One of the Best Investments is Real Estate
By Saghir Aslam
Rawalpindi, Pakistan

(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)

There are of different ways you can invest in real estate:

One of the best ways for young investors is to look for fixer uppers. I remember while I was going to college I would drive around in different neighborhoods and look for run down properties. It could be that the lawn is in bad shapes, have not been moved for a while or windows and doors that are dirty, possibly worn out curtains or a home that need attention in other matters.

I would go knock at the door, husband or wife whoever comes. After listening to their stories then I would start how I can help? With that magic couple of words they start to spill out different stories about their family, many different payments that they have to make and this house is eating us up going to take us to the poor house. We are so many payments behind.

Without doing much work I now have all the information I needed. I get their permission to leave and tell them I will give you call come and visit you see how I can make your life easier. How I can help that is music to their ears.

I go back home do my homework get comparative recent sales and start figuring out what is best for them and myself we start to negotiate, before, too long they are happy no more payment problem. I am happy I just bought myself a good property at fantastic price.

More than a handful of outfits have sprung up to collect small amounts of capital from a large number of individuals to finance their deals. One New York company is even selling stock in a single building in the nation’s capital.

Real estate investing was mainly the province of high-net-worth individuals: “accredited investors” who earn more than $200,000 a year and were protected somewhat by the Securities and Exchange Commission.

But with little or no SEC oversight for crowdfunding investments, how do small investors with only a few hundred or thousand dollars to risk determine which deals are destined to be financial successes and which are failures from the get-go?

“The key to successfully investing in real estate is performing a thorough due-diligence analysis. One of several crowdfunding platforms that seek to connect investors with real estate professionals offering access to high-yield deals. Seasoned investors know to investigate all aspects of a transaction, often “get excited about acquiring part of an investment property and loss sight of the mechanics of knowing what they are buying.”

Market Conditions: Two major factors are the keys to underwriting an investment in income-producing property: the market and the property. But of the two, local market conditions trump everything else.

Put simply, a great property in a declining market is generally a bad investment because you can’t change the market. But a poor property in a good market can be improved.

“Analyzing the demographic trends of population growth, income and employment in the local market will tell you whether opportunity or risk lies ahead. “It will also show which property types are in demand or oversupplied.”

Misleading financials: The bottom line can be manipulated into whatever will make the deal work. So investor beware. Many sellers will overestimate revenue and/or underestimate expenses, making the property appear more profitable than it really is. It is crucial to get the real operating numbers, not a projection of potential rent and estimated expenses. “Confirm and verify every element of income and expenses,” and make sure your offer is based on the actual financial performance of the property.”

Poor-quality tenants: Leases are the most important document attached to an income property. They produced the income, so it is crucial to review every lease and understand the financial strength of the tenant behind each lease.

In an apartment building, tenant files with poor or non-existent credit reports and a lack of references are a red flag. If the building is filled with tenants who have a history of making late payments or being evicted, your vacancy, management and legal expenses will be higher than anticipated. The same screening mechanism takes place with tenants in shopping centers or office buildings, where examining rent rolls, payment histories and credit files of existing tenants can be enlightening.

Hidden property conditions: the seller always knows more about the property than the buyer. So to make an intelligent investment decision, the buyers job is to dig for the information the seller may not want to volunteer, or perhaps isn’t aware of. Part of your due diligence checklist involves inspecting the property’s condition, including physical items such as building systems, environmental matters and structural components. Hire the right professionals to give you estimates on the maintenance costs of these items, their life spans and how much it will cost to replace them when needed.

The condition of the property will determine how efficiently you will be able to manage it.

Legal Challenges: Intangible items, such as title, survey, zoning and land-use rule, are important too.

Sellers sometimes market their property indicating that it can be zoned for another use and has the development potential for additional square footage. The burden is on you, the buyer, to make sure what the seller is saying is true. Do not assume that the proposed use of the site will be permitted as advertised.

Investing online: When it comes to facilitating your investment activities online, be sure to choose a credible platform that only does real estate deals, is backed by a team with years of deep experience in real estate investing, and has people available to answer your questions.

The team should strongly vet their deals, set realistic expectations and have a consistent track record of delivering solid returns.

(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr. Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, or does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr. Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr. Aslam does not have anything for sale.)

 

 

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Editor: Akhtar M. Faruqui
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