Dallas Tanner, Invitation Homes CEO, joins ‘Closing Bell: Overtime’ to discuss the rising rate environment and its impact on the housing market
05:20
Fri, May 26 20234:36 PM EDT
Invitation Homes CEO on rising rates and the housing market Read More »
In this article, we continue our dive into ancient wisdom applied to a modern startup context by … [+]
Although ancient Greek philosophy isn’t the first thing that comes to mind when you think of modern tech startups, during your startup journey you’ll find that a large part of your struggles are related to your own character and are not that unique to modernity. Some of the best advice on the subject is one that has withstood the test of centuries.
In this article, we continue our dive into ancient wisdom applied to a modern startup context by exploring 10 quotes from four famous Ancient Greek philosophers.
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“The worst of all deceptions is self-deception.”
Self-deception can be a detrimental pitfall for startup founders. This is why the key to success in early-stage startups usually lies in validating your own ideas and assumptions before investing resources into building a real business.
“For a man to conquer himself is the first and noblest of all victories.”
As mentioned earlier, most of your struggles as a founder would be related to your own character. You’d have to find the strength to push yourself to do the things that you know need to be done despite being outside of your comfort zone.
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“We are what we repeatedly do. Excellence, then, is not an act, but a habit.”
Success doesn’t come from occasional bouts of inspiration and passion. It comes from putting in excellent work day in and day out.
Through continuous learning, refining skills, and embracing a growth mindset, you can create a foundation for long-term success. Is your average day something that would lead you to success if you repeat it indefinitely?
“You will never do anything in this world without courage. It is the greatest quality of the mind next to honor.”
Daring to succeed is synonymous with accepting that you might fail and being OK with bearing these consequences. You need the courage to face daily the never-ending uncertainties of the life of a startup founder.
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“Moral excellence comes about as a result of habit. We become just by doing just acts, temperate by doing temperate acts, brave by doing brave acts.”
While this quote is focused on building character (which is entirely applicable to startups), it is also how you build skills. You learn to build by building, to sell by selling, etc.
“Character is destiny.”
This is another iteration of the idea that in order to succeed, you need to become a person capable of success. Focusing on personal and professional growth is crucial for your long-term success.
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“There is nothing permanent except change.”
This is a statement that you need to celebrate, because as a startup founder change and volatility are the environment in which you can out-maneuver and out-smart the established big players on the market. Without change, there would be no startups. Dealing successfully with considerable changes in the world is why innovation is required in the first place.
“Big results require big ambitions.”
Last but not least, you need to be comfortable thinking about scale. Startup success is quite often nothing more than finding small-scale validation for the solution of a problem and scaling it up sustainably to a larger market.
“The way to gain a good reputation is to endeavor to be what you desire to appear.”
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Since projects come and go, a good reputation of competence and integrity is crucial for your long-term professional success, and the startup field is no different.
Don’t sell your integrity for short-term gains. You win at the startup game by being able to play for as long as possible, and you need the support of people around you to do so.
“An unexamined life is not worth living.”
Finally, it’s worth stopping every once in a while to check the compass and evaluate if you are on the right track professionally (and personally). Successfully building a business from scratch is an extremely difficult task. Make sure you are doing it for the right reasons and that you are enjoying the journey, not just coveting the destination.
10 Quotes From Ancient Greek Philosophers Useful To Startup Founders Read More »
Several days ago, the Wall Street Journal published an article about real estate syndicator Applesway Investment Group (owned by real estate entrepreneur Jay Gajavelli), which lost more than 3,000 apartments across four rental complexes that went into foreclosure.
What led to one of the largest commercial real estate bursts since the financial crisis of 2008? In a nutshell, Gajavelli’s company held floating interest rate loans where payments ballooned. Inflation brought higher expenses, but rental revenues could not compensate for the difference. Thus, bills became overdue, ultimately leading to these properties’ foreclosures. Thousands of individual investors looking to generate passive incomes (without being a landlord) have now been left empty-handed.
Between 2020 to 2022, syndicators raised a staggering $115 billion. As well, there were over 300,000 investors who participated in syndications in 2021, according to Financial Samurai.
As much as I would like to believe that this is a one-off scenario, I’m leaning towards that this could have a ripple effect that could affect the industry.
