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Quick fixes for quick profits in real estate



It has been said several times that ‘ideas rule the world’ and this holds true in real estate investing as well. We want to examine a time-tested idea that guarantees quick turnaround time and good returns on investment in most real estate markets. We’ll be examining guidelines for making a good return in rehabilitating and selling properties.

First, you need to find a property that is in need of repairs or renovation but is located in a good area. 


These are the diamonds in rough terrains. Someone once said that ‘discovery consists of seeing what everybody else is seeing but thinking what nobody else is thinking.’ Many people by-pass golden opportunities because they lack imaginative minds and eyes that truly see. As far as I am concerned, it is only creative minds that have eyes that truly see.

Several years ago, a couple decided to invest in real estate and gave the instruction to search for an ideal property to a smart real estate agent. They had a budget of N5m. After several inspections, the agent recommended that they seriously consider a well located and upcoming government estate in Lagos State, Nigeria, where they could get a plot of land for about that amount. Unfortunately, the couple overruled the agent. Today, the same parcel of land within 10 years is worth at least N50m. The agent saw the opportunity but those couple did not. This often happens.

There are old and sometimes dilapidated properties in very good locations that everyone seems to be overlooking when thinking of property to purchase. It takes a creative eye to see what could be done with such properties. If you have been following what we have been discussing in this column, you should have realised that one of the key value determinants in real estate is location. If a property is in a good location but it is not in a good state, it gives you the opportunity to buy it at a discount if you know how to negotiate and what to do with the property.

Secondly, our ideal property should be in such a state that it makes good sense to rehabilitate it. That means it should be structurally sound and if it is not, then the price should justify your demolishing it after purchase. This also means that your team should involve a good architect and a good quantity surveyor. These professionals and others that would be involved in your project should be able to give you a near accurate analysis of the cost of rehabilitating the property. You want to minimise the incidence of surprise when it comes to cost as much as possible.

It is important to note that when you handle a property properly, you will reap much greater returns than what you put in. For instance, by spending money on painting a building properly and giving it a facelift, you may be able to charge a premium in certain neighbourhoods. The key is to find the few significant changes that will accentuate the beauty of the property so that it will be in consonance with modern building or design trend.

For instance, most older buildings may have fewer toilets and bathrooms but often have more space that a good architect could play with. You might be able to put in place individual bathrooms in each room. The aesthetics such as light fittings and kitchen fittings could significantly change the look and feel of the property.

There is no need to overdo these things since you have to be conscious of the cost implication especially if it is an investment property. You are an investor and you cannot afford to have sentimental attachment to any property. You should avoid going for the very top range of fittings. 

Quality comes in various degrees but when it comes to investment properties what counts the most is functionality. Your personal taste of what you would have installed in your own house should not come in. Do what has to be done to make the property beautiful and functional without overspending. You need to realise that your job is to sell the property but it is the buyer’s job to customise the property to their own taste.

Thirdly, sell the property at a profit. You don’t have to do this but if you are interested in the model we are discussing, you need to sell the rehabilitated property and move on to the next property or project. When selling, you need to consider the replacement cost of the land especially if you are focusing your investment in a particular area. During the period you are repairing the property, the value of properties in that area might have increased. You need to factor this into your sale price.

Some investors use their capital and profit to buy larger properties and do bigger deals. They also use it to build a good track record that gives them credence when dealing with financiers. You also gain experience in various aspects of building. These experiences will often stand you in good stead later. And the good thing about this model is that it has a faster turnaround time since you are not building from the scratch. You gain time and it is possible to start and conclude this project in less than twelve months.


by Abiodun Doherty
 

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