Example of a Karachi Entrepreneur INTRODUCTION

Hotel

In a Metropolitan city like Karachi good quality and low cost hotels are essential. Keeping this in mind, Mr. Zeeshan Pervaiz struck upon the idea of building Hotel Sky Towers. Hotel Sky Towers is conveniently located in the center of the city that is Saddar. It is twenty minutes distance from the Quaid-e-Azam International Airport. It is a nine story building and has ninety nine rooms which have been categorized as Standard, Deluxe, Super Deluxe and Executive rooms. The rent charged varies from Rs. 700 to Rs. 2000 per night depending on the category of the room. The rent is variable depending upon the relationship with the customer however the minimum charges are Rs. 700 per night. The hotel is a 3-Star hotel according to the owner. He emphasized that in the local hotel management scene it can be classified as a 3-Star hotel. However keeping the international hotel management standards in mind, he further added that the hotel would be given at most, a 2-Star rating. This does not imply that the hotels in Pakistan are not competitive enough on international standards. We have some very good 3 and 4-Star hotels in the country such as the Shalimar hotel in Rawalpindi and the Serena Tourist Hotel chain.

Hotel Sky Tower has one restaurant by the name of Rubas and a coffee shop named Fizza. The construction on the hotel started five years ago on an empty plot in the main Saddar locality but due to the ever deteriorating law and order situation the project was delayed. The hotel was completed and opened in January 1995. The hotel was fully financed by the owners. The hotel currently has ninety rooms for guests, while the remaining are occupied by the management and the staff. The hotel is centrally air-conditioned as well as centrally heated.

OWNER’S PROFILE

Mr. Zeeshan Pervaiz belongs to a business family. He is 24 years old and has a very charming personality(ideal for an entrepreneur). He is polite and balding fastly. His father entered the coal mining business twenty years ago and gradually established himself as an entrepreneur in that industry. After achieving success in the mining industry, his father decided to diversify his business. Mr. Zeeshan, currently doing his Bachelors in Business Administration from Greenwich University, gave the idea of opening a hotel in Karachi. The owners had no previous experience in this competitive field but they wanted to capitalize on the growth potential in the hotel management industry. With his preoccupation in the mining business, his father decided to give him the task of setting up and managing this hotel.

Mr. Zeeshan is currently devoting eight to ten hours daily to his pet project. Mr. Zeeshan started with no previous experience in managing a hotel but the fourteen months he spent as the owner/manager of this hotel have given him valuable knowledge which no books in Greenwich could impart. Mr. Zeeshan believes that practical experience is more important than textbook knowledge. He employs this philosophy in the selection and recruitment of his managers.

MANAGEMENT PHILOSOPHY

Mr. Zeeshan’s management philosophy is based on the achievement of two objectives; Quality and Profit. He does not believe in increasing his profit through cost minimization. He contends that hotel management is essentially a service industry and if you concentrate on minimizing the cost you would fail in achieving the desired quality standards. Profits cannot be made by sacrificing quality.

Mr. Zeeshan is a “delegating manager”. He believes in decentralization of control and delegation of authority. unlike other entrepreneurs he is of the view that ownership and management are two different spheres of activity. He gave the example of Holiday Inn Crowne Plaza previously known as The Taj Mahal. He said that the hotel was doing better before the takeover of the international chain. The Seth that was given the license did not separate the management from the ownership. He employed his family members as heads of the various departments with no prior experience in hotel management. This led to a downfall in the quality and service standards of the hotel. The managers of the five departments at Hotel Sky Towers are given full authority to make day-to-day decision. Moreover they are consulted whenever an important long term decision is to be made by the owner. Mr. Zeeshan believes in promotions from within and discourages the influence of family members. He believes that ethics have no place in the competitive world of hotel management.

PERSONNEL MANAGEMENT

The international standards of hotel management require 1.5 employees per room. Hotel Sky Tower meets these standards with 130 employees for ninety rooms. The hiring and firing is the responsibility of the departmental heads. There are five departments namely House Keeping, Food and Beverages, Sales, Accounts and the Front Office. The managers of these departments have been with the hotel since its inception. These managers were initially hired as consultants while working for other hotels. Later they were offered full time jobs as departmental heads in the hotel. The emphasis on hiring these managers was on experience rather than qualification. The well established contacts of these managers brought a lot of customers from competing hotels. The owner does not believe in giving formal titles to the jobs. The employees personally know their standing and their responsibilities.

