Real estate

Another form of residual income is real estate. Real estate is investment in landed properties. This requires a lot of work and concentration unlike investment in stocks. It is a profitable venture which one can easily take his profit because properties have a high tendency to appreciate over the years no matter its location or size.
Atimes, you may want to serve your hard earned Naira from depreciating, them you should try offshore property investment. But before we cover offshore property investment, lets consider real estates in Nigeria. Having your own home is the largest and preferential investment you’ll ever make. In buying a home, there should be several qualities a home must possess before you take ownership of it because if you do not watch out for those qualities, that house may form out to be the worst nightmare you’ve ever had. Such qualities
- Good Neighbourhood schools. This contributes a lot to the value of homes, the better the schools, the faster and higher home prices appreciate an vice versa.
- Pride of ownership. A clean Neighbourhood free from pollution with a serene environment is better. Buying a home in such is such places would yield high dividends in time to come.
- Low crime Rate: Imagine living in a neighbouhood where crime is the order of the day. It is a bitter experience that no one ever dares to face. No one ever desires to live in a battlefield neither does one ever appreciate living in places that cannot be distinguished from a jungle. You naturally love to live in areas with low crime rates. Therefore to make your home a rewarding
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investment for you, always make sure to know the crime rates of places before buying any home.
- House Size: The size of the house is very essential to enable you make a good investment on your home. Not so many people love large houses except they’re got 80 many children. Nevertheless, depending on the area of real estate you want to undertake large houses may be unavoidably advantageous.
For beginners, it’s a lot more effort investing in real estates as fulltime jobs. Basically, the best way to invest in properties is usually on a part-time basis. It’s important to note that initially, it is unlikely for your properties to yield enough income for you to live on. After a few years when the properties values and rental rates have gone up, it is a different ball game entirely. But for the first ten years, it’s better to think in terms of reinvesting rather than withdrawing income. Like stocks, real estate is planned for the long run (the more properties you own, the greater your wealth overtime). It takes a great deal of patience to make money out of your real estate. Probably 10-20 years with positive cash flow due to rise in rental rates (because of reasons like inflation and national housing shortages in many areas – rural and urban), just as prices always bound to be a degree of risk in everything an individual carries out. In real estates there could be hitches such as a bad year with a loss of job etc but nevertheless, you’ll still have the homes you own to fall back on.
There are several ways of finding good investment properties thus
- Agents: Agents with trusted experience, who is honest and has the interest of his client at heart should be picked. Tell your agent exactly what you want in a house both as a home and an investment. Agents who are hasty in the procession of real estates should be simply avoided. Work with an agent who dedicates his time to the service of his client
- Properties sold by owners. These are properties that are not usually listed but are sold directly by their owners. Buying directly from the owner is a risky business, therefore an agent is needed to handle the paper works for you. there is less risk in single family home investments than there is with
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other types of real estates investments. Never homes are better than older homes because of lower cost of maintenance.
Sometimes properties are bought to boost the age of their buyers, so depending on your financial strength and prevailing on your market conditions make your selection of high priced or cheaper properties. Before going ahead to purchase a property you should ensure that you carry out a thorough inspection of the property Never rely on the seller’s disclosures.
Another important aspect of real estate is investing in offshore property. Now, I know some people would be wondering if it is good to invest outside his country and why answer is a scintillating "yes" The growth of offshore property market has been showing positive results over the years. Such is applicable in the United Kingdom where the population and how mortality rate has led to an undersupply of homes. Offshore property investment is a good way of preserving the value of your money from depreciation. Offshore property investment is advantages because of the system in obtaining mortgage for repayment over a 25 year pen. When planning to invest in offshore property the most vital thing to do is to budget about thirty percent for the deposit and buying cost.
When buying a home, you need a mortgage except if you have the money readily available. To obtain this, you get a long-term loan from a bank or building society the terms which are set out in a legally – binding mortgage deed or agreement. The home is usually put up as security for the loan which may be for a period of 25 years.
Nevertheless, the term could be more than or shorter than the twenty five years I’ve stated. A mortgage consists of borrowed capital with an added interest paid over it.
Note: The longer the repayment term, the smaller the monthly installments but the greater the interest paid on such loans.
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The mortgage company would need an assurance on the credibility of the borrower and also whether the value of such homes covers the value of the loan should there be any default in payment conversely, the borrowers also have to consider the type of loan they want from the mortgage company. Should it be a repayment or interest-only mortgage type? The repayment mortgage type is such that part of the borrower’s monthly repayment plays off the capital while the other part pays off the interest monthly installments change as interest rate rise or fall. An interest only mortgage on the other hand requires interest to be paid on the full loan each month. The capital is repaid at the end of the term most of the mortgages cover interest loans.
Once you have determined what repayment method you want to stick with, you’ll need the services of a mortgage broker in order to determine the most suitable type of mortgage. Some terminologies associated with mortgages rates include.
- Standard variable: This moves up and down in accordance with the Central Bank of base rate instance
- Fixed rate: The interest rate to be paid is set for a given period.
- Capped: This is a variation on the fixed rate with the guarantee of an upper limit on monthly repayments within the given period. Beneath this ‘cap’, the rate moves up and down with henders standard variable.