Assuming that other major syndicators carry loans with variable rates (without an interest rate cap), they will feel the financial pressure of increased payments. This is due to the Federal Reserve aggressively hiking interest rates for the 10th consecutive time since March 2022. And syndicators most likely won’t be able to escape from renewing at higher rates in the near future.
Aside from that, there are a variety of factors where things can go downhill. For instance, having poor property management, underestimating operating expenses, and a shortfall in rental income to keep them afloat could cause the business model to weaken. It won’t be nearly as devastating as the housing market crash in 2008, but I wouldn’t be surprised if we see a handful of syndicators go belly up this year.
I personally believe that all of this could have been prevented had the government—at both the state and federal levels—taken more responsibility to protect individual investors.
I’ll give Congress the benefit of the doubt that they had good intentions in passing the JOBS Act in 2012, allowing syndicators to advertise real estate investment opportunities online. This made it more accessible for American families to invest. On the surface, this sounded like a great idea. In reality, the cracks in the system have led to this devastating outcome.
It’s a complex problem that won’t be solved overnight. However, there should be accountability for all stakeholders involved. For one, I believe that syndicators should take responsibility by being transparent about their financial performance to their investors. Regular reporting to all their investors would go a long way in building trust between both parties.
Further, there should be more legal protection provided to individual investors. If I were in their shoes, I would want to know how my investment is doing and not be blindsided until it’s too late.
Also, shouldn’t syndicators have skin in the game? If they’re asking for investors to pony up large sums of money, shouldn’t they do the same?
These victims are hardworking citizens trying to fulfill their “American dream.” Now thousands of lives (possibly more) are in shambles because of this flawed system. It’s a tough lesson for these small investors who must rebuild their financial nest egg.
If you want to become a passive investor with a syndicator, here are a few ways to be proactive and protect yourself.
Hopefully, with these tips in mind, you can make educated decisions about what real estate investments suit you. Again, we can’t predict what will be the fallout of this event. It could be isolated. But I stand by that if foreclosures can happen to one syndicator (and unless others are being more diligent), then we may see more on the horizon.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
Cedric Bobo discusses a new program for Black student-athletes to transition into the commercial real estate market.
Diana Olick | CNBC
When Darius Livingston graduated from the University of California, Davis, two years ago, he knew his football career was over. Like most of his former teammates — and the majority of college athletes — he wasn’t going pro.
Instead, Livingston went into commercial real estate, thanks to lessons he learned from a paid internship program that teaches young students of color the fundamentals of finance, with a particular focus on real estate investing.
The program, Project Destined, is a social impact platform founded by former Carlyle Group principal Cedric Bobo.
Bobo made a name for himself in real estate investing and then decided to pay it forward. He launched the finance program in 2016 primarily for high school students. Then he broadened it to colleges, seeing the opportunity for both internships and jobs before and after graduation.
Eager to diversify their workforces, some of the largest real estate development, finance and management firms have signed on to fund the internships and mentor the students. That includes names like Boston Properties, Greystar, Brookfield, CBRE, Equity Residential, Fifth Wall, JLL, Skanska, Vornado and Walker & Dunlop.
The program has trained more than 5,000 participants from over 350 universities worldwide and has partnered with over 250 real estate firms.
And now, it’s gearing some of its efforts specifically toward Black student-athletes.
After doing a pilot program recently with student-athletes from UC Davis, Bobo has announced a partnership with the Black Student-Athlete Summit, a professional and academic support organization, to offer paid, virtual internships to 100 student-athletes from nine Division I schools. It includes 25 hours of training.
“Program participants will also join executives to evaluate real-time commercial real estate transactions in their community and compete in pitch competitions to senior industry leaders,” according to a release announcing the partnership. “The internship includes opportunities for scholarships and networking.”
Livingston went through the UC Davis pilot in his last semester of college, then got internships with Eastdil and Eden Housing. He is now an acquisitions and development associate at Catalyst Housing Group, a California-based real estate development firm and a financial backer of the new partnership.
“I think, for me, it was really a realization that I probably won’t be a first-round draft pick, and that’s OK,” explained Livingston. “It’s really being exposed to other opportunities. That’s why I’m so blessed to have Project Destined come along and expose me to the commercial real estate industry and the mindset that I deserve to be an owner in the communities that I live in.”
That right of ownership has long been Bobo’s mantra and was the crux of his pitch as he announced the new arm of his program to hundreds of students at the Black Student-Athletes Summit at USC. He wants them to understand that they can create change in their own neighborhoods by owning and managing real estate. More important, he wants them to know that ownership is possible.
