If you are considering starting an investment path with commercial real estate (CRE), you should know that there is software designed to help you with every part of the process. CRE software, when top-quality, is all-in-one. From giving your data and important information (and documents) a safe place, to helping you walk through the steps of a loan. CRE software is a necessity if you want to get into the real estate scene.
About CRE Risks
Now, we would be remiss to not speak about the risks associated with CRE. Before you begin the dive into the area, you should consider looking into real estate notes and the risks of it. The short version is that there are different types of risks that should be considered before getting into a property. There are generally three types of risks, each of which will be spoken about here, and the rule of thumb here, is that the return you get from your investments will be proportional to the amount of risk you take. Risk more, get more. And luckily, with the help of a good CRE software, the risks diminish greatly. So, despite the risks, investing in CRE is a viable and great way to grow wealth.
Credit Risks & CRE Software
This is the risk that is associated directly to the borrower’s credit on a note. Basically, you will need to calculate and assess the borrower’s ability to make payments, and the likelihood of that happening. Most of this risk is foggy since nothing is really in cement until post-investment. The risk involves the borrower’s credit score, their income, and their property income. Every note carries some sort of credit risk with it, since nothing is ever for sure in this life.
CRE software will help you assess the credit risks and choose if the borrower is a good match for you. You can set your own, custom rules for what you consider to be credit consistency, and that will help you filter out the possible people to invest your time and money with. Doing it like this, eliminates most of the risk, and will help you to make your CRE more profitable.
Collateral Risks & CRE Software
Collateral risks are, really, for you more than the borrower. That is, the risk assesses whether or not you can use the money of the property as a liquid asset to pay back whatever investments that need repayment. So, it is the ability for the property, once sold, to return your entire investment in a worst-case scenario like a foreclosure. This is important to keep tabs on because your property acts as a liquid value, and if your borrowers destroy it, that value lowers.
CRE software helps you here by giving you consistent access to every part of your collateral considerations. From being able to review your commitments, to drafting and figuring out loan paperwork, and giving you tools to be a better manager to keep that property value high—CRE software helps you holistically with every part of the process.
Investment Risks & CRE Software
Every investment is different, so there is no way to give one situation and then a solution for it using CRE software, like the past two. Instead, what needs to be known about these risks is that there are many possibilities, and they all work like terms and conditions. Most of the time, these risks come from terms reaching their maturity, interest rates changing, late payments or defaulting clauses in the agreements, payment histories, and loan-to-value or invest-to-value on a property. All of these are risks because they impact you and your ability to do future investments when they go wrong (or right!).
CRE software can also function as a commercial loan software. Your entire investment is essentially a loan broken up into fragments. The software will help you by keeping all of the contracts and loans and essential information that you need, in one place. Further, it will help you to benefit with profits by letting you understand more about the things you have agreed to, and the things that everyone else has agreed to too.
Things to Keep in Mind
Many people approach CRE as the Wild-West. They want to pick up as much property as they can, ‘flip it’, and then spit it backout at the nearest, highest, bidder. This works well for short durations but can work out poorly for long term investments. You don’t want to be churning through so many houses that work is not completed, or it is poorly done. Further, there are a lot of other risks which come from a CRE; a significant number of them can be solved using the correct CRE software.
Jason is the Marketing Manager at a local advertising company in Australia. He moved to Australia 10 years back for his passion for advertising. Jason recently joined BFA as a volunteer writer and contributes by sharing his valuable experience and knowledge.