Real Estate Investing
MODULE 4: Real Estate Strategies, Lesson 1
How to succeed in Real Estate Investing?
Adnan Ul Haq
Module 4:Real Estate Strategies
How to succeed in Real Estate Investing?
Adnan Ul Haq
The real estate market is always changing. You can learn about it by studying what is happening in your area. You will then understand why prices are going up or down and be able to make money off of these changes before other people do!
Here are the major points that will help you succeed in real estate investment:
The very first thing you must consider when investing in real estate is market timing. At what time are you investing? Everything has timing. Everything works in a cycle, and there are both phases: high and low.
We should invest when the property is at a low rate, at the low end of the cycle. If you invest in it when it is at its peak rate, your money will get stuck for five to ten years. Though it would recover after those five to ten years, it would give you gain and cash flow, but the value may not have good appreciation.
But if you are investing at the right time, at the time when the prices are at the lower end of the cycle, you will earn a hefty profit in real estate.
The second thing to consider when investing in real estate is location. If the area is not good, no matter how big or grand a house is, you will be at a loss. So, the location must be good.
Its approach should be good; the roads must be good, the surrounding community should be good, there should be schools, hospitals, and every facility.
So, if you invest in an ideal location your investment will earn a profit. If the location is not accessible, the investment will create problems for you.
The next point, area score, is very important. What is your area’s score? If walking on foot, can you reach the bus stop easily or not? How far are the hospitals from the area? How far are the shops from the area? How far is the market from the area? How far is the main city from the area? All these things determine the area score.
The higher the area score, the higher will be the property’s worth; the higher will be the rental value, the higher will be the passive income.
The area score of every area is already calculated abroad, but since your market has not developed much yet, there is no area score computation.
However, you can do it yourself by considering the above-mentioned things. If the area score is good, only then investments in such areas are profitable.
Next, always consider the neighborhood when investing. One scenario is that the house is very good, the construction is very good, it's a grand house, but it is in a bad area. If your house is in a bad area, even if the house is big, it will be at a loss, its value will be depreciated, and no good party will buy it. But if the house is in a good area, in a better community, even though the house is not good itself, it will generate profits for you.
Inquire about the following facilities when investing in an area:
- Does it have a college?
- Does it have a school?
- Does it have a Mosque?
- Does it have a graveyard?
- Does it have other facilities?
- Does it have electricity?
All these things will decide whether the value of your property will improve or go down. You should invest after considering these facilities. You must not make a wrong decision.
Open for New Ideas
A big issue with anyone when investing in a property is that many people limit their minds. They get stuck on a single opportunity, and they are not open to ideas. An investor who earns good profit is always open to new ideas.
He is always on the lookout for where he could save his money, where there is a new opportunity, where a new investor is being added. If you fix your mind, you will not make money, but it will get stuck. If you will keep your mind open and evaluate the options fairly, you will make money.
It is very important to tap into new markets to make money. There are many hidden markets that you do not know about, but other people are making money there. The money is made as per the timing in different markets. If the market prices have increased in one market, for example, if the prices have increased in DHA, then there would be some new society where the prices may be low.
So it's an opportunity to sell the property where the prices have increased and buy one in a society where the prices are still down. Such hidden markets where there are future government projects, future developments, can make you a millionaire in less time and almost instantly.
A few days back, a woman bought land, she was a widow, and she bought land at an extremely low price. After some time, the government constructed a bridge there and her land’s price soared high because of it. Now she lives in DHA in a 2 Kanal house.
It is very important to understand costing in property investment. At what cost are you buying it? What are the hidden charges? What are the development charges? What is its legal cost? What is its tax? Then you make the buying and selling decisions of the property.
Usually, you buy, let's say in 21 lacs, and you sell it in 25 lacs, but while selling you find out that the additional costs are nearly 4 to 5 lacs. What benefit did you get? So, you must understand costing.
Understanding the project’s and its construction’s costing is a major key to success in property investment.
Theother thing is, you should understand your market. What is happening in the market? How are the dynamics of the market going? Is there buying or selling going on? How are global events happening? How are things changing in the market? Who are the key players? How are the prices going up? How are the prices going down? These things are very important for your success in real estate. You must understand all these trends, timings, and market cycles.
Never Over Leverage
Another big mistake is over-leverage. Over leverage is to borrow a large sum of money, more than your own worth, and invest it somewhere.
Borrowing is very good, but over-leveraging is risky. What if there is a slump or problem in the market? How would you manage it? So you should not over leverage but keep it at a limit that you can easily manage. Only borrow as much as you can manage.
If you could not manage it, you would be bankrupt. It is very common, especially in the foreign world. They build big grand houses and invest millions in them, and afterward, they have to sell them at a loss because they are pledged and claimed by the bank because of overleverage.
So, it's better to keep it at reasonable leverage; it will help you make money. Borrow only that much money that you could manage and control easily.
Bad House Good Society
The next point is, the society is very good and the house is very bad or roughly constructed. And you are getting it at a low price. Should you buy it?
You should buy it 100%. Thinking why?
This is because you will gain profit according to its neighborhood. If you got it for PKR 10 lac, and its surrounding houses are of PKR 20 lac, if you invest only a lac in its renovation, its price will also rise to PKR 20 lac.
You will get an immediate return on it. But if there is a bad society and a very good house in it and you are getting it at a high or even at a reasonable price, should you buy it? No, you should not buy it at all.
Because over time, its value will be down. No rich person will come and live in a bad place. Only a poor person will come there, and your property value will depreciate. This is why in villages, in poor and bad neighborhoods, no matter how good property or house is, its value only depreciates. You must not make this mistake.
Profit is Made at Buying
It is very important to understand this point. Your profit is made by buying, not selling. If you make a profit while buying, you will continue making money because the lower the rate of purchase, the more profits you will get. If you buy at a high price, it will be difficult to sell it.
It is very important to understand the laws, rules, and regulations.
Which laws are going to be implemented? Is the government changing the policies? Will the government introduce any new law that would affect the lower shops? Any new project that would destroy my property?
What are the rules and regulations here? Can I build a triple house here or not? What are the dynamics of this area? Is it a gray area or what? Can commercial real estate be built here or not? Is it an industrial area or what?
You must know all these things if you want to be successful. Otherwise, you may face a loss if the government takes any steps.
You can also invest in non-traditional real estate, such as warehouses. Warehouses are a good investment because they offer a lot of potential for growth. A place where there are some events happening or such non-traditional properties that you either do not know about or ignore on purpose. Such properties also make good money.
You should be aware of your options. For example, you might want to buy a plot, but a shop is giving you a better deal on rent. Or maybe you are considering buying a shop, but prices in a new society are increasing very quickly. So it's very important to understand your options if you want to be successful in real estate.
You need to learn to invest smartly because if you are not learning investing, all of the points that we have discussed here will be of no use. You will only be at a loss if you are not learning things. Learn and understand the fundamentals. You should have your finger on the pulse of real estate.
You should know where the prices are going up, where the prices are going down, why is it happening, how much inflation is hedged, who are the new players - you should know all about this!
You will be an expert when you will learn and understand real estate investment.
Understanding the trends in real estate is an important part of investing. You’ll be able to know when the market prices and trends are changing and why they're changing so you can make smart investments with confidence!