Making Money in the Real Estate Business Requires Good Thinking and Hard Working
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.
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.
If you’re a startup or scale up founder, or if you are working up to launching your idea, events can be useful to see how others do or dit it. It’s useful to see what worked and what didn’t for successful entrepreneurs, how they think, their approach to business.
It can take a lot of time and energy to attend business events, and the gains aren’t always immediate, but success doesn’t happen in isolation – entrepreneurs need a certain vibe and energy to keep going, they need networks, need to be connected to their markets, their competitors and their peers.
I go to a few events every year, and I choose those where I am likely to see new ideas put into action, meet smart people and explore different sectors. I do focus on my key areas (property, fintech and medtech), but I keep my eyes open for what’s going on outside of there areas too. So here is what’s on my list currently.
- Central European Startup Awards – happening this week in Bucharest!
Conflicting agendas mean that unfortunately I’m not going, but I’ll follow it with interest.
This is a regional program run by the Global Startup Awards. In Romania they’ve partnered with Impact Hub, one of the biggest co-working spaces and entrepreneur networking platforms. Annually, they select and award startups in tech / web industries. After the national phase of Central European Startup Awards competition, the winners of each of the 10 countries (Austria, Poland, Czech Republic, Slovakia, Romania, Bulgaria, Serbia, Croatia, Slovenia and Hungary) participate in a regional competition, whose winners are announced on November 21st in Bucharest.
2. Disrupt Berlin – 11-12 December, Berlin, Germany
Organised by TechCrunch, Disrupt Berlin showcases emerging trends in the business of technology and is a great place to meet or find information about game-changing founders, startups and technologies.
There are a multitude of conferences, workshops, networking opportunities and companies from all aspects of tech, but focused in on several category tracks. I'm looking this year at Artificial Intelligence/Machine Learning, BioTech/HealthTech, Blockchain and FinTech, but there are a few others.
3. Bucharest Tech Week – May 2020, Bucharest, Romania
5 days of conferences hosting international & local speakers, and a B2C gadgets and tech expo. Conferences are focused on innovation (seems to be an umbrella theme, which can fit anything these days though), HR, some coding conferences but also Fintech.
4. Wearable Europe - 13 - 14 May 2020, Berlin, Germany
Conference and exhibition focusing on wearable technologies, applications, and their commercialisation progress. The conference is part of the IDTechEx Show, a series of synergistic events on Printed Electronics, wearable, sensors, IoT, graphene & 2D materials, energy storage, electric vehicles.
5. EU-Startups Summit – 28-29 May, Barcelona, Spain
Some of Europe’s hottest startups and successful European entrepreneurs - over 1,500 founders, startup enthusiasts, corporates, angel investors, VCs, and media from across Europe. The two-day event is a great opportunity for networking, and a meeting point for aspiring entrepreneurs and investors who are aiming to build international tech companies.
6. London Tech Week - 8-12 June 2020, London, UK
A 5 day technology and innovation marathon, with events on connecting global markets, cybersecurity, digital transformation and innovation, for startups and scaleups.
7. Webit Festival Europe - 17-20 June 2020, Valencia, Spain
A huge event, Webit is a B2B and B2C festival and tech fiesta: 15.000 delegates, 450 speakers, 1,500 selected startups, 500 investors, international media.
With specialised summits for many verticals, I particularly am interested in the summits for health, fintech and blockchain. Other summits focus on cybersecurity, mobility, growth, future of food, or digital entertainment & media.
8. Techsylvania – 20-23 June 2020, Cluj, Romania
One of the biggest tech events in CEE, Techsylvania has tens of events, workshops, keynote speakers and panels. It can be very informative and great for networking and for benchmarking ideas, because it has almost 4.000 attendees - engineers, founders, investors, executives and CEOs of IT & digital companies, banks and startups.
There is a startup competition at Techsylvania too, Startup Avalanche, for early-stage startups, which get to meet international VCs and investors as they compete for the Grand Prize – €100,000 investment.
Over the last decade, I've built my professional life as an investor, focusing on 3 key areas: financial services, real estate and tech startups. I’ve participated in the setup and development of two major fintechs, and after those two successful exits I’m now directing my resources into building a new enterprise in this area – the Key Way group.
I've started, participated in and developed companies in Romania, as well as Bulgaria, Hungary, Czech Republic, Germany, the UK, Mexico, Dubai and South East Asia. I'm constantly looking for new segments, new markets and new opportunities, and therefore I interact regularly with the regulator institutions and official agencies in various countries and markets.
The most recent example is the GCC area (Gulf Cooperation Council - Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates, and Saudi Arabia). I started to research opportunities in that area at the end of 2018 - more specifically, the United Arab Emirates, which are establishing themselves as one of the most dynamic markets in the world.
The whole experience of working with the official institutions there was a great example of how to attract and encourage investors! ADGM, the Abu Dhabi Global Markets regulator, was established quite recently and I was absolutely impressed with their professionalism.
To start off, I researched the local market regulators online. The information was clear and easily available: I contacted them online, via their website and LinkedIn accounts. They responded promptly, and in only a few days, we set up a series of meetings with the financial markets regulators in both Abu Dhabi and Dubai!
The ADGM gave me full support and very clear, detailed information on what and how I need to do to obtain a trading licence in financial services in the UAE. I met with representatives from both the ADGM registration department (where all new businesses have to register before they acquire a licence for online trading) and from the FSRA (Financial Services Regulatory Authority).
They were very clear on the procedure, steps to follow and criteria we need to meet, which is a fantastic help for an investor on a new, highly regulated financial market.
In a few days I started the onboarding procedure - everything happens online, everything is digital, everything is set up for maximum ease and transparency.
They set investors up for success, but they make sure they vet them thoroughly as well! A "user friendly" approach does not mean lower standards, quite the opposite - they made sure I meet all commercial and business criteria, they assessed my financial, capital and business status and previous experience, and checked references from markets in which I operated previously.
We went through a process of very rigorous assessment and due diligence, and several meetings where I detailed our business plan and long term vision. Professional but friendly - you feel welcome, encouraged and supported as an investor.
Furthermore, their “enthusiasm”, or appetite for new business, equaled mine! They’re happy to welcome new businesses, they work hard to attract them and to set them up for success. I was very impressed that they genuinely appreciate the fact that investors, however big or small, choose their market to set up a company.
I’d love to see this same level of energy, hard work and appetite for business in my home country, Romania.
While other jurisdictions welcome investors and work hard to create the framework for development and success, I often feel that the Romanian regulators, for financial markets and not only, start from a default position of suspicion or, at best, indifference. Investors are regarded with thinly veiled (if at all veiled!) suspicion and distrust and sometimes downright hostility, you almost feel guilty or embarrassed to be successful financially.
I hope to see this mentality change in Romania, because I, as well as most Romanian entrepreneurs I know, really want to make our country a top choice for investments, not just in outsourcing and services. We want to make Romania known for its know how and creativity.
I think Romanian regulators should remember that their whole purpose of existence is to enable business, not hinder it. And as investors, especially once we see best practices from other jurisdictions, we need to remind them of this reality.