stated before in a previous article, you want to plan your own brand that clients will recognize. When they think of a property type, they’ll think of your services and contact you. And further down the line when you have their trust, they may want you to handle other property types.

The most important thing to understand about building a brand is that it won’t happen overnight. It will take a long period of time to network, win deals, and build your portfolio. If you’re just starting out, it will take a long time. If you’ve been around a while, then people do know your brand.

You can check out some data and knowledge about memory by looking up the forgetting curve. You’ll notice that when people are constantly exposed to something, it takes longer and longer to forget.

So with that knowledge, the most important things to remember are when branding your business:

• Have objectives and goals in a defined business plan
• Network with new people
  • Events and cold calling work
• Maintain a relationship with people you’ve met
  • Be sure to remain in contact with your clients: prospective/current via marketing
• Continue to market yourself even if you get no response
  • You want people to eventually recognize your name
• Don’t be afraid of failure
  • If you’re afraid to act, you never will succeed

Most Importantly:

• Don’t give up
  • Branding is for the long game just like Commercial Real Estate

 

Press Release: REI Wise and NAI Global Sign Multi-Year Agreement for Sales Network Listing Platform

A little quib from our Press Release. You can read the full press release here!

REI Wise Sales Network Platform to Drive Business for NAI Investment Services Group 

IRVINE, CA & PRINCETON, NJ, December 7, 2011 – REI Wise, commercial real estate's leading online provider of marketing and financial analytic services, announced that NAI Global, the premier network of independent commercial real estate firms and one of the world's largest commercial real estate service providers, has signed a multi-year agreement to license REI Wise’s Sales Network Software Platform.

Branding and Marketing Tips: Twitter

Twitter is a powerful social media tool that is not only for kids and young adults. The strength of Twitter lies in its quick and accessible updates, which can be used to brand you as the expert in your field.

Before you start tweeting about your commercial business, there are a few things you need to consider first.

• Your goal
• Your target audience
• Relevant posts – What will you say?

What is a real estate professional’s goal for Twitter?

It’s not to gain the most amount of followers (although that is good). Your goal for Twitter is to gain the most prestigious followers who will retweet you to their followers and increase your visibility. You want people to actively participant with your twitter account. You want to build yourself as a brand that’s always on people’s mind when they need the service that you render.

Prior to starting your Twitter account, research your target audience and find the top Twitter users in your field.

Follow them, read what they’re saying, respond, and retweet.

Another good way is to find keywords that are important to your business and use them when necessary. Keywords are done through hashtags (investment analysis would be #investmentanalysis). This is an approach that will increase your visibility with people that are in your field that may not be connected to you yet.

Now that you have your strategy and your brand in place, what do you tweet about when you’re not retweeting/responding? Unlike celebrities, you’re a real estate professional, and you can’t tweet about anything you want.

You will focus on news related to commercial real estate and any positive information about your area. Your understanding of the market will build trust with your followers, and that trust will turn into business. You can also post up links for your listings, marketing materials, etc. on Twitter to drive additional traffic there.

Further down the line, you can create your own keywords for discussions when you have respectable followers. If you have a deal that you’re promoting, you can create a keyword for that, and anyone who uses that keyword will join in that discussion.

Please note that unlike Facebook or other social media sites, you do not need to reciprocate the “following” in order for someone to mention/reply to you. This makes Twitter a much more open community than others with both positive and negative results.

Happy Thanksgiving

REI Wise wishes you all a happy and safe Thanksgiving. Spend time with family and friends. We will be!

If you still have questions though, feel free to contact us. We'll get back to you as soon as we can!

What and How: Debt Service Coverage Ratio

Debt Service Coverage Ratio (Debt Covrage Ratio /DSCR/DCR) is a popular benchmark for many industries including commercial real estate. In commercial real estate, the definition of DCR is the Net Operating Income (NOI) divided by the Annual Debt Service. DCR is used in financial analysis to determine the appropriate amount of financing for an investment opportunity.

Before you continue reading this article, please note that market conditions vary and you should always consult local mortgage brokers/lenders about financing conditions in your area. Please note that much of the following examples have been simplified.