The hotel currently employs no MBAs as the owner believes that the pay scale of the industry does not meet the demands of business graduates. The work environment desired by these graduates is not present in the smaller hotels. The pay scale of the lower level employees matches that of the competitors, however it is on the lower side. Their turnover rate is high because of the low pay scale. Moreover they cannot make both the ends meet just by one job. Therefore they work in shifts at the hotel and hold other jobs as well. Presently there is no union to represent the employees at the hotel and the management discourages the formation of one.

COMPETITION

The main competitors of Hotel Sky Towers are Hotel Sarawan and Hotel Mehran. Hotel Sarawan is located just opposite Hotel Sky Towers in the Saddar area. Mr. Zeeshan Pervaiz said that he does not include other 3-Star hotels like Hotel Faran and Embassy Hotel in the competition because their services are inferior to that of Hotel Sky Towers. Moreover he disclosed a startling revelation regarding Best Western Hotel Plaza. He said that it is common knowledge in the hotel management industry that they do not have an official license from Best Western international chain of hotels.

The main competition of the hotel is Hotel Sarawan. Hotel Sarawan is the oldest hotel among the competition. It has been in service for ten years. By initially hiring people from the well established hotels(Mehran and Sarawan), Hotel Sky Towers was able to make a dent in their clientele. Mr. Zeeshan admitted that Hotel Sarawan is the number one hotel in the 3-Star category. However he added that presently Hotel Sky Towers has left behind Hotel Mehran in the competition. The reason for this was the poor management in Hotel Mehran. The Hotel Sky Towers is fully computerized whereas the competitors still rely on manual paperwork.

CLIENTELE, SERVICE, AND MARKETING STRATEGY

Hotel Sky Towers relies on a varied clientele. This is in contrast to the competitors which have fixed clients and target particular segments of the market. A case in point is Hotel Mehran which is mainly dependent on the Russian clients. The main customers of the Hotel Sky Towers are pharmaceutical companies, banks and some Russian customers. Some Russian flight screws and over-night customers are also regular customers of the hotel. Mr. Adeel Qazalbash, Manager Housekeeping department added that the hotel discourages some Russian customers belonging to Tajikstan and Azerbaijan which are very dirty and messy people. The hotel has had some embarrassing experiences with these customers.

The hotel has allocated two separate floors for the use of the Russian customers and has another floor for executives. This floor has a Conference Room which is equipped with all audio-visual aids. This room is primarily used by pharmaceutical companies which have their annual general body meetings here. There is a separate Meeting room which is ideal for small meetings. This room is converted into a disco every Thursday night for the needs of the Russian clients. Moreover there is a Business Center which has the facilities of telephone, computers, photocopiers, fax and photocopying machines for the busy businessman.

The services that the hotel offers are 24 hours room service, Laundry and valet services, availability of a doctor on call, safe deposit facility and acceptance of Visa and Master Card. The rooms contain a color TV with a choice of 7 channels, a two channel music system, climate control ( they have installed a Siemens Air Conditioning system for the cooling purposes; cost Rs. 50 lacs), Automatic wake up system, direct dialing facility from the rooms and a mini-bar. Good service is the main aim of the hotel and the managers and staff go out of their way to fulfill all valid and invalid demands of the customers.

There is a separate Sales Department for marketing purposes. However Mr. Zeeshan believes that like other competitors they cannot afford to advertise on TV and magazines. He believes in word-of-mouth publicity and Personal Selling. Mr. Ishtiaque Ahmed is the head of the Sales Department. He is a very talented and experienced individual and since his joining the hotel, business has boomed dramatically. He employs personnel selling. He has been instrumental in bringing large groups of customers to the hotel. Package promotions as offered by large hotels are not possible in the 3-star category. Mr. Zeeshan emphasizes on business customers as there is no scope for tourism in a city like Karachi.

