The story of Gene is becoming very popular among students of Estate Management. The man has been a full –time real estate investor for the last couple of years. Gene, we gathered, got into the business during school. While in school, he bought up a few tiny properties in Gainesville (where his school, University of Florida, is sited) for what he thought were good deals. He maintained them himself. And he either sold them or rented them out – both for truly extraordinary profits.
When he finished his programme, he did not even bother looking for job. He started ordering everything on real estate. He tried foreclosures, auctions, high-end properties, and low-end properties.
In Nigeria, hundreds of people are also earning fortunes from real estate investments. It is usually a rewarding business for those with vision. Never before has there been a real breakthrough until now real estate business.
However, investing in real estate does not translate into automatic success. Like most other ventures, it requires adequate planning, due consultation with experts and being focused.
You may start up with little savings, but as the business expands, you will need to bring in interested finance institutions like banks. The success of the project rests on your ability to convince the financier on its viability.
Dr. Steve Sjuggerud, in his book, The Key to Getting Started in Real Estate Investing stated that it is risky to work on speculation in property business. According to him, buying a chunk of land and hoping it will go up in value, is speculating and it can be suicidal. he urges investors not to believe the dangerous myth that “property will always go up in values” recalling that the property prices in Japan, for instance, have fallen by 75 per cent over the last decade.
He advises people to be sure that the investment makes great sense from a positive-cash-flow perspective, adding that that ‘If the property falls in value, you are still ‘right side up’ on your cash flows. Consider any appreciation to be simply icing on the cake when it comes to speculative real estate investing.
Sjuggerud says one must have a discerning mind and not to believe everything heard or read about the business. “Sellers and real estate agents ultimately want you to buy that property. So what they’re telling you is most likely the rosy scenario, not the actual scenario. If the property has been a rental, ask the seller for his Schedule E form from his taxes. It’ll show his actual revenue and expenses, or at least the ones he reported to the government. What you can expect to earn is somewhere between what he reported and what he’s promising you.’
There is – as you probably know – a widely-held belief that the three most important factors involved in real estate success are “Location, Location, Location.”
However, another real estate expert, John Reed stated that there is more profit in less desirable locations.
Reed says you should look for what he calls a “double-digit cap rate”. He illustrates “if you net $1,000 a $100,000 investment, that’s $12,000 a year or 12 per cent of $100,000. That’s a double-digit return that year or a double-digit cap rate. The catch is that this is net rent or rent after expenditure.”
Talking about the viable areas of investment commercial developments are more profitable than any other types.
Even as he advises first time investors’ in property to buy land or hoses in a central business district, a crowd pulling areas where church or mosque is located can also turn a goldmine for a wise estate investor.
A commercial real estate investor, Hal Morris, from Georgia, relating his experience in the United State where he has focused primarily on commercial real estate, says as a general rule, the returns on commercial real estate get better as he he moves inland, from the East to the West coasts.
In other words, you are likely to find better valuations and returns if you look in less-visible middle sections of the country, and avoid the high-profile coastal metropolis.
For single residential houses, experts generally advise that when you are building or buying such property, you do not need to live in it – you just need to rent it out. You should look to invest in areas with a strong local economy and high employment. Places with lots of young people with high disposable incomes are a safe bet, as well as places with a lot of planning permission for property redevelopment.
Here’s one of Gene’s central real estate secrets: He buys middle-to-lower class properties on the fringe of good neighbourhoods. He only buys at what he considers to be a 20 per cent discount or more to the market value of the property. And he only buys when he can net over eight per cent a year in rent.
He buys right on the fringe of good neighbourhoods where his properties can potentially get swallowed up by expansion of the good neighbourhood, potentially earning him a large profit. But h doesn’t count on that. The rents have to be there first.