INVESTING IN REAL ESTATE

True wealth is building a passive income stream and real estate is a great path to follow in building a passive income stream.

One undeniable habit of millionaires is that they keep their wealth in real estate after making their money. An example if you take £! And double it 20 times you will get a million pounds simple but not easy to do.

However it is possible to be financially Independent just by buying one investment/ rental property a year. Buying right is far more important than buying frequently. The income your real estate generates is far more important than how many properties you own.

A.PRINCIPLES OF REAL ESTATE INVESTMENTS

Real Estate investment can be viewed under five categories

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WHY NOT PROPERTIES – what are the reasons people donot invest in properties e.g.

1. donot know how to start
   
2. Donot have the down payment
   
3. Negative stories – property crash, repossessions of houses
   
4. too busy working making a living
   
5. Money risk if investment is in wrong area
   
6. Fear and uncertainty
   
7. Property management risks – bad tenants
   
8. Laziness / procrastination
   
9. Not the right time
   
10. Negative friends

All can be summed under two headings Fear and Ignorance, The antidote or remedy is applied Knowledge and correct Information

WHY PROPERTIES –

 what are the reasons why people invest in properties e.g.

1. _{Passive income}
   
2. _{Sense / feeling of achievement/accomplishment}
   
3. _{Security – old age pension}
   
4. _{Fixed tangible asset can be used as collateral}
   
5. _{Legacy for children}
   
6. _{Control of ones destiny}
   
7. _{Leverage – control a large investment with small amount of money}
   
8. _{Tax benefits}
   
9. _{Demand for rental property exceeds supply}
   
10. _{Growth potential and capital appreciation}
    

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    ^{_{FINDING THE RIGHT PROPERTY AND TENANTS}}
    

    _{To find the right property starts with you reprogramming your mind. View yourself as an investor not a labourer. Labourers sell their time to generate income; Investors acquire assets that generate income. “ As a man thinketh in his heart so is he “ You have to see yourself as a real estate investor before you can become one. Buy or make professional looking business cards. The simple act of putting your name on a business card that says you are a real estate can give you the encouragement to begin. As other people begin thinking of you as an investor, opportunities will start coming your way.}

    
    

    _{HOW TO FIND BARGAIN PROPERTIES – In real estate investment the most important factor is LOCATION, LOCATION LOCATION.}

    
    

    _{1.      LOOK FOR MOTIVATED SELLERS}

    
    

    _{·        Couples getting married or divorced}

    
    

    _{·        Sellers relocating}

    
    

    _{·        Couples retiring – converting home equity to retirement income}

    
    

    _{·        Probate / inheritance}

    
    

    _{·        Sellers in financial trouble – never take advantage, structure your offer to make it a win win situation}

    
    

    _{·        Foreclosures}

    
    

    _{·        Old dilapidated fallen “ FOR SALE “ sign}

    
    

    _{2.      CLASSIFIED ADVERTS}

    
    

    _{e.g.  “PRIVATE INVESTOR WANTS TO PURCHASE HOUSES AND PROPERTIES FOR CASH”}

    
    

    _{“ HOUSES WANTED FOR CASH, ANY CONDITION TENANTED CONSIDERED”}

    
    

    _{3.      HIGHER AND BETTER USE TECNIQUE}

    
    

    _{·        Warehouse to Apartments}

    
    

    _{·        Hotel to flats}

    
    

    _{·        Big house to Multiple Living Facility (MLF)}

    
    

    _{·        Nursing home to multiple residence}

    
    

    _{·        Two bedroom house to three single room shared accommodation}

    
    

           _{4.      PROPERTY SOURCING COMPANIES}

    
    

          _{5.   Off PLAN PURCHASE}

    
    

    _{6.      PROPERTY HOTSPOT AREAS}

    
    

     _{7.      BUYING AT AUCTIONS}

    
    

    _{8.      MISCELLENEOUS – Insider Information, future events in news e.g. Olympics, new town developments, Industrial Estate development.}

    
    

    _{Selling Your Own Home Made Easy.
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    _{Downloadable Real Estate Forms.
    Investment & For Sale by Owner Contracts and Forms.}

    
    

     _{FINDING THE RIGHT TENANT}
    

    This depends on three factors

    
    

    1.      The property

    
    

    2.      You – the investor or property manager

    
    

    3.      The Lender

    
    

    THE PROPERTY –

11.  THE PROPERTY MANAGER / INVESTOR – In managing the property, you have to be cautious, as the tenants have to be people you can deal with as a general rule avoid The type of property determines the type of tenant if one bedroom house or five bedrooms, If it is in an upscale area or depressed area, and the state of the property.
    