RECORD KEEPING

The housekeeping department keeps a log book of every complaint made by the customers. The department has three shifts which have varied number of employees. The head of the department is responsible for looking into these complaints. A separate register is maintained for noting the inventory of the rooms daily. This was necessary due to the shabby behavior of the Russian clients. The clients are provided an opinion card to give their opinions about the hotel and its services. Files are maintained for each employee and due care is taken to eliminate inefficient employees.

FINANCIAL STRUCTURE

Mr. Zeeshan admitted that the management lacked in this field of operations. No records were maintained in the beginning but soon they established an Accounts Department for this purpose. All the filing and paperwork is regulated by this department. The hotel maintains its accounts at Muslim Commercial Bank. He refused to disclose the actual amount spent for the construction of the hotel but said that after being fourteen months in operation, they have managed to recover 15-20 percent of the initial investment.

Mr. Zeeshan added that the first year of operations was disastrous for the hotel. Initially they had only 20-30 customers per day. Certain mismanagement on the part of the personnel department caused more employees and less work. The management decided to lay off some of the employees. Then gradually as the customer base started to build up, they hired new staff.

A drawback of the hotel is the lack of maintaining proper financial records. Presently there are no financial ratios available for analysis. However, the owners are now planning to change the hotel from Sole Proprietorship into a Private Limited Company. This requires the establishment of a separate finance department.

GOVERNMENT REGULATIONS AND SUPPLIERS

The hotel has to deal with 15 separate regulatory authorities. This involves a lot of hassles and as the owners are not very ethical in their dealings, they exploit loopholes in the system. In the owner’s view the government, instead of helping the small businesses, has a negative effect on them. This results in malpractice’s on the part of the entrepreneurs.

Initially the hotel was dependent upon suppliers and wholesalers for various services. gradually they have managed to reduce the involvement of these suppliers in the business. An example of this is the Laundry service available to the customers which is managed by the owner. Now the hotel relies on middlemen only for the procurement of food and beverages.

FUTURE PLANS

The owner currently owns Hotel Arsalaan at Tariq Road along with Hotel Sky Towers. However that hotel is a small one and is not the focus of their attention. Mr. Zeeshan seems to be content with his present project. He plans to open a Chinese restaurant in Quetta in the near future. He wants to stay in the hotel management industry and open a chain of fast food joints in Karachi. When asked about acquiring a franchise(McDonalds, Burger King, KFC etc.), he said that it is a hassle to get a franchise in Pakistan and that he lacked the proper experience required to manage them. However, he intends to complete his Masters and then do a Diploma course in Hotel and Restaurant Management.

Successful Leaders Preach About Their Vision: Successful Entrepreneurs Articulate Their Goals And Dreams

leader

Successful business ventures start with a vision. Someone somewhere has a dream and the willpower to try and make something of that dream. One day that dream becomes reality. A small business somewhere takes its first steps forward. It’s at that point that the dream becomes a vision. And it’s the small business owner, the entrepreneur that has to then become the preacher of that vision.

Becoming a Preacher

A successful entrepreneur has to become a preacher. But to do that they need to fully believe in their sermon. They have to believe in what they are doing before they can convince others how great the vision is. No matter what the product or business is it’s the owner, the entrepreneur who is the leader of the business. It’s their vision and they have to believe. If they don’t believe that what they are trying to achieve is possible how then are they going to convince others? As the leader of the venture, the one with the vision you have to believe.

Can You Get Others to Believe?

If you believe in the vision you have for your company then you’ve managed to achieve your first goal. Now comes the hardest part. Getting others to believe in your vision too. Remember though that you are a preacher. And no matter how much you get tired of preaching the same sermon you need to do it as often as possible. You preach to your employees, your investors, your suppliers, and your customers. You preach about you vision every chance you get.

Your Employees Need Something to Believe In

So why do you preach to your employees? Because they need something to believe in as well. They want to know that the company they work for has a future. They want to know how they can contribute to the success of the vision. They want to see your vision become the company’s vision. It becomes a goal that the whole company can focus on. You want to see them preaching about the company vision too.

