real estate investment
16 June 2022

Real estate investment: value-add operations with wellness services

Getting a good return on Real Estate investments is not an easy task. It is often assumed that the higher the gross return on the asset, the higher the return will be. However, you may have obtained a building with a gross return of 4.5% and obtain a higher return than one whose gross return is 5.1%. The change factor in this equation is the interannual leakage of the building.

 

How can we calculate a building’s leakage?

Leakage refers to the difference between the gross value and the net value of a building. This difference, for its part, has to do with the profitability that is achieved from the building, as well as the annual expenses related to the maintenance and management of the property (cleaning, energy supplies, contingencies, management personnel, security, etc. .). The efficiency with which the property is managed, as well as its condition, will be key factors in reducing this leakage. The average is usually around 30% of the gross value of the building, reaching a reduction of up to 15% in cases of optimal management and condition, and becoming a high 60% in more extreme cases of poor administration and degraded state of the facilities.

To maximize revenue, it's tempting to offer short-term rentals so you can raise prices more often. However, you run the risk of ending up with multiple flats empty for long periods of time, sending those revenues plummeting. In addition, the search for new tenants is accompanied by various extra costs, such as the hiring of Real Estate personnel, advertisements, contracts, preparation of the apartment, and the like. In summary, building tenant loyalty to achieve long-term rentals is key to obtaining good profitability.

As we know, the property’s best assets, such as a good size and equitable distribution of spaces, allow costs to be reduced and improve the user's well-being, building loyalty and lengthening rentals. However, each building is different and this factor cannot always be controlled, which is why many leading Real Estate companies have chosen to invest in innovation.

 

Investment in real estate innovation to reduce leakage

Investments in Real Estate technology have become very popular. So much so that the Proptech sector raised 8,210 million euros in the first half of 2021. Investing in innovation can reduce the leakage of a building by up to 20%. We are talking about innovative services such as Smart Point, which allow automation and optimization of building systems, allowing owners to reduce costs:

 

  • The Smart Points are intelligent multi-service points that allow the user to access convenience services, parcels, and online purchases without having to leave the building.
  • It is also an essential ally to retaining tenants, allowing the owners of leading real estate buildings to maximize the duration of the rentals, reducing the costs of management and remodeling of the flats, and being able to increase their profitability in the medium and long term.
  • After obtaining innovative services such as the Smart Point, Mimeisa managed to raise the price per m2 of several of its residential buildings by an average of €8/m2 above the average for the area in which the building was located.
  • The Torre de Glòries building managed to reduce the costs of management personnel thanks to the implementation of the policy of receiving all parcels from the building at the Smart Point.

 

It is also interesting to explore the opportunities to implement sustainability initiatives through technology such as AI and home automation, which allow processes to be automated and therefore avoid the inappropriate and unnecessary use of energy resources, earning sustainable labels and certifications such as BREEAM, LEED and the like.

 

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  +34 93 112 67 57
  hola@smartpoint.ai

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