    1.      People you cant communicate with eg people who cant speak English

    
    

    2.      Young people under 25 – The tenancy will only last as long as the relationship lasts

    
    

    YOUR LENDER check with your lender in case there are clauses on type of tenant you can have. The main exclusions are DSS claimants and student lets.

    ADVERTISING FOR TENANTS

    
    

    ·        Contacting local council (free)

    
    

    ·        Advertising with large employers (free)

    
    

    ·        Contacting Accommodation projects (free)

    
    

    ·        Classified Adverts in local press

    
    

    ·        Through letting agents

    
    

    ·        On the internet

    
    

    C. CREATIVE FINANCING

    
    

    Profit is made in any venture when you buy not when you sell. The most suitable buy to let mortgage depends on the following factors

    
    

    ·        Your initial investment- how much you have saved up or have access to

    
    

    ·        The purchase price

    
    

    ^{·        The type of property – studio flats, ex local authority, multiple title properties, flats above} commercial properties, non- standard construction etc

    
    

    ·        Your personal credit history – electoral roll, county court judgement, credit accounts, repossessions etc

    
    

    ·        Your attitude to risk – mainly interest rates – fixed, variable, tracker, capped, stepped etc

    
    

    ·        Duration of borrowing and maximising cash flow eg interest only, repayment mortgage, flexible mortgage etc

    
    

    RAISING THE INITIAL INVESTMENT

    
    

    ·        From your personal assets not in use with resale value

    
    

    ·        Savings

    
    

    ·        Endowment policies or shares

    
    

    ·        Borrow from family

    
    

    ·        Unsecured Personal loans

    
    

    ·        Releasing equity in family property

    
    

    ·        Get a financial partner

    
    

    CREATIVE FINANCING TECHNIQUES

    
    

    ·        Get a 100% loan to value LTV residential mortgage

    
    

    ·        Create a vendor deposit – Get the vendor to pay / gift/ finance your deposit

    
    

    ·        Cash back on completion

    
    

    ·        Property stacking strategy – buy property below value, do cosmetic repairs, renovation, decoration, revalue the property and re finance at new higher value, release the equity and use as deposit on another property

    
    

    D. EXPANDING YOUR PORTFOLIO

    
    

    As you build your portfolio, you may want to consider acquiring

    
    

    1.      Multi family properties i.e. apartment houses

    
    

    2.      Commercial properties i.e. retail space, office building, warehouses etc

    
    

    3.      Flat hotels / Bed and Breakfast

    
    

    You might also want to get into ^{FLIPS for immediate profit i.e. Buy, renovate and decorate then sell}

    
    

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    E. TAX AND LEGAL CONSIDERATIONS

    
    

    There are two types of tax property is subject to

    
    

    ·        INCOME TAX: applied on profit generated from the renting out of property payable in half yearly instalments 31st January and 31st July. Taxable profits is rented income less allowable expenditure eg repairs, maintenance, legal & professional fees, finance charges, insurance, etc

    
    

    ·        CAPITAL GAINS TAX – Tax applied once property is sold

    
    

    LEGAL CONSIDERATIONS

    
    

    The legal aspects can be split into three broad categories

    
    

    ·        CONTRACTUAL- legal contracts you will sign and enter into usually four people – Lender, Tenant, Insurer, Letting agent or Property manager

    
    

    ·        REGULATORY - Three main regulations governing the renting of properties - Gas Safety, Electrical safety, Fire resistance
    

    ·        ALL COMPASSING- You will also be legally bound by the normal laws of the land which includes
    

    1.      The law of Tort – negligence and personal injury

    
    

    2.      Criminal Law – eg harassing or threatening or being violent to your tenant for not paying rent could land you in jail

    
    

     F. PROPERTY POWER TEAM

    
    

    To be really successful in real estate investment you need to put together a team of professionals who will work with you in building your portfolio

    
    

    1.      Estate Agent / Property Sourcing companies/Individuals- for sourcing properties

    
    

    2.      Mortgage broker / Banker – who can assist advise you creatively

    
    

    3.      Tax Professional / Accountant – for your financial matters and tax returns

    
    

    4.      Solicitor – to keep your portfolio legally in place

    
    

    ^_5.      Letting agent / Property Management company – To get tenants and manage them for you

    
    

    Remember TEAM stands for

    
    

    TOGETHER

    
    

    EVERYBODY

    
    

    ACHIEVES

    
    

    MORE

    
    

    If any one in the TEAM is not helping you achieve more Negotiate them out and replace them.

    This article was written by Bibi Bunmi Apampa an Empowerment Coach  at  www.EmpowermentCentre.net

     

     

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