“Our program is not just about how we see you all,” Bobo said of the real estate executives who were on hand for the announcement. “It’s how you see yourselves.”
While the graduation rate for Black student-athletes is improving slowly, a lot of students who were showered with resources in school find themselves struggling once they finish their athletic endeavors and get out in the workforce.
“A lot of these kids may think they’re a first-round draft pick, and that is a percent of a percent of a percent of a percent, so it’s really being real with yourself and knowing that you deserve much more than what you’re simply exposed to, and that’s just sports,” Livingston said.
Financial support for the program comes from real estate firms including BGO, Brookfield, Catalyst Housing Group, Dune Real Estate Partners, Jemcor Development Partners, Landspire Group, Marcus & Millichap, Virtu Investments and The Vistria Group, among others.
“The expansion of this platform is a natural evolution of this collective effort and will provide tangible pathways for thousands of Black student-athletes to pursue future careers in commercial real estate,” said Jordan Moss, who is also a former student-athlete at UC Davis and the founder and CEO of Catalyst.
Project Destined also has been working with the NBA and the WNBA to give professional athletes more options after they’re finished with their athletic careers.
Livingston said he thinks athletes make the best employees.
“We play to win,” he explained. “It’s the competitive nature. We want to outwork our opportunities.”
Commercial real estate firms join to recruit Black student-athletes Read More »
Two people working on a strategy together on a laptop
Technology is digital marketers’ gateway to lead gen and relationship building. So it’s no surprise that the rise of AI is reshaping their approaches. But because AI itself is evolving, some skepticism and hesitation are natural.
Will this emerging technology’s capabilities transform online marketing to the point where it’s unrecognizable? Or can companies leverage it so it’s a positive and fruitful source of disruption? Here’s how AI stands to impact the digital marketing world and influence marketers’ strategies.
Without online content, digital marketers can’t reach their target audiences. But the content creative teams spend precious time crafting doesn’t always make a splash. You can carefully map out a content strategy with every single detail, including desired outcomes for each piece. Yet you’ve got to have the talent to produce those pieces at a high level of quality and a breathtaking pace.
Constantly brainstorming and executing content ideas to perfection is unrealistic, even for teams at the top of their game. Inevitably, human brains come to a standstill. Call it writer’s block, a rut or a creative slump. It happens to content creators all the time. And the pressure to produce something can mean pieces that don’t match a strategy’s ambitions.
While the debate rages as to whether AI will replace human content creators, it can be a good ally. AI can generate outlines based on inputs, such as audience characteristics, keywords and search intent. The technology is able to build structures for entire blog posts or articles, helping writers focus on the points they need to drive home to specific audience segments.
AI tools developed by content marketing firms such as MarketMuse elevate those capabilities. With the help of ChatGPT, the tool makes outlines infused with topic modeling data that can then be turned into blog posts ready for a human touch. Content teams can fine-tune those pieces, ensuring they match strategic intent.
AI saves time by streamlining the creative process. It also helps raise the bar on quality, so published pieces produce better outcomes and content strategies come to fruition.
Marketing strategies develop from data about human behavior. However, digital marketers may discover what they thought they knew about an audience isn’t quite right. Or the information they have is too generalized. It doesn’t provide enough fine-grained insights to develop a goal-crushing campaign.
Digital marketers also see market data through a subjective lens. They may miss patterns because of biases and assumptions. Even the culture of the companies marketers work for can influence the interpretation of data such as customer surveys. Executives looking for a quick fix may unknowingly promote a “be everything to everyone” approach. Consequently, digital marketing messages become too generic.
But AI can sort through large volumes of market data without ego. The tools pick up on patterns across multiple sources, including chatbot conversations and social platforms.
While AI can inform digital marketers of aggregate audience insights, it also shows what’s happening at the individual level. A customer’s past Starbucks coffee purchases can predict if they’ll engage with promo messages in an app. AI helps personalize strategies so they feel more conversational.
Augmented reality is expanding the definition of content marketing. Customers are looking for more than words and videos to engage them. A NielsenIQ survey of shoppers shows 56% say augmented reality increases their confidence in a product’s quality. And around 61% of consumers prefer to shop with brands that offer AR experiences.