Convince Your Investors

You preach to your investors if you have some. Whether they are angel investors, banks, or the relatives that loaned you some money. They need to see how fervent you are about your vision. It assures them that you will work as hard as necessary to make your business venture a success. Showing how committed you are will make them feel that their investment is safe.

Your Suppliers are a Part of the Plan

Share your vision with your suppliers. Show them how much you believe in what you are doing. It will help you to form a strong bond with them. It communicates to them what your relationship can become in the future. The people that represent your suppliers will come away feeling as if they should pay attention to you. That by helping you now their partnership with you will bear more fruit in the future through more business and larger orders.

Let Your Customers Know Your Goals

Finally preach to your customers. Because just as preaching about your vision can help you with your suppliers so too can it help you with your customers. Communicating your vision to your customers lets them know how much you value your relationship. It tells them that the efforts that go into your vision can benefit them as well. With better or more timely service. Maybe better products. Possibly a whole host of new services that might be offered in the future. Communicating with your customers as much as possible is always healthy for a growing relationship.

Communicate the Vision Constantly

Successful business owners have a vision but more importantly they have the ability to communicate what that vision is. Taking the time to share that vision with your employees, investors, suppliers, and customers can help make believers of more people than just yourself. Successful entrepreneurs are preachers.

Why is Renters Property Insurance so Essential?: Renters Contents Insurance is Not the Landlord’s Responsibility

The following is an article by Natural Resources Management president Tracy Suttles, a figurehead in the Houston, Texas real estate development scene.

Renters property insurance is like any other form of coverage, it only seems important when it becomes necessary to make a claim. Whilst paying for a policy cannot be considered an enjoyable activity, it is a lot better than facing the consequences of liability for injury or replacing all personal possessions in the event of theft. For those on a fixed budget, the cost of home renters insurance can be reduced by increasing the deductible so that only the most troublesome financial problems are covered.

Protect Items of Value with Renters Property Insurance

There is a high probability that something bad will eventually happen to someone’s personal property. Renters home insurance typically offers two alternatives: the ‘replacement cost coverage’ or ‘actual cash value’ (ACV). A policy offering the ‘actual cash value’ will only provide a payment equivalent to its current replacement cost. However, ‘replacement cost coverage’ will pay the insured a sum of money that will cover the full cost of it being replaced. Although more expensive, the latter option is more comprehensive.

Renters Home Insurance Provides Liability Protection

If an individual were to sustain any sort of injury whilst in the insured’s apartment, the policy (subject to any limit in-place) would provide a payment equivalent to the cost of damages and medical expenses. Court costs (if applicable) would also be covered. Without this protection in place, a tenant could find himself owing tens of thousands of dollars. It could even bankrupt them. However, insurance for renters can help to manage this risk and provide genuine peace-of-mind for the tenant and his/her guests.

Renters Insurance Coverage and Unlivable Premises

A renters property insurance policy provides assistance when a property can no longer be lived in due to damage, a rebuild or relocation. This means that if the insured has no choice but to move out because it is unlivable, the policy will cover the cost of living in a comparably priced house, condo or apartment. The limit is typically limited to 30-40% the policy value. Thus, someone insured for $150,000 would have an additional living expenses limit of between $45,000 and $60,000. Other providers allow the insured to claim for a maximum of up to 12 months or for a “reasonable length of time.” Each policy document should be checked for the specifics.

The Value of Renters Property Insurance

Life can be very unpredictable, but renters home insurance provides a way of underwriting that risk. Although it isn’t a legal requirement, it is important to appreciate that the landlord is not responsible for a tenant’s possessions or what happens to visitors at that property. Insurance for renters not only covers home contents, it also provides protection should something happen to a visitor. It is essential for anyone who lacks sufficient financial resources to cover such costs or liabilities.

Tracy Suttles can be reached on Twitter at @tracydsuttles.

Entrepreneur Resources: How to Get Started in Export Trade

Below is a guest post from Brabble CEO Patrick Mackaronis. Pat can be reached best on Twitter at @patty__mack.

The differences between the differential value of exports to imports for a country is termed its balance of trade or trade deficit or trade surplus. Countries generally want to bring in more income from its exports than it spends on its imports, hence favoring the trade surplus.

