Category: SWOT Analysis

Real Estate Investment Firm SWOT Analysis

Since the beginning of capitalism, individuals and corporations have developed or acquired real estate with the intent to generate income from rent or the sale of units to a third party. Real estate is effectually one of the freest markets in the world – and the demand for affordable housing, high visibility commercial space, and related properties tends to remain strong in any economic climate. For real estate investors that have an understanding of the economy as a whole, real estate can be a highly lucrative enterprise that allows revenue and income to be recognized among a number of centers (rental income, capital appreciation, and specialized service income).

Strengths

One of the most interesting strengths for real estate investment firms is that they generally have continued access to capital as needed provided that minimal equity requirements are met. Banks and financial institutions are always keen to provide debt capital for the acquisition of real estate (or for development ventures) given that they money is backed with a tangible asset. Additionally, the demand for real estate (especially residential units) is often considered a necessity. As such, these businesses are able to generate a highly recurring stream of revenue from their rental operations on a month-to-month basis.

The ongoing operating costs related to the day-to-day management of a real estate investment firm are generally considered to be low as a function of revenues. As such, well placed investments are generally able to produce revenues and profits in any economic climate.

Weaknesses

While substantial access to capital for these businesses is one of a real estate investment firm’s strength – it is also one of its weaknesses. Many firms often over-leverage their properties which can cause significant issues during difficult economic climates (such as the current issues with the pandemic). Additionally, people that are renters of residential property are generally more susceptible to negative changes in the economy.

However, through proper and appropriate leverage (as well as comprehensive tenant screening protocols) these weaknesses can often be remedied before they create issues for a real estate investment firm.

One of the other issues that is commonly faced by these businesses is that unexpected major repairs to properties can have a deleterious effect on a firm’s profit and loss statement.

Opportunities

For real estate investment firms (in any economic climate), opportunities are always abound. There are always distressed and far-below-market-rate properties that can be properly rented, improved (through rehabilitation), or sold to a third party. As discussed earlier, there are always numerous avenues of capital that a real estate investment firm (or independent real estate investor) can use in order to secure the necessary financing in order to capitalize on the investment.

Threats

The biggest threat facing most real estate investment firms are increases in interest rates or drastic increases in inflation (which is a modest risk at this time). However, with proper planning and a foresight to these matters – most real estate investment firms are able to remain profitable at all times.

Additionally, changes in ongoing landlord laws can impact the way that these businesses conduct their operations. Given this time of economic uncertainty, there are expected to be some regulatory changes.

Property Rehabber SWOT Analysis

In any economic climate, there are always distressed properties that can be acquired at a discounted rate with the intent to resell them at profit or rent them for a substnaital capitalization rate. One of the best aspects to owning and operating a property rehabilitation firm is that these businesses can easily obtain debt financing in order to acquire the property and leverage the return-on-investment. For properties in wealthy areas and other high economically viable markets, there are always investors that are willing to provide capital for these projects as well.

Strengths

For individuals that are highly trained in the fields of construction, contracting, and design – property rehabilitation can be a highly lucrative enterprise. The properties that are generally acquired for these purposes are usually 30% to 50% under their market rate value given the substantial work that must be done to the property. The returns-on-investment for each dollar of improvements made are substantial. This is especially true for multi-unit properties.

As discussed throughout this website, real estate focused companies enjoy substantial access to capital given that banks love when tangible property is the underlying collateral. It should be noted that many property rehabilitation firms often acquire lines of credit that are secured by properties that are purchased outright at the time of closing.

Weaknesses

As with any major property rehabilitation, there are going to be problems throughout the course of the project. Contactor issues, permit issues, and unexpected issues with the property are all stock-and-trade for this industry. As such, it is imperative that the entrepreneur that is starting this business have a complete understanding of proper construction methods.

One of the other issues that a property rehabber can face is that market conditions can quickly change during the course of a large scale renovation. As such, a substantial amount of capital is generally kept on hand in order to manage carrying cost and unexpected delays between the time of completion and sale (or rental).

Opportunities

Given that many major areas often have hundreds (if not thousands) or properties that are in need to rehabilitation, the opportunities for a property rehabber are endless. In many areas there are specialized tax incentives for developers/rehabbers that are able to improve properties.

As discussed above, access to capital is usually a straightforward process for many businesses in this field as real estate acts as the collateral. Additionally, substantial equity is quickly generated at the end of each project. In the event that a property is slow to sell, a long-term mortgage can be acquired in order to refinance the debt that was used to carry out the acquisition and rehabilitation.

It should be noted that a successful track record is developed; many property rehabilitation firms will use syndication methods (sourcing capital from a number of real estate investors) in order to take on larger projects (including multi-unit properties).

Threats

The biggest threat among property rehabilitation firms is the ongoing and rapidly changing economy. However, residential real estate is always in demand (especially in markets that need affordable housing).

Competitive issues are more of a minor threat for this type of business. It is imperative that a property rehabilitation firm produce high quality homes that are affordable (either via sale or through rent).

Apartment Building SWOT Analysis

Multiunit properties are generally the least risky form of real estate investing given that a single vacancy does not generally cause a substantial issue for satisfying underlying financial obligations. This is especially true for properties that have ten or more units. It should be noted that the package offered on the website includes a plan specific for the acquisition of a moderate scale multiunit property (in addition to two other business plans specific for ongoing real estate investment as well as property rehabilitation). This article will showcase the strengths, weaknesses, opportunities, and threats faced by real estate investors that focus their acquisitions on multiunit property buildings.

Strengths

As discussed above, these types of properties are generally able to generate substantial rent rolls in any economic climate as the rental fees associated with multiunit properties are substantially lower than single-family and duplex styled properties. The ongoing risks related to managing these properties are lower given that the rent roll is not centralized on one specific tenant.

Given the economic security of these properties, banks and financial institutions are always happy to provide acquisition loans as well as refinancing credit facilities. The terms of these loans are preferable.

Weaknesses

These properties often have slightly higher default rates given that they cater to the needs of lower and lower-middle income earning people. During difficult economic conditions, rent generation can be difficult as unemployment rates increase. As such, many owners of these types of properties should have substantial cash on hand to deal with these potential issues.

It should be noted that these properties also face competition from similar facilities in any market. In order to keep occupancy high, many owners of these properties will often offer amenities such as free internet. This can contribute to a higher operating cost.

Opportunities

Quite simply, the method of expansion is to acquire additional properties. Many real estate entrepreneurs will hypothecate their initial property in order to finance additional acquisitions. As discussed earlier, the acquisition of additional rounds of capital to acquire new properties is a straightforward process for real estate.

Threats

As with most real estate ventures, the biggest threat that these companies face are negative changes in the economy. Major deleterious changes can impact rent rolls as well as the underlying financing costs (which is a limited risk at this time as interest rates have dropped substantially over the past four months).