When digital marketers use augmented reality, it can influence customer behavior, engagement and sales. The technology encourages shoppers to linger longer. They’re more likely to try more products in online environments. AR experiences can also boost sales. That said, research shows the technology is more effective with brand-new buyers.
Digital marketers targeting new audiences may want to incorporate augmented reality into their strategies. Retailers such as Crate & Barrel already offer this capability to shoppers who may have concerns about buying items like furniture online. Exploring AR environments helps overcome objections to the sale by showing how purchases will look and feel in people’s homes.
These experiences can also extend to behind-the-scenes content about a brand and its locations. People unfamiliar with a company and its products are able to interact in a low-risk environment. They can learn about a brand’s values, gain knowledge about its offerings and “visit” locations they otherwise wouldn’t be able to. Interactive content with built-in augmented reality builds trust and interest without coming across as intrusive.
AI promises to change how the world works, including the ways digital marketers reach audiences. While relying on technology to drum up interest and sales is part of a digital marketer’s playbook, AI expands it. With the tech’s abilities, your strategies can become more streamlined, personalized and engagement-oriented.
The Rise Of AI And What It Means For Your Strategy Read More »
News of a potential housing market correction often causes many Americans to be concerned about the global economy, but this concern may be unfounded. A correction isn’t necessarily a bad thing. It may help to improve housing demand and inventory when property values increase faster and higher than the norm.
Housing market corrections impact people differently, and there are both pros and cons to consider depending on whether you are buying or selling. For the real estate investor, a market correction may represent a great opportunity to purchase a property at a discount and grow your investment portfolio.
A housing market correction is when the real estate market experiences a downturn and property values decrease. Housing market corrections may be regional or national and occur when prices exceed what the market can sustain.
Instead of being a cause for concern, a correction may benefit the overall economy as the real estate market returns to sustainable levels. The overall value of the real estate market typically decreases by 10% or less in a correction.
A housing market correction differs greatly from a housing bubble and market crash. A housing bubble is when a rapid increase in home prices occurs due to limited supply and high demand.
In a housing bubble, home values are driven far above what the market can sustain when bidding wars break out. Speculators hoping to generate quick profits also contribute to the rapid price increases. The bubble then bursts, and prices crash when the demand decreases or the supply increases (or both).
Unlike in a housing bubble where prices decrease rapidly and significantly, housing prices drop much less and slower in a correction. The lower prices allow buyers to get better deals and have more homes to choose from. On the other hand, sellers may get less, and their homes may take longer to sell.
Several factors may contribute to a housing market correction. However, all of the factors do not have to be present for a correction to occur. Property values could decrease with just one.
First, the availability and affordability of mortgage credit may cause the housing market to contract. Mortgages may be harder to obtain due to economic uncertainty. For example, news of the closing of a local manufacturer that employs many people could cause local lenders to be more cautious in approving home loans.
Lenders may also tighten their lending standards during recessions or when analysts predict a recession is near. Fewer people will then qualify for mortgages, resulting in decreased housing demand.
Job losses are another important factor. During an economic contraction, many companies downsize their workforces to save money, streamline processes, and stay competitive. This results in fewer people who can qualify for mortgages.
Finally, rising interest rates directly impact the cost of borrowing. Depending on the amount borrowed and the loan term, a 1-2 point interest rate increase could add tens of thousands of dollars to the total cost of borrowing over the life of a loan. The increased monthly payments make homeownership unaffordable or force buyers to settle for lesser expensive homes.
If you are thinking about investing in a property during a housing correction, there are some important pros and cons to consider. Be sure to consider these and other factors carefully before making an investment decision.
As an investor, the primary benefit of a housing correction is that you can take advantage of lower home prices. This could allow you to get a great deal on new assets or buy more properties.
If fewer people buy homes because of economic uncertainty or rising interest rates, there may be more inventory on the market to choose from. This may allow you to buy a property that suits your preferences and needs better. It could also mean less potential for a bidding war to break out among buyers.
When fewer people buy homes, the demand shifts from buying to renting. As a real estate investor, the demand for your rental properties may increase during a housing correction. This may allow you to charge a premium or be more selective with tenant applications.
This isn’t a contradiction to the previous point. When real estate prices fall, some sellers may take their homes off the market to wait for better market conditions, resulting in less inventory in some places. Whether there is more or less inventory in a correction will vary depending on the location.
