Start small to grow investments in real estate

Each time you sell your previous house, add a little money to buy a better house in a better neighbourhood.

June 20, 2008: As I was growing up, my father taught me many important lessons. Today, I will share with you one of them. He always told me to start from where I was and continually improve myself.

Start from somewhere he always said. This was especially with regard to buying real estate. His principle was buy a small property to begin with and continue moving up.

Each time you sell your previous house, add a little money to buy a better house in a better neighbourhood. It is hard to start out with a mansion especially if you are working to pay off your mortgage.

Simple way

If you really desire to get into the real estate market, the simplest way is to begin by buying properties that need some work, fix them up and increase their value. There are a few steps that you have to follow when you do this.

The first step is to do your homework. Remember that the most important aspect of real estate is location. Select an area in which you wish to buy a property.

One in which the security is good; visit the property at various times and see how you feel about the area. It should be close to amenities such as hospitals and supermarkets and one that has growth potential.

Look at properties in the area until you find a property that is run down, needs some decent amount of work and is selling for a bargain. A run down property is passed up by many buyers and the seller sees a need to decrease the price.

For you, a property like this has latent value that most people will not see. To ensure that you do not pay more and know what you are getting yourself into, you can take an expert who can assess how much money you will need to improve the property.

Second, move in and start on the work. There are a number of ways that you can do this. You can dedicate your evenings and weekends to doing the renovations yourself or you can get in some people to assist you. If you do most of the work on your own, you can save a great deal of money.

In South Africa where labour is relatively more expensive, I have noticed that many people opt to do the fixing of the house on their own.

When I moved into my house and needed some work done, my landlord came in with all the tools and did all the fixing on his own. The money saved can go into paying off your mortgage.

Once you have fixed up the place and it looks good, you have options about what to do with the property. You could sell the house, let it or remortgage the house if possible.

If you decide to sell the house, you can take the money and buy another property and do the same thing or even curtail your mortgage. If you decide to rent it, you can use the rent to repay the mortgage and when you combine this with your regular payment, you can reduce your repayment period.

If you are able to remortgage the house, you can take the money you receive to the bank and acquire another property.

You can then repeat this process with another property. As you get more money, you should move up and buy bigger and better properties in better neighbourhoods.

If you exercise discipline and continue putting the money back into real estate, you will find yourself owning not just one property but a number of properties.

Although the real estate market is facing great challenges, especially in the United States where the credit crunch exacerbated the already declining property prices, the real estate market in most parts in Africa is still growing. In Nigeria, there is a shortage of housing and tenants even pay up to two years rent in order to secure a house.

  • Miss Kigen is a portfolio manager with African Alliance. She is based in Johannesburg.

Article by: Eleanor Kigen - www.bdafrica.com