Financial advising and personal approach: how to build an effective real estate investment portfolio and not to tire the client

Real estate has been and remains one of the most popular and stable investment tools, especially in times of crisis. Therefore, investors' interest in direct investments in residential and commercial areas, and investments in real estate funds is growing now. However, choosing suitable objects as assets is not an easy task if there is no experience in this field or there is little of it.

To facilitate this task for a private investor, Kalinka Group has developed a new product for compiling a real estate investment portfolio. How to simplify the selection of real estate objects for the client, why a financial adviser is needed here and why effective asset selection is manual, not automated, said Andrey Revenko, CEO of Kalinka Middle East.

What is this product and for whom

We offer wealthy clients to work with a financial adviser and compile an individual real estate investment portfolio (IIPN) by our team of analysts, who have gained experience working with real estate in Russia and around the world.

The product is primarily intended for customers with a check of $3 million or more who want to diversify their investments. People often separate real estate from other types of investments, but the same rules apply here as with other assets: you cannot invest all your money in one object. However, the principle of diversification is often used with stocks, and with real estate — almost never.

A financial adviser is a person who is professionally versed in compiling a portfolio of real estate investments and in the world of finance in general. This is the person who first of all analyzes the client's request, determines what exactly the client wants. In fact, this is difficult, because the client does not always fully understand what he needs, or he does not have time to figure it all out. He is looking for a way to make a profit with a certain degree of probability, he knows that real estate is a good tool, and that's it.

It is important not just to choose a profitable object, but to make up a common real estate portfolio. And select objects in this portfolio, taking into account those that are already in it. To do this, it is necessary to discuss, for example, what the client has a fixed yield on bonds or what deposits he has. The client may decide that he wants to buy a property abroad that will give a good rental rate. He knows that there is a great demand for real estate in Dubai now, and he is starting to look closely.

In Dubai, a good rate is 6.5—7%, but this may not be suitable for a particular client. Now the Fed's key rate is 5.5%, so bonds give the same 6.5–7%. For a particular client, it may not be the best idea to buy a real estate object that is difficult to arrange, which then still needs to be handed over to someone, from which you somehow need to receive payments, when you can now buy a bond that will give the same yield. At the same time, fewer actions need to be taken to buy a bond — sometimes just one click of a button in the application is enough. Because of such moments, it is important to evaluate the overall real estate portfolio.

Difficulties of self-investment in real estate

The client can form an investment portfolio of real estate himself, but there is a risk of several — sometimes quite critical — mistakes. They are faced by those who have not invested in real estate before.

Firstly, when an investor begins to consider real estate as an asset for himself, he often sees the most obvious way — to buy an apartment and then either rent it out or resell it. Where, how, why she is to him, what she will give him, what he will do with her after a conditional 3 years — he does not think much. It is enough to understand that an apartment is a good investment. And evaluates it as when buying ordinary housing: conditionally, there are 3 rooms, high ceilings, a balcony, a good view, a new residential complex, excellent infrastructure nearby, a developing area.

This approach is not bad and even relatively working if the investor chooses an apartment in a familiar market — for example, in Moscow, where he really knows which area will be in demand from the buyer or tenant, and which one is not. But even here the investor chooses an apartment, partly based on his personal preferences and experience: not objectively, as he would choose conditional stocks and bonds. And if he enters a foreign market, he understands even less which object there will be a good investment and which one will not.

Ignorance of the specifics of the market makes it very difficult to understand where the really liquid objects are and where they are not. For example, if a person knows how Moscow is developing, he understands that the center is developing here and the suburbs are developing. This means that both there and there housing will gradually become more expensive, potentially it will be profitable. But starting to consider real estate in conditional Dubai, it is impossible to apply the principles of Moscow's development, because in Dubai the growth of the city goes from left to right. If you take the object on the right, it will increase in price in the near future. To take it from the edge to the left — the price increase will be much less significant, if at all.

