As I mentioned in the last post, we have one overarching principle at the firm: “Do things with sincerity and success will follow.” In light of this, I want to explain how we at SmartCrowd evaluate and analyze property investments for our users. We have a very stringent process in place and always use objectivity and data to list investments on our platform, not opinions.
For all those that have experienced the SmartCrowd way, you know that we provide all our analysis (along with third-party due diligence reports) so that users can make informed decisions before making investments. Of course, we’re extremely proud to know that many users on the platform have built a genuine relationship with us founded on trust, and often make investment decisions after just glancing at the documents we provide. We’re not saying this is what everyone should do – what I want to get across is that we want to build that trust and level of transparency with everyone. Everyone needs to and should feel safe about the decisions they make.
So, enough about that jibber-jabber. How do we analyze property investments?
We have developed a sophisticated data model that evaluates various factors of each potential investment opportunity that is presented to us. Typical things that we look at include: price, location, size, service charges, floor, view, finishing, amenities, length of the tenancy contract, and many others. To give you an idea, I’ve shared a snapshot of the model below that we use for our analysis. Everything in the model is proprietary and built by us. We built this with members of our team who have many years of experience evaluating real estate projects in the hundreds of millions. I also don’t like to say this often, but as a qualified chartered accountant who also holds a Chartered Financial Analyst (CFA) designation along with over a decade of experience at some of the top financial services firms, I consider myself in a good position to oversee the firm’s investment activities.
The tool illustrated above is merely used as a qualifying tool to find deals that we would further like to evaluate. Anything that passes our initial assessment with this tool is further scrutinized via a deep dive property investments analysis.
What does a deep dive property investments analysis entail?
Many things. A bit too many to list to be honest. However, in the interest to show you how much detail we go into, these are just some of the additional things that we look at before listing a property on our platform. They include:
- Conducting a thorough supply and demand analysis for the area by looking at real estate data in terms of activity in a particular area
- We also assess supply and demand by getting a sense of google traffic data, DEWA activation (water and electricity) and deactivation requests in the building/area
- Physical inspection of the unit by visiting the property and taking note of any excessive wear and tear, if any
- How long the current tenant has resided in the property, their place(s) of work, and the industry or industries they work in
- Studying similar recent transactions and gauging what the price and rental trends of the particular property look like at that given point in time
As our first choice, we prefer units that have at least 6 months of their tenancy contract remaining. However, when pricing these properties, we use current rental rates and – in some cases, discount to factor in for further anticipated reduction.
The reason we do this is to provide some downside protection for our users (investors). In simple terms: if the lease were to renew at lower rental rate or if a tenant was to vacate, we very well may have to accept a lower rent the following year. But, by being proactive in our approach and being mindful from day one, we can come as close to ensuring that the net return will still be at market or above market even after renewal.
As many of our users and investors on the platform know, we often show a conservative yield and many times return back to our users to tell them they should expect higher returns when a property gets funded (this is not always the case, but it does happen).
When you use SmartCrowd, we want you to walk away with two things: 1) You realize you’re getting a healthy return for your money and; 2) You have comfort in knowing that your capital value is protected because of the types of properties we analyze and list.
To provide you with some context, in 2019 our team looked at over 232 properties valued at approximately AED 300 million. Yet, despite that astounding figure, we only qualified and listed 10 properties on the platform.
As a parting thought, I’d like to leave you with this. As an investor it is of utmost importance that you understand risk vs reward dynamics. When we list two different types of properties on our platform, we do thorough due diligence on both of them; the property that offers a net return of 8% and the one that offers 6%.The one offering higher return is not necessarily a better investment option – it’s another investment option. Return is a function of risk – the higher the risk, the higher the return; the lower the risk, the lower the return. The beauty of our platform is that it allows you to diversify and invest in different types of properties whether they’re income generating or prime properties. After all, we want to give you enough exposure to create an optimal portfolio according to your level of risk.