The Equations

1. NOI = Scheduled Gross Income-Vacancy & Concessions – Operating Expenses
2. DCR = NOI / Annual Debt Service
3. Debt Service = Total Annual Debt Payments

Let’s take an example:

A businessman owns an income producing property that generates a Scheduled Gross Income (SGI) of $300,000 annually from his tenants. In simpler terminology, he earns $300,00 a year from his tenants. His total expenses including taxes, utilities, and maintenance on the property and utilities total $220,000. The local market has a market vacancy reserve of 10%.

NOI = $300,000 – $30,000 – $100,000 = $170,000

The Debt Service can be calculated from the amortized loan.

In a very simple example:

Say our businessman is interested in the property because his trusted broker emailed it to him. From his financial analysis, he knows that the NOI will yield $170,000 annually. The bank gives asks him to pay back the $150,000 per year. His DCR would be 1.13 repeating.

DCR = 170,000 / 150,000 = 1.13 repeating.

What does the ratio even mean?

A DCR above 1 means that the investor will receive earnings from the property. A DCR below 1 means that the investor will be paying each year to keep the property. Any investor would want the DCR to be well over 1.

Let’s look at the example again with some more realistic data. Please note that this example is more detailed but still simplified. Our businessman is interested in purchasing the retail plaza. He sees that its NOI yields $250,000. At an 8% cap rate, the building is selling for $3,125,000. He proceeds to the bank, and the bank tells him that he is approved for a 60% loan ($1,875,000) with 6% interest due in 10 years. The $1,875,000 breaks down to $187,500 each year, but with interest, his annual payment is: $249,796.08.

If he chooses to pay off the debt in the allotted time, he will gain $203.92 each year from the NOI.

The DCR is roughly 1, which means that the investor would receive a negligible amount of earnings over the ten years and also have to pay $1,250,000 upfront.

Our businessman, however, chooses to refinance. Without going into too much detail about refinancing (a future topic), our businessman instead chooses to amortize his loan over 20 years and receives another loan to pay off his original loan. In this example, he receives the perfect loan that would cover the remaining 10 years.

Each year, he would pay $161,196.96. Each year, he would then earn $88,804.04, and his DCR would be around 1.55.

DCR = 250,000 / 161,196.96 = 1.55

In the standard 30 year amortization, the businessman would only pay $134,898.84 each year. His DCR would be about 1.85.

His total payment with 30 years is $4,046,966.04.

His total payment with 20 years is $3,223,939.76.

His total payment with 10 years $2,497,961.29.

With longer amortizations, the businessman pays less each year but pays more overall. Please note that all these examples are pretax.

In truth, perfect scenarios in which other lenders give the exact amount needed to finish the previous loan are few and far between. Be wary about how much you can pay off, and how much that will affect you.

There are many variables that could completely throw off these examples including the original loan only being 3 years instead of 10.

This is a topic that I’ll come back to soon.

Commercial Real Estate Branding: The Halo Effect

What is the halo effect?

The halo effect is when one trait influences the perception of the whole. It focuses on a positive trait that makes the entirety seem better.

The halo effect in branding highlights one specific product or trait in a business that creates a positive impression on users for all other products and services the particular brand offers.

A great example is Apple. In 2005, Apple’s sales were up 65%, profits were up 384%, and the stock went up 177%. Apple focused on marketing their premiere product: the iPod. The iPod became synonymous with music players and with Apple. Apple’s share of the music market rose to 73.9%.

But in 2005, only 31% of its sales were from iPod and iTunes. Mac focused on marketing the new revisions of its iPod product line. Other products including the iBook were purchased because the iPod had such incredible marketing about its quality that all the other products were perceived to have that same quality.

Similarly in Commercial Real Estate, the goal is to get your brand (your name) synonymous with expert either for your area or for a specific type of commercial property in your area.

This is by no means an easy task. You need to know the financials of the deals, who the seller is, and other details. But when you begin to track down the deals in your area, you gain a significant advantage over others:

• People will recognize your name
  • Prospecting is the first step in building relationships
  • The people you contact and create a relationship with are potential references
  • Knowledge of the area makes you the expert
    • When you prospect or present, you know all the players and all the financial figures to present confidently
    • You have a sphere of influence
      • Keep your marketing campaign up regardless of whether or not you win a specific listing. The market is always in flux, and you just have to be at the right place at the right time.