If market uncertainty is a factor that contributed to the correction, lenders may tighten their lending standards and make obtaining a loan more difficult. However, this doesn’t mean you can’t get the funding you need to grow your portfolio.
If obtaining a loan through a traditional lender isn’t possible, you may be able to get the funding you need through a hard money loan or private lender. Although these lending options typically charge higher interest rates, you may be able to refinance after the correction ends and the economy stabilizes.
Because increasing mortgage rates are a common cause of corrections, you may have to pay more in interest over the life of the loan. This could represent a significant increase in the cost of borrowing.
If you buy a home in a market correction, the home’s value may decrease after you buy it, reducing the equity you have in the home. It could also result in a situation where you are underwater on the home, which means you owe more on your mortgage than the home is currently worth.
Due to falling prices, a housing correction may not be the best time to sell. There are some important considerations for investors; however, that may make selling during this time a smart move.
Although a housing correction is when national prices fall, selling may make sense if you have an underperforming asset or a property that is challenging to maintain. Removing it from your portfolio could allow you to reinvest in an asset with greater long-term potential.
If you are experiencing cash flow or liquidity problems, selling a house or other investment property in a housing correction may allow you to reduce or eliminate debt. Whether this is a viable strategy depends on how much equity you have in the property and how much revenue it generates.
Because home prices decrease in a correction, you may get lower offers than before the market downturn. This may not always be the case, however. The home’s location may be an important factor. If the house you want to sell is in a popular tourist destination with a strong demand for short-term rentals, your home may sell for a premium.
When interest rates rise, and there are signs of economic uncertainty, fewer people may be interested in buying homes. This could result in more properties for people to choose from, which may mean you get fewer offers and your home stays on the market longer.
When prices fall, and there is less competition, buyers may request more seller concessions to sweeten the deal. For example, they may ask the seller to pay for part or all of the closing costs. They may also request upgrades to the home or for the seller to include furniture and accessories.
How long a housing market correction will last is often difficult to predict. It may continue until the factors that caused it stabilize. If a housing market correction is caused by increasing mortgage rates, for example, the correction may continue until the Federal Reserve stops increasing rates, inflation cools, and consumer confidence increases.
Because the duration of housing market corrections is uncertain, waiting until the market stabilizes to make investment decisions may not always be beneficial. Depending on your objectives, long-term goals may outweigh the negatives of buying or selling when housing prices decrease.
A housing market correction will typically end when housing prices begin to increase again. Key indicators of stable prices include an increase in both the supply of properties for sale and an increase in market demand.
Although some people are forced to move in unfavorable market conditions due to job transfers and other reasons, many buyers will wait to shop for larger homes or look for better neighborhoods until they believe their investment will increase in value over time. No one wants to be underwater on a mortgage.
Although a housing correction may present an opportunity to acquire new properties at a discount, some may need a new investing approach to achieve their goals. This could mean investing in different types of properties or using different investment strategies to diversify your portfolio and minimize risk.
Investing in different types of properties may allow you to enter new markets, increase revenue, and stabilize cash flow. If you are currently investing in storage facilities, for example, acquiring single-family homes to rent on the short-term market in popular tourist destinations may allow you to take advantage of a local rental shortage.
If you primarily focus on single-family homes as long-term rentals, you could acquire additional homes to rent in the mid-term market. This could allow you to take advantage of the need for corporate housing for travel nurses and other professionals in growing markets.
Focusing on a new investment strategy may also be beneficial when real estate markets are contracting. If you currently use a short-term flipping strategy, like fix and flip, you will get progressively less when you sell as the market contracts. This may be a great opportunity to try a mid or long-term strategy to take advantage of the eventual market rebound.
A housing market correction may be a great time for real estate investors to obtain properties. Because the length of a correction is difficult to predict, timing the purchase of investments to minimize risk may be challenging.
If you sell a home in a housing market correction, it may sell for less than it would when prices increase. It may also take longer to sell, and buyers may demand more seller concessions. Selling a house or other property in a correction may still be beneficial if you need to reduce or eliminate debt or remove an underperforming asset from your investment portfolio.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
What Is a Housing Market Correction and How Does It Really Impact You? Read More »
Orna Guralnik on Showtime’s “Couples Therapy.”