- Discovated: offers a discount on standard variable for a defined period
- Base rate tracker: tracks the apex banks base rate
- Flexible: this allows borrowers to have a greater control on the installment payment. Here there is no cap and atimes, the borrower could take a payment holiday.
- Cash back: Offers a tax free lump sum once the mortgage is set but may be restrictive
When planning to obtain a mortgage you should arrange a meeting with a mortgage broker. Discuss how much you want to borrow know what you can afford. Be familiar with the fact that you have to cover other expenses such as deposits,
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surveys, legal fees stamp duty, council tax, utility bills, phone bill etc before venturing into owning a home. You also need furniture. The best way to succeed in mortgages is to have the mortgage agreed in principle. Failing to do this may entail your losing the desired property to a third party. The more organized you are the better off your chances by acquiring your desired property.
Once you’re found a property that matches your criteria, make an offer. If the offer is accepted, you should consider the legal and financial process in buying a home. You’ll need to find a solicitor to vet all legal aspects of the sale and carryout a local authority search, which looks for planning proposals such as developments in the vicinity which might affect your chosen property. If the survey results show good results and all legal arrangements have been undertaken, you are now ready to exchange contracts. Once this is done, you and the seller will fix a date for the exchange of keys from the previous owner to the current owner. If for any reason you opt out of the deal, you lose everything you deposited and also the seller cannot accept any higher offer for the property on the completion date, the seller’s solicitor mandates the agents to release the keys.
When buying a home, you should be very careful to follow the following
- Buy at a reasonable price. The more you overpay for a property, the lower your profit is likely to be and the longer you will have to hold unto the property before you can breakeven. You can always acquire properties at reasonable prices because of circumstances the seller may find himself at a given time.
- Don’t over borrow the fatter the deposit you are able to make on a property, the thinner your monthly repayment. This is advantageous because you could repay the monthly repayments without having to rely on tenants.
- Factor in Interest Rate increases while lower interest rates are good news for buyers, it is advisable for you to stress test" your budget before taking the plunge. You need to ensure that you do not over commit yourself
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financially while interest is low, and that you will be able to take the heat when interest rates bounce back up
- Diversify take some of the profits you realize from your real estates and spread your investment risk by investing in equities and other assets.
Now let’s look at how an individual can realize more money to cover the expenses. If your rents aren’t enough, can you increase them? In real estates, you are engaged in a competition and if you try to offset prices to suit you sarcastically, you may eventually lose tenants. Nevertheless, you could still increase rents depending on the difference between the price you want to change currently and what your competitors are charging and the quality of the property you are renting out at that price and the quality of other properties in the area.
Assuming you’ve done all you can to increase your rental income, you may want to break even on a property you already own quickly. Let’s see if you can cut down expenses. There are basically two types of expenses in owning and maintenance of a house thus:
- Fixed Expenses
- Variable Expenses
Fixed expenses include tax
- Taxes: You cannot cut your property takes except you want the erase tax. This you must pay.
- Insurance: Insurance is fixed the only way of reducing insurance expenses is by shopping around for a cheaper policy which may not be very good. How may need liability insurance in case a tenant gets hurt on the property and takes you to court.
- Maintenance: This covers all routine expenses such as water bills etc. you cannot cut this figures below what is given in the bill.
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- Repays: You may need to lay aside a particular sum of money monthly incase of repairs that may be carried out in the house. Depending on the age of the house, you could be able to reduce this sum.
Variable expense includes
- Mortgages: the mortgage payment can be reduced in a number of ways such as buying less expensive home. You could also reduce mortgage by getting a lower interest rate as I have stated before. You can plan ahead so that if interest rates are high, you can go for an adjustable rate loan. This savings can be huge. This type of loans often begin with teasers" rates that is below market. However, these teasers rates disappear rather quickly. Often within a year or two, you interest rate on the adjustable loan will rise to market or even above. At this point, you’ve got to refinance, it possible to a lower-rate mortgage.
On the other hand, if interest rates happen to be low when you buy, get a fixed-rate-30-year loan. This will lock your mortgage into the low rate so that with increased interest rates, your monthly expenses remains stagnant. Always go for the longest-term mortgage you can get to reduce your monthly expenses. It’s also very good to know the relationship between your monthly expenses and how much you put into the property.
The less you put of your own money, the greater your leverage and ultimately the greater your profits. However, you will have a greater monthly expenses because you’ll have a bigger mortgage. On the otherhand, if you put more of your money into a property, the lower your mortgage payments and the difficulty you’ll have in covering them with rental income. Put more money down and you’ll have lower mortgage payments.
Summarily, if you can find a property that offers high rent with low expenses and with proper finances, you can get by putting in little or no cash of your own. Conversely, if you buy a property with lower rental income, you’ll have to put in your own money to offset the mortgage amount to where the monthly payments
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are balanced by rental income. Some people buy properties for a resale and not for rental so you overlook buying close to breakeven and instead buy a property which the rental income is far lower than the expenses. Here putting in a lot of cash to keep the mortgage payments low is advantageous.