How to Become a Real Estate Investor

11.12.2018   |  Real Estate

US News publishes an interesting article on the mental and financial preparation you would need in order to be called a real estate investor. I have carefully read it and, as I have a good record of real estate deals, I will try to apply the global principles to the Romanian market. The text below is useful especially to beginner investors.

A Global Perspective

According to the publication mentioned above, you need to take four steps in order to be successful in real estate.

  1. Put your personal finances in order. The guideline is the 50-30-20 rule, which says that you should spend 50% of your personal income on your needs, 30% for desires and save the remaining 20%. Real estate acquisitions are made from surplus, that is from savings.
  2. Prepare yourself to learn. First of all, learn about contracts, notary’s fees, state taxes and even procedures regarding the issuance of ID documents, if the future tenant wants their address registered on their ID. The times when you merely handed over a key in exchange for a monthly amount are about to die out. A contract also protects you, the so-called lessor, that is the one who lets the property, and the taxes are not that high (10% in Romania, currently).
  3. Have you studied the market? It is not enough to keep an eye on the rates of apartments and the average rent of a certain area. You may also invest in real estate by means of a constructions or interior decorations company. Or by a real estate investment fund.
  4. Consider the maintenance and renovation costs. If you have ever rented an apartment for a few years, you know the tenants will ask for money for certain repairs and they are entitled to do that. Also, when a tenant leaves, you should be prepared to renovate the house, even if the tenant has kept it in good condition.
    Remember that in Romania, repairs and renovations are a problem bigger than on other markets, as most of the good workers have left the country for better wages in Western countries and, logically, the demand being high, the companies that execute such works have relatively high rates.

The Romanian Perspective

Besides the way in which I have tried to apply the recommendations above on the local market, I believe that it would be useful to add some pieces of advice that prove useful especially in Romania.

  1. Do you have/can get EUR 70,000? This is just an example amount, on which we may practice, but the size does matter. Let’s assume that this is the cost of an apartment in a relatively good area of Bucharest, from which you may get a EUR 300 a month rent. Simple mathematics tell you that you may recover all your investment from rent in 233 months, that is in almost 20 years. This, however, is a stupid calculation, as the apartment remains yours and you may resell it at a certain point. What really matters in such a case is the annual yield, of EUR 3,600, that is about 5.1%. This yield is well above the interests for a bank deposit, which range from 0.5% and 1.5% for Euro. This calculation disregards, however, the maintenance costs, taxes and work invested by you in the business.
    As EUR 70,000 is a significant amount given the average wage in Romania, I will add that you may be an investor with less money, considering that you may take a loan to buy the respective apartment. All you need is start with only EUR 25-30,000 cash, but in this case, you will have to deduct the loan related costs from the whole business.
  2. Forget about speculations. The Romanian market is difficult and the times when you could buy a plot of land to erect a house for EUR 20,000 in order to resell it for EUR 30,000 have long gone. Next year, the global economy might enter a recession, not necessarily a very serious one, but this will change the development of the real estate market. To buy and sell property is indeed a good business, but only for specialized investors with liquidities of hundreds of thousand Euro. If you want to make money from this kind of business, find a trustworthy real estate investment fund. The success you will build will allow you to have enough liquidities and a background that recommends you for a substantial participation, with decision making rights, in a bigger business.
  3. Think in perspective. Are we going to have a recession? If yes, the value of the example apartment of EUR 70,000 might drop to EUR 60,000 in three years. Real estate is however a business which involves investments lasting for a few decades. More than the recession, what counts, in this case, is the development prospects of the area. If we deal with residential buildings, the center of Bucharest or of other big cities will most certainly have the tendency to increase in price more than the neighborhoods built during communism. An area that has massively developed, such as Lujerului in Bucharest, has doubled or tripled the value of the neighboring apartments, given the malls, hypermarkets and transport facilities that have subsequently become available. Drumul Taberei is, in principle, a desirable neighborhood, but the eternal problem of the underground metro decreases dramatically both the prices of the properties and the rents.
  4. Act with caution.  I’ve already mentioned the recession and the fact that it matters less in the long run. On medium term, however, the Romanian real estate market is still a very volatile one, after the 2008-2010 crisis. The prudential measures you need to take refer to contracts on terms as long as possible, with a value set in EUR and other similar measures. Going back to the example apartment above, a two-year contract with a 300-EUR rent will bring you EUR 7,200. Assuming that the apartment will remain unoccupied another six months afterwards, you may add another EUR 1,800 for the third year, that is a total of EUR 9,000 for all the three years. If you rent for three years in exchange for EUR 275 per month, you would get EUR 9,900, that is more. Also, in the scenario with six unoccupied months, I have disregarded the repairs and/or renovation – and also the work needed to find a new tenant, which also means money.
  5. Check your potential partners or tenants. For a beginner investor, this means simple things, such as a Google or Facebook search or, in case of businessmen, a Linkedin search. People tell a lot of things about themselves online and create an accurate enough image.
  6. Keep in touch with the real estate agencies. I have mentioned above documenting and classified websites, which are a useful starting point. However, you should keep in mind that in our country the rates in the real estate ads are quite different from those of real deals. Very simply put, it is the amount demanded by the seller. What he gets is most likely less. Or, more importantly, in some areas, properties are simply not traded and this matters as an initial red flag  – although it can be considered a medium term opportunity for specialized investors.
Octavian Pătrașcu  |   11.12.2018   |  Real Estate

