Balogun is a banker approaching his 55th birthday. After a 30 year career as a banker, and seeing several people make their fortunes in real estate, he has decided to become a real estate investor.
His plan is to invest in underpriced property, with the objective of renovating the buildings and selling the individual units at a higher value than the amount at which he purchased the property. Balogun is interested in understanding the risks and opportunities of this business and he comes to us for advice.
Some things to note:
- Using this strategy, you purchase a building that needs fixing up for N2,750,000 and then you invest N500,000 in improvements (paint, landscaping, appliances, decorator items, and so on) and you also invest the amount of sweat equity that suits your skills and wallet. You now have one of the nicer homes in the neighborhood, and 2 years later you can sell this home for a net price of N4,000,000 after your transaction costs.
- Be sure to buy a home in need of that special TLC in a great neighborhood. With most properties, the long-term appreciation is what drives your returns. Consider keeping homes you buy and improve as long-term investment properties.
- This strategy is clearly not for everyone interested in making money from real estate investments. It is not advisable if you’re unwilling or reluctant to live through redecorating, minor remodeling, or major construction;
- You may not be experienced or comfortable enough with identifying undervalued property and improving it; so always make sure you get a professional opinion on each property .
- You should either have the budget to hire a professional contractor to do the work, or you should have the free time or the home improvement skills needed to enhance the value of a home.
- You also need a financial cushion to withstand a significant downturn in your local real estate market, as this investment can be very cost intensive.
- Mange your risks as much as possible!!! Make sure you do deep due diligence on the property in order to ensure that you have good title to transfer to a third party, especially since it may not make financial sense to perfect your title if you are not going to hold the property for a long period.