Most of us have heard someone – often our parents, but probably more often a character in a TV show – describing another individual as being “from the wrong side of the tracks”. It is one we hear, and repeat, without necessarily giving any thought to what it means. We as humans, have a tendency to do that – but what does it mean?
Well, to make a long story short, it was realised some time ago that people who could afford to choose where they lived would pay for a house in a location that was peaceful, clean and sedate. Too much through traffic means a lot of pollution, and can also cause structural faults, and also an increased number of strangers – something we were always taught to dread.
Poorer neighborhoods, with higher crime rates and naturally a “less desirable” kind of person living there, as a result, were often positioned close to public transport links such as railways and (in larger cities) airports. Anyone living in that area would be considered bad news by the richer families who intended to maintain a spotless reputation – and if the son or daughter of a rich was seen to be consorting with someone from those areas, that could mean social suicide.
This kind of reputation still persists for many people. However, there are also advantages to living and buying in what might be considered a poorer, grottier neighborhood. Prices are lower, but sound investment does mean that you can still make a decent profit. After all, proximity to public transport links also has its benefits.
There is a common mantra among real estate professionals and investors which is simply the word “location” repeated three times. The thinking behind this is that, when it comes to making money in the world of real estate, the most important thing is where the property is located. The second most important thing is, also, where the property is located. This is also the third most important thing. Essentially, location is important when it comes to making a success of real estate investments.
Of course, most people already know that, so why does the business make such a big fuss about location? It’s like making a big issue out of breathing, isn’t it? Well, not quite, because many people do not realize just how important location is, how fine the margins are and how big the difference can be between two houses which are in plain sight of one another. It’s not just about what town the house is in, it’s about what street, the exact position within that street, and what you can see from there.
It may be tempting when listening to a friend talking about the great deal they got on a house in a certain area, to think “well, I know for a fact that there is another one up for sale there – I can buy it for that price and raise a significant profit”. This may not actually be the case, however. The position of a solitary tree, church tower or bend in the road can have a pronounced effect on what you can expect to pay and what you can expect to receive for any real estate – so do your homework.
The importance of turning a maximum profit in a minimum time frame is as important in real estate as it is in just about any other sector of the business world. And of course, when you create a profit margin this makes for three immediate variables. How quickly can you do something, how much must you spend and how few mistakes can you make while doing it?
The introduction of these variable factors can make it very difficult to carry out the perfect real estate development. If you are keen to get the job done quickly, you will face the challenge of avoiding paying through the nose while trying to ensure that the job is still done correctly. Decide that price is your priority, and you will still want the work done as well as possible, but you don’t want it to take forever. And if your major priority is a good job, you will have to consider how you will get that done on time and within a budget.
In trying to make sure that each of these priorities is served, you will find yourself with some judgement calls to make. On some issues you will not be able to satisfy the need to do something cheaply and quickly and well – so what do you sacrifice? Sometimes the circumstances will go some way to making the decision for you. In order to make sure that you can live with the decision, you need to be firm in making it. Too much procrastination will simply narrow down your options, so be prepared to make tough choices if you want to make a success of your development.
For the ambitious real estate investor, one of the most interesting ventures can be the purchase of an overseas property. There are many of us who would like to one day retire overseas, and even quite a few of us who would like to move abroad while we are still some way away from retiring. If we are adaptable individuals, perhaps with one or two foreign languages in our lexicon, we can often find that the challenge of living and doing business overseas can be an enjoyable one.
Of course, for those of us used to doing business predominantly in a domestic setting, the practice of buying a house abroad can often be wildly different to the idea. Depending on where you plan to buy there may be restrictions on foreign nationals buying or owning property. You may have to pay larger taxes, and you may face different and sometimes strange rules regarding exactly what you can develop, where you can develop, and how you do it. For this reason it is essential to do your research.
Overseas real estate is a tricky way to make money, because you will need to commit a large amount of your time to being present on site. Many people try to avoid too much time spent away by appointing a project manager, but to paraphrase an old saying: “Who manages the project manager?”. If you want to guarantee a profit, you will have to take an interested involvement in the development, and if you are planning to lease the property to tenants you will need either to employ a trustworthy individual or move – temporarily or otherwise – to the country in question.
Buying and selling real estate is one way to guarantee an interesting business career – but it is not without its drawbacks. One of those drawbacks, the significant risk factor, is part of what makes it interesting. But if you can play the game well, you need never become one of the many people who falls under the intense pressure of trying to turn a profit. Sometimes, real estate is as much about trying to find the smallest loss on a deal when the avenues of profit and breaking even are closed off to you.
Whenever you buy a property with the intention of increasing its resale value, you do it with some amount of optimism. The mere thought of “If I can get this work done, source the materials and get it to market on time and on budget, then I will make a profit”, leaves open three ways that things can go wrong. Maybe the work will not get done as well or as quickly as you had hoped. Maybe the materials will prove harder to source than you had planned for, and as for the schedule … well, unforeseen circumstances make fools of us all.
The fact is that sometimes, despite your best efforts, you will see your intended profit begin to shrink – and sometimes, it will disappear altogether. It is at this point that you will be tempted to bring everything to a sharp conclusion and just sell for whatever someone will give you. This is a big mistake. If you hold on and set a new, realistic deadline and price you can at least cut your losses, and maybe live to develop again.