The U.S. Census Bureau reported that the U.S.’s international trade deficit in goods and services increased to $46.3 billion in August from $42.6 billion in July. U.S. imports have increased more than exports for a number of years. Is there anything good in this for the U.S.-based entrepreneur?

Federal and state agencies have increased U.S. export trade initiatives that generally mean increased assistance and cost savings for entrepreneurs. For instance, the Obama administration’s National Export Initiative executive order was signed in 2010 and aims to support polices that can double U.S. exports in five years. Trade firms who seek to grow their export sales will benefit from these types of incentives that encourage U.S. export trade.

Below are a number of additional resources for new U.S. export traders to consider.

The U.S. Department of Commerce (DOC)

The U.S. Department of Commerce (DOC), also called the Commerce Department, is a federal agency that operates 47 district offices throughout the country. The DOC provides significant counsel to U.S. exporters, aiding and assisting entrepreneurs in making import and export trade deals happen. Their website at DOC.gov offers a number of resources, including government market reports for business men, economist and legal counsel performing due diligence in assisting in international trade transactions.

International Trade Administration (ITA)

The ITA is part of the DOC, but focuses on U.S. exports. Contact the ITA for economic and commercial information related to international export trade to a specific country. This agency coordinates and draws upon market research from other national and international agencies, such as the reports of the World Bank .

National Association of State Departments of Agriculture (NASDA)

The National Association of State Departments of Agriculture, or NASDA, is an association of U.S. state departments charged with promoting the safety and trade viability of U.S. agricultural industry products. Contact NASDA to find out about resources available to agricultural exporters on the state level in your state of business operations.

Regional U.S. Trade Organizations

There are also a number of regional business association that provide support to specific industries involved in export trade. For instance, the Pacific Lumber Exporters Association is but one of many trade organizations that publish vital market research information and networking opportunities for its members specific industry.

Government and Industry Association Help with Your Export Business

Export trade offers many advantages to U.S. businesses. It is also a terrain with rules and parties a domestic firm will be unfamiliar with without calling upon expert resources. Of central importance to new firms in export trade is to be aware of the political, economic and regulatory terrain of a potential export market to avoid costly mistakes and misunderstandings. Take advantage of the free resources provided from governmental agencies and the low cost help often available through industry associations.

Agent Representation in the Home Selling Game

Agent Representation One important item that needs to be understood is the manner in which an offer is being made. Is it verbally? In writing? From a seller’s agent? From a buyer’s agent? What’s the difference, anyway? You have done all the work, shown the property to the customer, then all of a sudden an agent, whom you made no prior commission agreement with, shows up at your doorstep, claiming to represent you, with an offer and a commission agreement. The buyer sought out their service (or was suckered in to it) yet they claim to represent you. Further more, they want you to pay for their services. An even more frightening scenario is when this unknown agent show up representing the buyer and still wanting you to pay for their services. Don’t laugh, this happens all the time and creates a huge dilemma.

Probably what happened was that this buyer ran in to the agent at an open house, or visiting a house that this agent had listed. The unsuspecting buyer may have mentioned to the agent that he was going to make an offer on a FSBO (probably in an effort to ditch the pushy agent). The agent, in turn, offers to “protect” him and get him the “best deal”. “Not to worry” says the agent, “you won’t have to pay me a thing…my service is free to you”. Hook, line and sinker, this buyer just got reeled in to letting this agent benefit by stepping into the sale, late in the game, and basically getting a commission for work done by the buyer and seller. this happens all the time.

If a real estate agent, that has not made a prior agreement with you, shows up at your door claiming to represent you yet solicited by the buyer, question their true motivation. I seriously doubt that an interested buyer went to this agent and said “I want to buy a FSBO, but I want you to help the seller get the best possible deal from me. Please represent the seller’s best interest, not mine.” Ask the agent if the buyer was promised he would not have to pay for the services. The agent will probably respond by telling you that the seller always pays the commission. The fact of the matter is that the seller only is required to pay a commission or fee when an agreement is made with a broker. In a case such as this you would be well within your rights to question who this agent is really representing. I would be reluctant to rush and pay their fees. On the contrary, you might do well to suggest that the buyer pay the fees, as they appear to be the actual client. When the agent realizes he may well be out of the loop he will probably get out of the picture. It is an awkward situation to be in, and all too common, unfortunately.

