Thinking of Real Estate as a Passive Income? Think Again
You might be a bit surprised to see how much I’ve been writing about real estate in my blog. Why would a dynamic entrepreneur and angel investor like me show so much interest in this conservative, ‘low-tech’ type of investment? Well, let me surprise you once again by telling you that it is the people who bring an innovative, fresh and out-of-the-box point of view to the real estate world, who succeed in it.
My first dive into this world was in 2012 when I bought half of a building on the Buzesti Boulevard in Central Bucharest — a very hustling-and-bustling area nowadays. The first thing I learned, very quickly, by the way, is that real estate is by no definition easy money (and, come to think of it, that might be the reason why this world fascinates me so much). Remember, we’re talking about right after the subprime mortgage crisis, when there was a lot of chaos and uncertainty in this market.
Jumping back to the present, I’ve recently sold a 3,000 sq. m. asset to a well-known investment firm, with an ROI of about 195%. What’s the secret, you ask? Simple, it is a lot of hard work and creative thinking. When I bought this asset, it was distressed and unattractive. I put in a whole lot of effort and capital to turn it into something valuable. Here are a few tips I can give you, which I have picked up along my path in real estate.
Go for the Cinderella, not for the princess
The fancy, shiny buildings seem like the most attractive pieces of real estate because you think of them as moneymakers, but don’t forget that they come with a price tag, and it’s usually a big one. If you’re looking to buy a new or renovated property, keep in mind that you will have to pay someone else’s ROI, which means it will be expensive and, therefore, it will take a long time for you to generate an initial profit off of it.
On the other hand, if you’ve got your eye on a property that has a lot of unfulfilled potential in your view, that’s where you should put your money. It will take a lot of work to turn that Cinderella into a princess, but the profit is worth it. That’s my philosophy when choosing an asset to invest in, and it seems to be working for me.
Get ready to roll up your sleeves
Once you’ve spotted the piece of real estate you fancy, think long and hard about how you’re going to turn it into a pearl. Try to conceptualize the amount of time, energy and money that will be necessary for the process so that you can have a general idea of whether you are up for the challenge or not. It may seem tiring, but trust me, it is worth it.
Bank on the banks
Remember the 3,000 sq. m. property I was telling you about? Well, my financing in it was roughly 35% of the actual price. The rest of the money came from banks. True, this comes with interest costs, which you’re going to have to add to your calculations. Nevertheless, when it comes to the bottom line, the profit should be enough to cover those costs.
A friendly word of advice, though. Don’t expect to walk into the bank and leave ten minutes later with a six-figure loan. You will need collateral and a proven record as a successful investor for the bank to even pay attention to you. That’s why if you’re starting on your entrepreneurial path, real estate might not be for you.
The three L’s: location, location, location
Part of recognizing the potential of a real estate asset is understanding the potential of its location. Top districts or neighbourhoods in cities may seem appealing but think of growing or developing ones, which have the potential to become very trendy and desired soon (even if they are not so today). Consulting with local real estate experts can help to understand the potential of different areas.
Final thought
If there’s one thing I can’t stress enough, it is how much better off you will be in this process if you come with an open mind and a desire to learn. Even today, I feel like I learn something from every deal and venture I enter (and exit). So, come with a whole lot of motivation, and it’s going to be not only profitable but also enjoyable, I promise!