Three things to test and maintain in HR: hard skills, soft skills, and motivation

25.04.2019   |  News  |  Startup
The quality and efficiency of an employee mainly depend on their professional qualifications, but the modern human resources theory refers to this only through a partial term, namely "hard skills". In terms of evaluations and professional management, these “hard skills” are supplemented by a range of different qualities defined as "soft skills", such as the motivation that an individual demonstrates or chooses to develop.

Hard Skills: Easy to identify, necessary, but not enough

The term "hard skills" applies especially to fundamental professional knowledge, skills, and abilities, but not only. For example, if a programmer has to write code in Java, he will obviously have to know the programming language. In the field of hard skills, however, complementary skills such as foreign languages ​​or driving licenses also come into play. If the job description is not IT-related, the computer skills - quasi-generalized today - are also in the same complementary category. Upon hiring, hard skills can be easily tested or proven. Basically, all the skills in this category can be certified through a diploma or a certificate of qualification. These skills are the basis for the future work of the employee, but in the vast majority of cases, they are not enough to ensure good performance at the workplace.

Soft Skills: harder to test, especially required for higher positions

These are somewhat social qualities, relating especially to people-interacting abilities. Soft skills include teamwork skills, communication skills, leadership qualities, and the ability to solve problems as they come. From simple politeness to a nonconflictual attitude, a whole range of attributes can be added here, including good time management or the desire to conform to strict professional ethics. If hard skills are easy to identify, in the case of soft skills, the stereotype enumerations present in CVs are never enough proof of their existence. They can somehow be felt when hiring, during their interview or, possibly, through psychological tests set up by human resources specialists. As they mostly focus on human interaction, soft skills are increasingly needed as the position of the employee in the hierarchy is higher, but the situation differs from one job description to another. If the programmer we had as an example earlier does not necessarily need soft skills when writing code, a sales or marketing specialist will interact with the top management and thus cannot work without them.

Motivation: differs from case to case

Motivation is a problem that concerned psychologists way before Maslow's Human Pyramid of Needs. There are many hypotheses and models that relate to this theory. I will just state that a first classification refers to financial and extra-financial motivations. The former refers to material compensation and are accepted unanimously. However, since the beginning of the 20th century, it has become clear that there is no direct link between payment and the efficiency of a person. 100 years ago, however, besides the famous $5-a-day salary, Henry Ford offered land lots, kindergartens for their children and, in the case of immigrants, English courses to help them integrate into the mass production processes. Today, large companies provide health insurance, relaxation areas, various educational classes, physical activity facilities. All of these include career plans and contract terms that offer job security and much more. Perhaps, the first thing to remember is that motivation differs greatly from one employee to another. Effective management should be as flexible as possible, in accordance with the needs and incentives of employees, beyond the standard packages.

The Employer’s Perspective

From what we described above it seems that that the employer will consider the three components as we’ve structured them. Hard skills are easy to identify and absolutely necessary to ensure performance in a particular position, so these are the first ones that will be tested. Soft skills can be identified to a certain extent in the midst of the employment process, but initial perceptions can be confirmed or denied later on. What’s more important is sustaining them at the workplace, often as a necessity for promotion on a higher hierarchy level. As final words, motivation has qualitative rather than quantitative aspects. Employers should be less concerned about the answer to the question "how motivated is an employee?", but rather show concern towards the type of motivation that employees are most responsive to. Schematically speaking, if hard skills are mainly the employee's concern, soft skills relate to a process that takes place between the employee and the company, and in the case of motivation, it should meet the needs of the employee. Only by paying attention to all the three components, the employer and the employee can have a mutually satisfactory and productive relationship.
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