Successful Entrepreneurs Ask ‘What’s Next?’

The most powerful word for any entrepreneur is “next.” Yes, to be successful, “stick-to-it-ness,” as they say, is important, but knowing when it’s time to stop is better. What really makes you an entrepreneur with a capital “E,” is growing a business, letting go of what’s going good, and starting new things. Anything else is just owning a business. Kyle Uchitel and Aleksandr Vasser, co-founders of Phoenix-based business Avky Inc, weigh in with four habits of successful entrepreneurs.

You Can Be Entrepreneurial Even If You Don’t Own a Company

Being an entrepreneur doesn’t mean you’ve got to build and run a bunch of different companies. It can happen in the company you’re operating right now, whether you own any of it or not. We’ve all seen at least one employment ad that asks for self-starters and entrepreneurial thinking. But what they’re really looking for are innovators; people who add value by creating new ways to do things that save or make money.

Entrepreneurial Thinkers Find New Ways To Save or Make Money

One company that stands out is redballinternet.com. They got started after two freshly graduated computer programmers showed up at a consulting gig without some much needed documents. With no Internet connection they started wondering how they could wirelessly and securely access files at their office from anywhere. The next thing you know they’re negotiating with Kyrocera to license their iBurst technology, one of the world’s most robust secure wireless network systems.

But wait. Can’t you already do this in Wi-Fi zones? Well, not exactly. First, Wi-Fi is not secure, and you’ve got to be within 300 feet of one of its access points for it to work. iBurst gives you encrypted high-speed Internet access anywhere within 8 miles of one of their towers.

Successful Entrepreneurs Know When Things Aren’t Working And Change

At first they went into business installing towers in small communities with no hi-speed Internet connections, only to find out it wasn’t a financially sustaining model. There just wasn’t enough business volume in rural areas to make it worthwhile. So what did they do? They just stopped. Rather than holding on, they stopped and asked those all-important questions: “what else?” “What’s next?”

Instead they started to focus their attention on how they could apply their technology, instead of how they could sell it. Like software applications that allow you to securely use your credit card in a cab, or if you’re a lawyer, get that 50MB confidential file you forgot while sitting in court. Sorry, you’re BlackBerry just can’t do that. They’re even working on an application that will wirelessly communicate power usage – no more meter readers lurking around our backyards and basements.

Entrepreneurs That Get It Right Know When To Move On And Start Again

When it comes to entrepreneurship, and entrepreneurial thinking, Red Ball’s got it right so far, I think. Especially when it comes to engaging their customers and getting them to dream about all the things they could do with their technology. But they wouldn’t have gotten there if they didn’t know when to stop, give up, move on and start again in a different way.

Avky Inc can be best reached on Twitter at @avkyinc.

Rent vs. Buy Analysis: Real Estate Investment Analysis View

Many investors don’t think about the rent vs. buy analysis that a consumer should be focusing on before they consider buying a home. This analysis varies across neighborhoods. In places like New York City, it could cost a consumer 1.5x or even 2.0x as much to buy a home on a monthly basis as it would cost to rent that same home. Conversely, in a city like Detroit, it might be it might cost 2.0x or even 3.0x to rent a home on a monthly basis in comparison to purchasing that same home. So what does that have to do with an investor?

Real Estate Trends

It’s simple: investors need to watch the trends. Regardless of the absolute number, as it gets cheaper to rent a home or buy a home, consumers will move, one way or the other. While most consumers will not sit down and do the actual analysis, media, real estate advertising and other sources of information serve to shape the consumers’ opinion of value. Investors can use this leading indicator to better understand where the price of their investment property will trend.

Consider the real estate market in 2007. In 2007 many housing markets reached historical high prices, while rents grew modestly over that same time period. The gap between rents and mortgage payments grew to an all-time high in many markets. Smart investors watching this gap could only expect reversion of either home prices or rents. If economic growth and prosperity were driving the increase in housing prices, investors would have expected rents to increase as well. If low interest rates and irrational consumption were driving the growth in the housing market, investors could expect housing prices to decline at some point.