Source: Showtime
When I was growing up, my father used to repeat a saying he’d heard as a child from his grandmother: “When money doesn’t come through the door, love goes out the window.” That proverb appears to date back to a 19th century painting by the English artist George Frederick Watts, titled “When Poverty Comes in at the Door, Love Flies out of the Window.”
I relayed the quote to psychoanalyst Orna Guralnik, and she agreed money is one of the biggest stressors on couples, “especially because of the society we live in.” Guralnik is the star of the Showtime documentary series “Couples Therapy,” in which she analyzes real patients in a room with hidden cameras. New episodes of its third season premiered last month.
While financial issues can spark intense conflict for couples, Guralnik doesn’t believe money, or the lack of it, is the real reason they split up. “Ultimately, from my perspective, the breakup is not about money,” she said. Instead, Guralnik said, “the breakup is about not being able to negotiate differences, to be honest or to find a way to common ground.”
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Guralnik describes money as one of the major “touchstones with reality” that can make it clear two people can’t problem-solve together. It is this inability to communicate, empathize and compromise with each other that might ruin a relationship, she said.
During my interview in late April with Guralnik, she had many other interesting things to say about love and money. Here are three of them.
In her work with patients, Guralnik said it can take a long time for people to open up about their financial situation.
“Sometimes, I find people are more private about money than their sex life,” she said.
It’s not just with their therapist people avoid topics such as debt or overspending, Guralnik said. People can be married for years and still not have told their partner what’s going on with their finances.
Guralnik understands this avoidance of the subject.
“In American society, money locates you in the social structure more than anything else,” she said. “A lot hangs on money in terms of people’s self-worth.”
People take huge risks by avoiding talking about and confronting their finances, she said.
“If you’re refusing to look at your bank account when you’re pulling out your credit card, you can accrue debt,” Guralnik said. “And if you keep doing that, that debt can be pretty devastating.”
Sometimes, I find people are more private about money than their sex life.
Orna Guralnik
psychoanalyst and host of “Couples Therapy”
“It can put you in the hole for a lifetime to come,” she added.
“I’m not saying that hyperbolically,” Guralnik went on to say. “I have plenty of people that come into my office in that situation.”
People are “shielding themselves from knowing reality” when they refuse to pay attention to their finances, Guralnik said. She added, “you can’t take care of yourself if you don’t deal with reality.”
At one point in the new episodes of season three of “Couples Therapy,” couple Kristi and Brock tell Guralnik they’re worried a big reason they’re moving in together is to save money.
Guralnik doesn’t see a problem with that motivation, however. “I’m cool with the fact that finances are part of the reasons people are together,” she said.
“Kristi and Brock are idealists, and I love them for that,” she went on. “They believe they should be moving in for love, not financial easement.”
But the idea marriage should only be about love is a pretty new idea, she added.
“Marriage has always been, first of all, a way to create a structure that protects people. It is there to protect the financial unit.”
Money can help a couple stay together too, Guralnik said. After all, two people can have a lot to lose financially by parting.
“It gives them another reason to try to work it out,” she said.
Two people in a relationship can have vastly different attitudes about money, Guralnik said.
“Some people are frugal and can lean towards the obsessive side,” she said. “Some people do not have any impulse control, and they hate thinking about the future.”
“Any conversation about budgeting or planning is excruciating for them,” she added.
Jamie Grill | Getty Images
To understand their behavior, Guralnik tries to figure out what money has come to symbolize for her patients.
“As a psychoanalyst, my general way of approaching things is with the belief that concrete realities are tied to unconscious realities,” she said.
For example, she once had a patient who hoarded money. “We discovered through analysis that, for her, money stood for time,” Guralnik said. “By hoarding money, in her unconscious mind, she was protecting herself against death.”
In other words, she said, “Money is not just money. It stands for something else, as well.”
Showtime ‘Couples Therapy’ Orna Guralnik on couples and money Read More »
Darko Matovski, CEO and co-founder of CausaLens thinks regulation is required
From masters of the digital universe to pariah figures peddling a machine-dominated dystopia. Well, perhaps that’s not quite the journey that AI developers have been on, but in the last few months the debate around the benefits and risks associated with artificial intelligence tools has intensified, fuelled in part by the arrival of Chat GPT on our desktops. Against this backdrop, the U.K. government has published plans to regulate the sector. So what will this mean for startups?
In tabling proposals for a regulatory framework, the government has promised a light touch, innovation-friendly approach while at the same time addressing public concerns.
