Investing in real estate itself is not something new, but for many investors it is still a difficult and incomprehensible way of investing. On the one hand, this type requires a lot of money, but on the other hand, it is considered one of the most profitable assets.
And, for all the attractiveness of this cash flow, one should not forget about the risks, since the success of each specific asset is associated with the development trends of the place in which it is located, with the market behavior, with the infrastructure of the area, and so on.
That is why Fincase services are focused on a detailed analysis of not only the building itself, the very premises for investment, but also includes several hundred parameters that define the object. We actively use artificial intelligence and machine learning to process a huge amount of information in order to accurately determine the real cost of each specific object. The completed projects have given us a deep understanding of the machine learning algorithms that are needed to analyze real estate market data. Thus, we show the investor all the prospects for his investment: we predict the cost of the premises in the future, we can easily draw up a portrait of potential tenants and calculate the possible rental income.
A distinctive feature of commercial real estate is a high threshold for entering a business. Private individuals do not have the opportunity to simply buy an office or a bar and rent it out. In addition, for an investor with a large financial cushion, it is unpleasant to lose several million, but not catastrophic, as for an ordinary individual. The risks in this type of business are quite large and are encountered at all stages: selection of a suitable site, renovation, search for buyers, conclusion of contracts, and so on. Investing in real estate is not “bought and made a profit”, it is a big investment with a payback in 8-10 years.
To facilitate the selection stages, especially for beginners, our innovative service “Assessment of the infrastructure level of the area” helps to analyze Big Data and get a return on investment with minimal risks.
Commercial real estate investment has two scenarios. The first is income from renting out premises. The second is income from an increase in the value of the premises in the future.
What can be rented? Yes, almost everything! Offices, warehouses, apartments, parking lots, retail outlets and so on. Any room can be used.
All commercial real estate is usually divided into four types: office, residential, retail and industrial premises.
Offices are understood as separate objects within a certain building, as well as entire skyscrapers. These can be multi-storey buildings in the city center or on the outskirts. Offices can be of different styles and sizes, but they all have in common that the clients of the landlords are companies. Typically, the lease in this segment is concluded for a period of five to ten years.
Residential premises, on the contrary, have fairly short-term leases. Usually, a lease is valid for no more than one year and, if necessary, is extended, and some are concluded for a month or even several days. Living quarters can be apartments, rooms, houses, townhouses, cooperatives, and so on. This category includes all objects in which people can live in one way or another.
Industrial property is used for industrial business operations, and includes: manufacturing facilities, laboratories, warehouses, assembly and research buildings, distribution centers. Such facilities are located in the so-called industrial zones, remote from residential areas. Lease agreements are concluded with companies for a period of more than five years.
Retail or retail commercial real estate means objects necessary for a public relations business. These can be shops and restaurants in shopping centers. The investor can act as the owner of the entire trading building, or own only a part of the retail outlets. The earning potential in this type of commercial real estate directly depends on the geographic location of the building, on the flow of potential clients of its tenants. Retail leases range from 4 to 5 years.
Each type of commercial real estate is divided into classes from A to D. The class determines the level of quality of objects. For example, class A is the highest class. It is characterized by new buildings with modern equipment, high quality finishes, located in popular areas and, of course, it is characterized by the highest rental rates. It is important to understand that there will be a different tenant for each class with different agreements, needs and finances.
A lease may include not only the right to occupy the commercial property as such, but it is often the tenant who pays for some of the property’s operating costs: taxes, insurance premiums, or maintenance costs.
You can make money on almost any property. The main thing is to understand the pros and cons of a particular object in order to determine exactly who to offer it to and at what price. The Fincase team has a lot of experience in this, we entered the top five PropTech companies in Russia. Fincase analysts have done a lot of research and found out what people are guided by when buying real estate or choosing it for rent. Of course, the standard parameters of the repair, comfort, year of construction were important, but still the main factor was the infrastructure – the ecosystem of the district. If we are talking about residential premises, then people are interested in shops that are nearby, the presence of kindergartens and schools within walking distance, playgrounds. For offices – transport accessibility and parking, for some, a coffee shop and a canteen 5 minutes from the building. That is, what people will use every day, what makes their life comfortable.
This sounds like an obvious fact, but in reality, it turns out to be difficult to find and analyze a building site, or estimate the value relative to market value, or rank the significant requirements for the premises. Fincase integrates with Google Maps and displays infrastructure data in a familiar interface, collecting and processing a huge amount of information in a few seconds.
For now we are finishing the last modifications of the service and by the fall of 2020 the first visitors will be able to use it.
Guest article written by: Dmitry Tsyplakov (CEO/Product Manager of Fincase).