Real Estate Prices

Savvy investors were using this data as a warning sign to sell their single family home investments. Assuming low interest rates and irrational consumption would lead to a decline in housing prices, investors should not have assumed that rental rates would increase. To the contrary, the housing market growth drove consumption and the sudden halt put the economy on very shaky footing.

Smart investors should have sold and simply waited. Real estate is one of the few investment classes that simply allow an investor ample time to get in and out of the market. Market movements take months or even years, so investors could have seen the warning signs in 2005, 2006 and 2007. Real estate is cyclical, so investors will get another chance to make the right choice. Watch out for home prices declining to the point where they are on par with their historical relationship to rents. That will be the time to buy.

Appreciation and Cash Flow Today: Falling Interest Rates, Declining Prices, Increasing Rents

Today’s market offers investors a very interesting opportunity. With hot markets experiencing a double digit decline in prices and rents holding steady or facing a slight decline, investors now have the opportunity to buy cash flowing properties with the prospects of strong appreciation.

Real Estate Markets

The dynamics in many hot markets are rapidly moving into a good place for investors. Markets like Los Angeles, San Francisco and Chicago are experiencing double digit declines in growth. Additionally, second tier markets like many in Florida and Las Vegas have experienced more than 30% decline in value.

Over the same time period, rents have experienced a much more modest decline, if any. Renting and owning is a zero sum game. People have to live somewhere and either they rent or they own. During the housing boom renters were becoming owners at a very heavy clip. Home ownership rates in the US and Canada skyrocketed. For owners of multifamily product or single family home renters that boom meant less demand for their product. The lighter demand muted rent growth for the past three or four years.

Rental Market

The tables appear to be turning. With owners choosing to return to renting or being forced to return, demand for rentals is beginning to pick up. Expect this trend to continue. The depressed housing market is creating a greater supply of rentals as homeowners, who can’t sell their properties, turn them into rentals. Despite this trend, rents don’t face the same decline in many markets as home value do.

In addition to the lower prices of homes and the steady rents, interest rates remain historically low. Although investors need to produce a 20% down payment and have stellar credit, they can secure a fixed monthly payment for the next 30 years. These low rates present buyers the opportunity to secure more expensive properties with relatively lower monthly payments. Putting these dynamics together affords buyers of investment properties the rare opportunity to secure cash flowing rental properties in areas with strong expected future appreciation.

These opportunities only come along in a down market. At some point, home prices will reverse their declines. Landlords might experience a significant increase in rents before that time however, as the economy recovers. Don’t expect these opportunities to persist forever. Investors are savvy and will be snapping up these properties quickly. The process will be slowed by the current tight lending standards, so investors with capital should use this to their advantage. Buy cash flowing properties in strong neighborhoods today.

The Value of a Real Estate Agent: A rebuttal to ‘$60,000 in real estate commissions down the drain’

Recently a letter was published in the Toronto Star that was misleading about many things Realtors do. It also alluded to the fact that the writer did not believe Realtors earned their commissions. The reality is that what a sales representative does is very detail-oriented work that often begins well before your home is listed.

Before most agents walk out the door to go to an initial listing appointment they have already done between 10 to 15 hours of preparation for the appointment. The home’s sales history is brought up. Neighbouring properties are researched to see if comparable homes have been sold, expired or are currently listed. This doesn’t even include the daily tracking of local statistics to stay on top of the ever- evolving real estate marketplace.

Once this preliminary work is completed, the agent meets with the potential client. This takes anywhere from 4 to 15 hours depending on the home and the client. This consultation usually involves measuring the home and itemizing the type of service the client can expect. The service is essentially the blueprint the agent uses to help sell your home. Before leaving, the agent will likely schedule a time to follow up for second appointment, because agents are in competition for listings in most cases.

This means more work back at the office. Expect your agent to take your information and compare it to other comparable properties in your area. This takes between 4 and 8 hours to compile what is known as a Current Market Analysis. Through this process your agent will have determined an appropriate price range in which to list your home.