 

10,000 Subscribers and Growing

REI Wise is proud to serve the needs of 10,000 commercial real estate professionals. Our users come to us for many reasons: our strong financial analysis for both investment and leasing, our innovative MarketEdge online publisher, and our secure virtual deal rooms.

What they get is a platform that fully integrates the results of their financial analysis into complete websites, proposals, flyers, emails, and virtual deal rooms. When our users change any data in their financial analysis, the rest of the system automatically updates to generate the new information.

Technology is speeding ahead, and businesses have to advance to match. We're proud to be at the forefront of the advancement with our revolutionary cloud-based technology.

Learn more by watching our webinar that explains how easy it is to publish online with PowerBroke by clicking here!

Time Consuming Factors of Commercial Real Estate: Analysis to Proposal

This week’s focus will be on handling analysis to proposal, creating a fast system that will transfer your data over quickly and effectively.

Analysis is the basis of all commercial real estate deals. The data must be easy-to-understand, concise, and pertinent information that buyers and sellers will want to see. Producing this information takes time, and sometimes, you just don’t have any.

There is a variety of commercial real estate analysis software to streamline your analysis including Argus and InvestIt, but they do not create easy to read proposals. MindMatrix and Catylist handle marketing after you have already won the listing. Even after you have a listing, you can’t directly transfer your analysis data into your marketing platform. You still have to copy and paste the data in, meaning that the information you have is being entered multiple times rather than just a single time.

In most scenarios, you’re left to create the proposal yourself. Only REI Wise’s PowerBroker handles your financial analysis, turns it into easy-to-read presentations, and then brands you online with complete marketing tools, but that’s not the point of this article.

Regardless of the software you choose, it’s pertinent that you understand the data and its presentation. Always familiarize yourself with the software you choose, and how the data is presented. Even for REI Wise, it’s important for you to know look over the data before you present it.

If you are not using any specific real estate software, you’ll most likely be using Excel and Word. Excel is a powerful tool that practically has no data limitations. It will graph, chart, and calculate new information as long as the graph/chart/calculations references data in the Excel book.

Excel is great for doing calculations, but when it comes to a professional proposal or presentation, Excel is sorely lacking. In most situations, you will be making a proposal in Word by copying and pasting your financial analysis into Word.

It’s manual labor that takes time, especially if you have to sort through a variety of excel sheets and cells.

To reduce the time in analysis and proposals, create templates that you can use for each project.

In Excel:

• Find the information that you need in your excel book and save that information (including the formulas) into a new book.
• Break the data into easy to read charts. An example would be “rent roll” and “expenses.”
• Highlight the title cells for each table.
• Alternate the rows of the table for easy to read documentation.
• Create charts and graphs that reference the tabular data.
• Save the excel sheet as a template on your computer.

In Word:

• Create a header and footer that will make your document look professional
• Put your logo and name in the top left of the header
• Put the property in question in the top right of the header
• Put your contact information in the footer
• Reserve each page for specific information.
• Create tables with no gridlines on each page.
• Fill in the data with placeholder information from excel, so you can properly size and format the cells. (You’ll be ready when you have real data and charts).
• If needed, switch certain pages to be landscape instead of portrait.
• Save the word document as a template on your computer.

You now have an excel document and word document ready. You still have to copy and paste the information over, but it provides you with a solid foundation.

Financial analysis and proposals will always take time. Even with completed templates and a variety of real estate software, entering in the information is laborious because you have to implement it across multiple platforms.

Only REI Wise reduces the time completely in one complete subscription. Once you have implemented your information in the financial analysis segment, the data automatically appears in your proposal and marketing materials.

 

Branding and Marketing Tips: Facebook

Branding and marketing is one of the key factors for any business. It plays a significant role after a solid product or service has been developed. In commercial real estate terms, marketing and branding plays a role after you've created a solid financial analysis. The goal is to network and establish relationships that will last, so it will always require upkeep. You need to make yourself visible by having a strong marketing campaign. There is marketing software for websites and emails, but social media is usually done on your own.

Facebook isn’t just for fun anymore. Many companies are posting on Facebook updates of their upcoming project/product.

