My first investment in real estate dates back to 2012. I then purchased 50% of a building located on Bulevardul Buzesti in Bucharest with the intention of reselling at a higher price after two or three years. Maybe because I have entered this market after the boom and recession in Romania, to me real estate is no easy business where you can strike gold immediately. However, that is exactly why the satisfaction of making money is far greater. I shall give an example so that you may understand how the market works. I have recently sold a 3000-sq.m. asset, with a Return on Investment of 95%. How did I make that profit? It was a so called distressed asset. It carried debts and it lacked tenants. I made it work through reorganization, which include an aggressive commission for the agents who brought me tenants. The buyer is a well-known investment fund.
1. Never buy a turn-key building
It might seem cool to buy an attractive property, pay for it and resell it in a short while for good profit. However, the real estate business does not work like that. At least not after 2012, when I entered this market. My guideline is never buy a property that looks great from the start. In other words, a beautiful office building, well finished and full of tenants is not the most attractive investment, because you will pay somebody else’s profit – or the work done by that business, instead of booking earnings in your own P&L.
On the contrary, if your intuition tells you that a non-renovated and unoccupied Cinderella will be an attractive princess in one or two years, then you have what it takes for real estate. However, there is something else you will need: work.
2. How to make profit
It is just work that makes business something else and not what the communists said business was: some sort of sweet idleness and exploitation. If you buy a property in a poor condition, you will have to invest in it. It took me two years to bring that 3000-sq.m. building where I wanted it to be: housing quality tenants, good internal organization and cost effectiveness. It is only then that the property becomes attractive to, for instance, an investment fund.
3. If you want to be an investor, buy with the bank
I cannot disclose the amounts, but for the property I am talking about the financing was only 35% from own sources. The rest of 65% I got from a bank. If you are worried about the interests, you should know that in such a business they are covered by the profit. Keep your eyes on the costs, as they say, and you will see that it adds up.
It is true, in order to obtain loans, you need a track record of professional investor. You can’t simply walk into a bank without collateral. The amounts you need have at least six figures.
Also, improving a property requires specialized teams, from builders to lawyers. That is why real estate is a self-standing business.
3. Can you buy just any wreck? No. Then, what really matters? Location, Location, Location!
This is how the real estate developers in the USA call it. Anyhow, the place where a building is located is the one that makes the difference between a wreck pure and simple and an asset with amazing prospects. Any city has so called top locations, which will remain as such, simply because you can no longer build on them. If you know how to spot them, all you need is the money to start off, which is, as I said, quite a lot in real estate.
4. Conclusion
From my point of view, real estate is a business involving a lower risk than others, but it requires time and energy. Maybe I am lucky enough to have become a businessman after the real estate boom in Romania. However, this is exactly why I like to build on long term and it seems to me I still have a lot to learn.