In addition, without a deep knowledge of the market, people are sometimes guided by stereotypes, their life principles and experience. Sometimes it goes to the detriment. For example, when coming to Dubai, people start looking at real estate by the sea or with a sea view, they are ready to pay 1.5 times more for it. However, from an investment point of view, in fact, there is no difference between "there is a sea view" and "there is no sea view". This factor does not affect the profitability of real estate in Dubai. And there are a lot of such little things.

To know all these little things, as well as to throw away your life experience and principles and look at real estate and the market not through their prism, you need to study the market very deeply. It is not a day or a week that you need to lay down for this. And wealthy clients don't have that much time to analyze what they don't need in their core business. And here the help of third-party analysts and advisors becomes valuable.

How the work is being built

A financial adviser fully advises a wealthy client on all investment issues with an emphasis on premium real estate, reads the request and goes to analysts to try to find the most suitable options and assemble them into an individual real estate investment portfolio. There is not one option — there are 3-4 or more of them to ensure diversification. An important point here is that each real estate portfolio is assembled individually for the client, there cannot be two identical ones.

And it is assembled not with the help of neural networks and AI, but with a team of live analysts who rely on data and their practical experience. Digitalization is great, but wealthy clients deserve more: they should receive individual service and a personal approach to themselves and their needs. Therefore, the real estate investment portfolio is assembled manually.

Then the adviser presents this real estate portfolio to the client in one page format — as succinctly as possible, with an A4 page. Our client is a person with a limited amount of time, and he can allocate 10 minutes to discuss an investment strategy, and this is already luck. During these 10 minutes, you need to clearly convey everything: briefly and in clear language. There is a description of the task, there are suitable real estate objects, there is the profitability of each of them and details: completed or not, when it will be completed, what kind of rental, what length of stay in this investment, and so on.

The average value of the portfolio, the basic (conservative) and positive scenario are necessarily calculated. Positive is when something happens for each object beyond the basic plan. For example, it is possible to sell a particular object faster than others. In addition, we must provide risks and conclusions.

Thanks to the personalized approach, the investor has the most understandable picture: he has a specific request, he receives potentially suitable options, key details are indicated for each, and an action plan for 4-5 steps. From one page, he can easily read everything, draw conclusions and make a decision for himself. If necessary, he discusses emerging issues with the adviser, because in one step the key to the client's heart cannot be found. And as a result, the investor decides to buy the entire portfolio or only part of it.

The investor works with a personal broker who monitors each property. For each real estate object at the stage of making a portfolio, we consider 2 strategies. The first is a long wait and then surrender. The second is to try to sell early under certain conditions. The broker's task is to monitor how the dynamics of prices for each of the objects is changing, and to inform the investor about it — in the format and with the frequency that is convenient for him.

Creating a positive scenario also falls on the broker's shoulders. For example, we have a client who is ready to sell an object from his portfolio when this object only increases in price by 10%. This is a positive scenario strategy for a specific client. The broker can find buyers for such a deal, communicate with them, and then come to the client and say: "We have a positive scenario, I have found you a client who is ready to buy 10% more expensive. Selling? We sell!".

What are your plans for the future

If the product is successful, we will work on making it digital in the near future. So that the client receives an offer not in one page format, but in digital format — with a link to a personal page. It will also be concise, in one sheet, but with a distinctive feature: with the ability to expand the page and get instant answers to emerging questions. This is the main advantage of the digital format over the paper format, which will be accurately appreciated by wealthy clients.

In addition, we plan to make it so that when a person looks through his real estate portfolio, he can leave some of his notes where he has questions. The client doesn't have much time, so he can just tick the boxes in a format that is convenient for him. The consultant will see these questions and prepare answers before going to a meeting with the client.

Thanks to this option, both sides will not waste time where they could save it: they will not need to ask the client what questions they have at the meeting itself, to think about the answers to them. The client has already marked all his thoughts, the consultant has found the answers in advance, and the meeting becomes more productive for everyone.