Look at Microsoft’s Facebook page. Their welcome page features updates from their different products’ marketing teams (Internet Explorer, Office, Bing, XBox, Windows Phone, etc.). The marketing team also updates the wall regularly with more information about Microsoft’s products, services, and general information.

If we look through the posts, there’s a variety of updates about their XBox gadgets, their phones, and their software.

Their fans see these updates on their newsfeed. If you were a fan, the more fans who write on it and like it (especially if those fans were your friends), the higher the chance it will appear on your Facebook news feed and the higher the chance it will appear near the top.

The higher it is on people’s news feeds, the likelier they are to click it and either view the subject’s wall or post a response.

So what can you do with Facebook?

Use Facebook to brand yourself as the expert in the community and remain in contact with buyers and sellers.

You can accomplish that by:

• Updating your Facebook about closings and all hair on the deal
• Posting knowledge of the commercial real estate market to show you’re up to date with the most current information

You can make your Facebook branding more effective by:

• Creating another Facebook account for your commercial real estate brokerage and making/hiding your casual account from others

Or

• Making your account only a professional connection.

These two suggestions are becoming business standards for most industries. You want to network with your Facebook account to promote your business.

If you posted “Closed a multi-million dollar retail center in New York City in 30 days,” you wouldn’t want your friend to comment on the post “Way to go! Beer’s on you tonight!” for clients and potential clients to see. Credibility, branding, and professionalism are absolutely important in today’s age because the internet has publicized everyone’s lives.

Employers are looking at Facebook to see what their employees (present and potential) do in their free time. Keeping your Facebook clean is important even if there are still legal disputes about free speech on Facebook. Play it safe, and keep that thought in mind whenever you speak to a client – they might know more about you than you think. 

Especially in the Commercial Real Estate market, you want those who are likely to buy or sell to contact you and remain in contact. Even if it’s just a friendly message to them once in a while, it’s absolutely important to maintain relationships once they’re established.

If you’re friends with them on Facebook, then you’ll be well on your way to promoting your brand.

 

What and How: Cap Rate

Every what and how focuses on commercial real estate terms to enhance general knowledge of what is commercial real estate.

Cap rate (capitalization rate) is the cornerstone to commercial real estate. Financial analysis hinges on cap rate, and without the financial analysis, there are no proposals, marketing, and transactions.

It is the annual net operating income (NOI) divided by the market value: NOI/Market Value.

For example, a buyer purchased an investment at $1,000,000, and receives an NOI of $125,000. His cap rate is: 125,000/1,000,000 = 12.5%

The important part about cap rate is that it’s always based upon the market value, which means that the cap rate is always in flux.

Our buyer might have purchased the investment at $1,000,000, but in the following year, it appreciated to $1,250,000. In this scenario, his NOI has not changed; therefore, his new cap rate is: 125,000/1,250,000 = 10%.

In our new scenario, the buyer’s cap rate has decreased. What does that mean?

The value of the property has increased, which is a good thing for the buyer if he wants to sell the property. He can make a $350,000 return on investment (ROI) if he sells at $1,250,000 ($250,000 from the appreciation and $100,000 from the NOI he collected.)

If the buyer was looking for the investment to pay out in the long run, then the buyer’s not harnessing the full financial potential because his cap rate was measured previously at 12.5% (8 years to balance out on his investment). He will still balance out in 8 years from what he originally paid, but he’ll miss on a good opportunity.

Of course, this isn’t a real world situation, and a variety of other things could come into play.

Why NOI and not Net Income?

Net income includes taxes and depreciation, but when valuating an asset, taxes and depreciation do not affect the cash generated.

Realistically, most investors will look into net income, but the industry standard is NOI.

Tips for using cap rates:

It’s easier to compare your cap rate and value to other properties nearby. If a property next to you was sold at an 8% cap rate, and your building has an NOI of $125,000, your building would be valuated at $1,562,600 (125,000/.08).

A rough statement for sellers, if your cap rate goes down and your NOI has not decreased over the years, you can make money.

Similarly for buyers, if a building’s cap rate has gone up and the NOI has not decreased, there’s a strong correlation that it will be cheaper to purchase.

Cap rate is fickle, and there’s a variety of other things you can do to affect it.

Check out our Analyze Now Tool below to see Cap Rate in action!