Buying real estate is always loaded with questions and variables, and it takes a confident and decisive individual to get it right and make a profit. It can be an even more vexed question for those who are looking to buy commercial real estate. When you are buying and selling a house, the important issue is that you do enough to the property in order to turn a one-time profit. Buying a commercial property is another issue entirely, as you need to ensure a lifelong commercial viability.
It is safe to assume that people who buy commercial property are more likely to be in the deal for the long haul than are people who buy residential real estate. It is not always the case, but it usually is. Therefore, there are different things that you need to be aware of when buying a commercial building. The first of these is where it is located. Ideally, you want somewhere with good commercial outlets nearby. If you invest wisely in a well-located commercial property you can guarantee good profits simply by virtue of “walk-by” business.
Commercial real estate has taken something of a hit in recent years due to the feasibility of running a business from home. Now that people can run a company from their computer with minimal start-up costs, people are choosing to do so in favor of paying the often high costs of getting set up with “premises”. There are businesses, though, which will always need a physical edifice – such as restaurants and garages. Owning a commercial property near to one of these, their workforces and their customers, can pay off in a big way
There is a Latin phrase – caveat emptor – which essentially, in English, means “buyer beware”. The message intended in those two words is that anyone purchasing the item so labelled needs to be careful. The price may look like a steal, but ask yourself before you go any further… who is doing the stealing, and who is being stolen from? You may well find that if a deal looks too good to be true, the reason for that may be that it is far too good to be true.
What you need to be sure of before you sign off on any deal is that the money you have budgeted for the purchase, in addition to the money you have earmarked for any changes to the house, will be recoupable from the sale of the house. If you buy a house and then get inside the property to get a close look, the last thing you want is to see that there are problems which will cost a lot more to repair than you thought they might. Suddenly, your big profit is looking like a small profit, a break-even deal, or even a loss.
Before you buy a house as a “fixer-upper”, think about what needs fixed and do not just look on the surface. You may need to have a survey carried out on the property to make sure that it is not carrying other faults that could end up doubling what you have to pay to get the house up to scratch for the purposes of selling it
When investing in property, if your goal is to make a profit you have to take into account what kind of profit you want to make. Some people will say that it is easy to make a profit, if by profit you mean a small one. Buying a house cheap, and doing the minimum necessary to renovate it, may well see you make some money on the deal because you have taken a house in disrepair and sold it in a liveable condition. However, there is always the danger that you will find more that is wrong with the house the longer you work on it.
You have to have a strategy when it comes to renovating a house, because without being firm and decisive you will allow far too much slippage when making decisions, and it is this slippage that can turn a likely profit into a loss. Instead of taking an overly flexible strategy, you need to have a certain amount of strictness when deciding what you will do. Sticking to your philosophy – up to a certain point, anyway – is important because if you fail to stick to that philosophy you will be hesitant in making crucial decisions.
Equally, though, you need to be ready to spend money to make money. Being conservative and unbending as regards your budget could see you not reaching a decent price on the sale of any renovated property. Have a budget you would like to stay within, and a slightly higher “contingency budget” which allows for potential mishaps along the way – by doing this you will increase potential profit
One problem that seems to arise more than almost any other when people try their hand at real estate development is a kind of tunnel vision. This happens when people buy a house with the intention of carrying out work on it, and decide that there is only one way to go with that work – they’re going to make the house irresistible to buyers. Having only their own opinion of what constitutes “irresistible” to go on, they make the mistake of designing the renovation to look like their own dream home.
We can all agree that it would be a fabulous thing to live in our dream home. But that is not what real estate development is about, sadly. How much would you like to live in someone else’s dream home, if you can’t choose who that person is? That is the choice you are presenting a potential buyer with when you develop a property according to your taste. The upshot of this is that you limit your profit margin. You cannot develop for your tastes, because you’re not selling to yourself.
If you are looking for wallpaper for your project, do not spend a lot of money on a certain design because you “saw it in the store and just had to have it”. The end result of what you are planning does not have anything to do with you “having” that wallpaper, so unfortunately you have to limit the individualism of the project. The key must always be the profit you can be confident of realising rather than one you might realize if you find a buyer who has all the same likes and dislikes as you do.
When someone tells you that there is good money in real estate, they are not going to be telling you anything new. We all know that there is profit to be made there, and no-one will get any medals for breaking the stunning news that it can be a lot of money. What we need to be careful with is when someone describes something as a “can’t miss” prospect. There is no such thing in real estate, and claiming that there is will show someone to be a fantasist.
When you buy real estate for the purpose of renovating it and selling it on, it is important to be as dispassionate and profit-focused as you can possibly be. One part of this is to do all of the math involved in buying and selling, and make sure that the deal has the largest potential upside you can possibly manage. This means getting the lowest price possible when buying the house, spending only what is necessary to make the house attractive to potential buyers, and doing the work so well that you push the selling price as high as you can.
Think of it this way. Your buying price added to your budget for any work done to the house (this includes materials, labor and any arrangement fees you may need to pay) must be lower than the price you get when you sell the house. Anything other will simply lead to you making a loss or merely breaking even – and if you have been working on the house when you could have been earning a wage, this will be a net loss. You don’t just need to be confident that you can turn a profit on the deal, you need to seal off any potential avenues which could lead to you not turning one.
Even after all of this is done, you are still left with the question of how you can make the profit as high as possible without spending too much money. Avoiding vanity projects is important here – if you are thinking of tiling the bathroom all in gold, stop right there because it will never make you more money than it costs you