Conversation with a real estate millionaire

July 9, 2013 by Abiodun Doherty (abiodundoherty@yahoo.com) 

   

Abiodun Doherty
| credits: File

We have gone through several principles on real estate investments and answered several questions and enquiries from ardent readers of this column. But it may be even more instructive to share one of several conversations that I have had with a real estate millionaire that has helped me tremendously.

I have discovered the truth of the saying that an ounce of example is worth a pound of precepts. Permit me to extract the basic principles of this particular conversation and to protect the privacy of this individual who would also prefer his name not to be mentioned.

Rule 1: Have a good source of income. This particular real estate investor started several years ago just a few years after the independence of Nigeria by exporting certain agricultural produce. He poured himself into building this business and was later joined by a few other partners. The business flourished and provided him with the regular stream of income with which he started investing in real estate.

This real estate millionaire believes in hard work and entrepreneurship. He believes that many of the youths of today will do better if they learn to walk before attempting to fly. He believes that if you are willing to serve others faithfully in their business, you’ll do wonderfully well in yours when you eventually start.

The lesson for us all in this is that real estate investment requires seed capital and to have those initial seed capital you must have earning power, you must have a means of income. You cannot put up a solid structure without a solid foundation. So,for all would be investors, first learn a skill or profession that will get you a job or start a business that you can grow and that will provide you with regular income.

Rule 2: Start saving and start investing in real estate in your own little way. Our real estate millionaire started by buying land in an area that was then a “jungle’’ but is now one of the commercial nerve centres of Lagos. He stated that it was not easy buying some of those properties then.He said he made buying real estate one of his pastimes.

He did not start buying properties in the high brow areas of the time because he could not afford them. According to him, start where you are and with what you have. If all you can afford is a parcel of land in the outskirt of town by all means start there rather than not starting at all.

Rule 3: Its good to build and rent. This real estate millionaire began to build some of his properties with the aim of letting them. Fortunately for him, as time went on ,he began to acquire knowledge of construction and building development. This accelerated his building projects and his ability to interact with builders and workmen saved him significant costs. He also began to let the buildings to tenants to generate income. As at today, his annual rental income is in millions of naira.

The lesson for aspiring real estate investors is to focus on income-generating assets. Once you have sorted out the issue of where you live, you should continue building for others to rent from you and pay to you. Some real estate investors have a goal to build a certain number of houses in certain areas over a period of time using current and projected rent as a basis for planning.

This strategy is also a form of retirement planning since rental income from such properties provide passive cash flow. Like our real estate millionaire, who is now an elderly man, but does not need to work in order to pay for his cost of living.

Rule 4: If you can’t develop some properties on your own, give them to reliable developers.This real estate millionaire had some properties that he could not afford to develop on his own because of multiple projects that he was involved in. He gave some of such properties to carefully selected developers that he gave long leases to. Many of such properties have since reverted to his control and are now giving him fantastic returns. In his thinking, it was better to add value to the land or allow someone else to add value to the land. As long as the properties are not sold they would eventually revert back to him or his beneficiaries.

Rule 5: when you do sell, reinvest all or part of the income in real estate. This real estate investor rarely sells his properties but when he does, he sometimes buys another property or uses the income to add value to another property. He is  comfortable and modest at the same time. He often has the next project or investment in sight before concluding the deal to sell.

He believes in moving his funds to better and better real estate locations that will bring in better rental income. As at today, a conservative estimate of his property assets is over N2billion.He started small,built his estate gradually but strategically and now he is reaping the reward.

Some locations suddenly became prime locations and transformed the value of his investment. His life proves that if you cast your bread on many waters you’ll find it and more someday or somewhere you least expect