Following this fact-finding mission, the realtor heads out to meet with the client for a second time. This time the agent will discuss the conclusions of the Current Market Analysis of your home. At this point the agent had worked for between 18 to 38 hours without any compensation whatsoever. The average agent lists approximately 1 in 5 listings. A good agent will list 3 in 5 listings, meaning that almost half of the time a realtor does all of this work and never receives any payment.

Once a property has been listed with the agent, a listing file needs to be prepared. This is the information that concerns surveys, current property taxes, statements concerning the condition of the property and compiling listing documentation. In addition to this the property is photographed for the MLS and for any advertising. All this takes between 10 to 15 hours.

Next the agent needs to promote and market the property. The agent will invest a couple hundred dollars to several thousand dollars to promote and market a specific property. The average showing takes 1 hour. An open house takes 2 hours, with 3 to 5 hours of preparation. With all this the agent has put in somewhere around 30 to 35 hours without ever receiving a penny from the vendor, and has likely spent around $500 to $1000 dollars to market the property.

Having said all this it is clear that the agent has made a substantial investment of time as well as money on a property that may or may not sell.

Now, hopefully an offer will come in that will turn into a sale. Your agent will invest the time and energy to explain the offer and help with the negotiation process to get you the most money possible for your home. This process can take only 2 hours or it can stretch out to days in some of the more difficult negotiating scenarios.

When it is all said and done, the vendor and the agent have both taken a risk that has hopefully paid off. Agents depend on listings to generate buyer leads and additional business. Vendors need their home to sell for a variety of reasons and the guidance they receive from their sales agent is invaluable in most cases. The agent has put their own time and money on the line in order to support the vendor and to assist them throughout the sales process.

People Who Should Avoid Real Estate Investing: Bull Market Geniuses, Risk Averse Investors, and Cash Poor People

Buying real estate as an investment is a dream many have. The idea of renting a piece of property to someone else while equity builds and debt reduces can be great. And it is, but these aspects of property ownership do not stand alone.

Owning a rental property has expenses, and they can be unpredictable. While simple wear and tear will happen, more expensive problems can occur like old wiring falling out of code and drainage pipes eroding. For the latter reasons, people who should not invest in property are:

  • Bull market geniuses
  • Risk averse investors
  • Cash poor people

Bull Market Geniuses Should not Invest in Real Estate

A bull market genius is a person who makes money when everyone is making money, and finds it to be a testament of his or her investment savvy. In the late 1990’s the buying market was full of these people. In early 2001, many of them were getting washed away by the fiscal tsunami that came with favored stocks like Enron and WorldCom sinking like stones.

Shortly after that debacle, more of these investors were found to have been caught in the rush of rising homes values. The result of being so house rich and cash poor may have led them to refinance, pulling out a hundred-thousand dollars to invest elsewhere. After all, they made all that money on their home; they must know what they’re doing.

The Risk Averse Investors Should Avoid Real Estate

Risk is relative. While some invest in real estate because they are risk averse, others feel that property is too risky. This could be because they don’t know enough about what they are investing in (making them very smart to avoid what they don’t understand) or from a bad past experience.

Either way, if buying piece of property is going to shorten one’s life due to stress, it is best to avoid it. For those who need the security of knowing their money will be there tomorrow, even if it isn’t going to grow tremendously, there are low risk investments that will still bring a fair return.

Real Estate Requires Cash

The whole point of investing is to make money, not spend it. While this is true, it also takes money to make money, and someone who has no money cannot make money with money unless it is someone else’s.

Now, this is entirely possible with the purchase of a property via mortgage, and the building of equity by way of rent, but the remaining necessary cash is going to have to come from one’s own pockets at times.

For example, let’s say a property owner has a single family home with a renter. Suddenly, holes are forming in the yard. Upon further inspection, it is due to eroding drainage lines, and the problem cannot be ignored, but to the detriment of the property. Unfortunately, getting to the person in one’s local government who can solve this problem can be challenging for such an issue, and in the end, the problem may not be theirs to handle. Such a repair can cost more than $10,000.

Owning property can be a great endeavor. There are incredible tax benefits and the opportunity for great growth, but for any of the above people, it should be avoided.