Real Estate Investment in its Many Forms

The real estate crash is still fresh in our mind. This year we cautiously bought our first home amidst a booming real estate market, we are a bit afraid. Although, this real estate boom is not widespread and property prices are appreciating at a slower pace. In a place like south Florida where we crossed the bottom two years back and on our way to the level last seen in 2006-2007, we are skeptical and keeping our eyes and ears open. We shouldn’t have another crash now. Let’s hear a story from Steve who was in the UK before and now lives in Turkey which is all about risks and rewards of real-estate investment. Sometimes it’s nice to know stories from people in other countries. Enjoy this guest post!

Real Estate has always been a solid medium to long term investment. The problems have come for those that are after a quick buck and buy just before there is a hiccup in the market. That was certainly the case back a few years ago. Financial institutions were falling over themselves to lend money to the most dubious of applicants. Obviously, their logic was that because prices were rising strongly their loans would be more than covered by growth in the event of defaults.

Applicants could not believe their luck. They had doubtful credit records yet here were companies willing to lend them money. If prices continued to rise they would be able to build up an asset. The issue of being able to pay the monthly installments was almost irrelevant. They could sell on at a profit and pay off any arrears then was perhaps their logic?

When the crash came everyone lost. The property was repossessed yet there were few buyers to take it up. Those few were certainly not going to pay what the financial institutions needed to recoup their losses. It spelt trouble for institutions which had previously been seen as among the strongest in the financial world.

I remember in the 1970s buying a two bedroom Manson in London, just off the North Circular Road in Wembley. It cost £10,400. Within a couple of months, I was shipped off to Nigeria. By the time, I was scheduled to live in London again in 1976 that hiccup had hit the market and I was only able to sell for £10,600, hardly the profit that anyone would expect from the London market.

Fortunately future ventures into real estate were better but I have always remembered the 1970s. It certainly stopped my thinking about real estate as a means to build up assets. That is not to say it is not a good idea. Interest rates are currently low. There are good deals to be had for those who do proper research.

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A young couple in their 20s with secure jobs may think this is a good time to invest. It is if they can be certain of making their installment payments. They should see their asset grow as their careers progress. As their monthly income increases, they may be able to move up the real estate ladder. They can sell their first purchase at a profit and put down a bigger deposit on a larger house.

There is another route to take and that is to buy a second property:

• It is something that can be improved to create an immediate profit if sold.
• Alternatively, if it can be rented it will provide income that may go towards creating a portfolio of houses. If times get hard that may not be as easy as it seems. Ask those who tried that a few years ago.

People who buy a second home as a holiday home may find they have ‘dead’ money. Their investment may give them pleasure, but there is not always a return.

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Those who want to reach out even further into real estate as an investment will either need more time or an agent to look after things for them.

There are alternatives to a residential portfolio:

• A building with multiple residential units
• Real estate with residential and commercial units
• Mixed office and residential units
• Large office premises
• Industrial Units

If you occupy one unit and rent out the others you are effectively are living with your business. You will need to expect to attend to regular issues coming from your tenants. There will be no escape but if you can keep such a building fully occupied then you should have a good income.

Mixed residential and commercial buildings are good if the economy is good. Commercial tenants may sign a medium term lease, but you will be dependent upon their being successful to be able to relax. Mixed office and residential units are a similar proposition. The other problem related to this kind of real estate is the perception that there is more risk in ensuring full occupancy.

If you can get a good tenant to take an office building in its entirety then you can relax. However if the tenant leaves and the economy are not strong you could be faced with an empty building and no income. That is much the same for an industrial site. (Read Also – Tips for commercial real estate investment)

If you can obtain good land and can afford to wait you could make really good money. The opportunities today are more limited. As the USA was growing a land bank was enormously valuable.

Legendary real estate investor Bob Hope was particularly shrewd when it came to land deals. He recognized that towns and cities would grow so he bought land on the outskirts and waited for that growth. He could afford to and it paid off handsomely. You may find that tying up your money is no advisable.

Someone thinking about real estate as an investment and considering it as a full-time occupation needs:

• Strategy and finance.
• To keep abreast of developments and economic forecasts.
• To adapt to changing circumstances.
• Have a contingency plan for the occasional hiccups.

Perhaps the best way to proceed is slowly. There is no substitute for a monthly paycheck. If you can work on your real estate plans while still working full time then you have an initial contingency plan at least. It is difficult to predict where the ‘adventure’ may take you.  It certainly paid off for Bob Hope and of course, he did keep his full-time job.

About the Author: Steve is a retired entrepreneur currently living Turkey.  He graduated with Honors and has extensive experience in property and real estate, residential and commercial in several countries of the World.