And startups working in the sector were probably relieved to hear the government talking up the opportunities rather than emphasising the risks. As Science, Innovation and Technology Minister, Michelle Donelan put it in her forward to the published proposals: “AI is already delivering fantastic social and economic benefits for real people – from improving NHS medical care to making transport safer. Recent advances in things like generative AI give us a glimpse into the enormous opportunities that await us in the near future.”
So, mindful of the need to help Britain’s AI startups – which collectively attracted more than $4.65 billion in VC investment last year – the government has shied away from doing anything too radical. There won’t be a new regulator. Instead, the communications watchdog Ofcom and the Competitions and Market Authority (CMA) will share the heavy lifting. And oversight will be based on broad principles of safety, transparency, accountability and governance, and access to redress rather than being overly prescriptive.
Nevertheless, the government identified a smorgasbord of potential downsides. These included risks to human rights, fairness, public safety, societal cohesion, privacy and security.
For instance, generative AI – technologies producing content in the form of words, audio, pictures and video – may threaten jobs, create problems for educationalists or produce images that blur the lines between fiction and reality. Decisioning AI – widely used by banks to assess loan applications and identify possible frauds – has already been criticized for producing outcomes that simply reflect existing industry biases, thus, providing a kind of validation for unfairness. Then, of course, there is the AI that will underpin driverless cars or autonomous weapons systems. The kind of software that makes life-or-death decisions. That’s a lot for regulators to get their heads around. If they get it wrong, they could either stifle innovation or fail to properly address real problems.
So what will this mean for startups working in the sector. Last week, I spoke to Darko Matovski, CEO and co-founder of CausaLens, a provider of AI-driven decision making tools.
“Regulation is necessary,” he says. “Any system that can affect people’s livelihoods must be regulated.”
But he acknowledges it won’t be easy, given the complexity of the software on offer and the diversity of technologies within the sector.
Matovski’s owncompany, CausaLens, provides AI solutions that aid decision-making. To date, the venture – which last year raised $45 million from VCs – has sold its products into markets such as financial services, manufacturing and healthcare. Its use cases include, price optimisation, supply chain optimisation, risk management in the financial service sector, and market modeling.
On the face of it, decision-making software should not be controversial. Data is collected, crunched and analyzed to enable companies to make better and automated choices. But of course, it is contentious because of the danger of inherent biases when the software is “trained” to make those choices.
So as Matovski sees it, the challenge is to create software that eliminates the bias. “We wanted to create AI that humans can trust,” he says. To do that, the company’s approach has been to create a solution that effectively monitors cause and effect on an ongoing basis. This enables the software to adapt to how an environment – say a complex supply chain – reacts to events or changes and this is factored into decision-making. The idea being decisions are being made according to what is actually happening in in real time.
The bigger point, is perhaps that startups need to think about addressing the risks associated with their particular flavor of AI.
But here’s the question . With dozens, or perhaps hundreds of AI startups developing solutions, how do the regulators keep up with the pace of technological development without stifling innovation? After all, regulating social media has proved difficult enough.
Matovski says tech companies have to think in terms of addressing risk and working transparently. “We want to be ahead of the regulator,” he says. “And we want to have a model that can be explained to regulators.”
For its part, the government aims to ensourage dialogue and co-operation between regulators, civil society and AI startups and scaleups. At least that’s what it says in the White Paper.
In framing its regulatory plans, part of the U.K. Government’s intention is to complement an existing AI strategy. The key is to offer a fertile environment for innovators to gain market traction and grow.
That raises the question of how much room there is in the market for young companies. The recent publicity surrounding generative AI has focused on Google’s Bard software and Microsoft’s relationship with Chat GPT creator OpenAI. Is this a market for big tech players with deep pockets?
Matovski thinks not. “AI is pretty big,” he says. “There is enough for everyone.” Pointing to his own corner of the market, he argues that “causal” AI technology has yet to be fully exploited by the bigger players, leaving room for new businesses to take market share.
The challenge for everyone working in the market is to build trust and address the genuine concerns of citizens and their governments?
The 1% rule is a real estate investment guideline indicating the minimum monthly rent you must charge to break even on a rental property. The rule states that your rent should be at least 1% of your property’s sale price.
While the 1% rule can be a helpful metric for investment properties, it’s meant to be more of a filter than anything. You should take it with a grain of salt, especially when accounting for current home prices.
This post will detail the 1% rule, what it doesn’t account for, and other metrics you should consider.
The 1% rule helps you calculate how much rent you should charge a tenant. The rule accounts for the property’s purchase price plus the cost of necessary repairs. For example, if you purchase a home for $230,000, then spend $20,000 on repairs, you should charge your tenants $2,500 monthly if you follow the 1% rule. If your property is duplex, you’d instead charge $1,250 per tenant.
The guideline can give you a basic idea of whether or not a property is worth investing in. If your mortgage payment is going to be greater than what you’re charging in rent, then, in theory, it’s probably not an ideal investment.
If the 1% guideline was your only necessary calculation, you’d make your money back in 100 months or 8.33 years. However, real estate investing is far more complex than that. Here’s a list of just some of the things that aren’t factored into the 1% rule:
Dave Meyer pointed out that the 1% rule is an outdated suggestion created in a different market. While it was a great metric to use shortly after the financial crisis, it’s not as helpful today. If you’re basing your investment strategy solely on the 1% rule, you’ll miss out on many potentially great investments with rent-to-price ratios below 1%.
Many investors analyze dozens—if not hundreds—of deals before investing in any single one. In their initial research stage, investors try to quickly disqualify properties that don’t meet certain thresholds before getting into the nitty gritty.
While you’ll never know exactly how much you’ll make on an investment, a few other calculations you can make will help you narrow your search when determining what you invest in.
Focusing on an immediate return may make your monthly cash flow a better metric.
Cash flow calculates your gross monthly cash flow minus your total operating expenses. Typically, “good” cash flow is when you net $100-$200 per unit monthly. However, that all depends on how much your initial investment is. If you’re making $200 monthly on a $100,000 investment, that’s not an attractive return. However, if you’re making $200 monthly on a $10,000 investment, that’s a 2% monthly return.
Here’s how to calculate cash flow:
| Gross monthly cash flow (including rent and additional income, such as parking, pet fees, etc.) | $2,000 |
| Operating expenses | |
| Monthly mortgage payment (principal and interest) | $950 |
| Property taxes | $150 |
| Homeowner’s insurance | $50 |
| Property management fees (10% of rental income) | $200 |
| Repair reserves budget (10% of rental income | $200 |
| Vacancy reserves budget (5% of rental income) | $100 |
| Additional expenses (e.g., other insurance, gas/mileage, supplies, etc.) | $100 |
| Net monthly cash flow (or net operating income—NOI for short) | $250 |
Based on these calculations, you will make $250 each month or $3,000 per year, not including any tax benefits. Cash flow can tell you how much you make monthly, but this knowledge only gets you so far.
Most investors prefer to calculate cash-on-cash returns.
Your cash-on-cash return is how much money you profited in annual pre-tax cash flow divided by how much you initially invested. Cash-on-cash return calculates the percentage of the investment you made back this year in cash flow. It’ll help you determine if that $250 per month you’re making in profit is worth it. Most investors prefer this method of calculating their operating income.
Let’s say you purchased a property for $200,000. You put 20% down ($40,000), paid 2% in closing costs ($4,000), and made another $6,000 in repairs. Altogether, you spent $50,000. If your new annual cash flow is $3,000, then $3,000 / $50,000 = your cash-on-cash return of 6%.
If this property was a duplex and you made $500 monthly instead, your cash-on-cash return would be 12% ($6,000 / $50,000). You’ll want to aim for a cash-on-cash return between 10-12%, preferably closer to 12%, to outpace the S&P 500 and other popular stock market funds.
Keep in mind this is your annual pre-tax cash flow. It doesn’t account for your tax burden or depreciation. Your cash-on-cash return never accounts for the following:
IRR determines the potential profitability of your property investment by estimating the entire holding period, compared to cash-on-cash return, which only focuses on the profitability of your initial investment.
If you’re planning on holding onto your investment for a few years, calculating your IRR is probably your best bet (even though many investors prefer the simplicity of solving for cash-on-cash return). Here’s a full breakdown of how to calculate your IRR.
The 1% rule was never an actual “rule.” It was a helpful guideline once upon a time, but you can make several more accurate calculations when narrowing the scope of which properties are worth investing in. You’ll likely miss many great investment opportunities if you live and die by the 1% rule. Calculate your cash-on-cash return or IRR instead.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
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