One of the most frequently asked questions I receive from clients is around real estate investments. Real estate investing is extremely popular, especially amongst individuals looking to make their very first investment. The attraction to real estate is understandable, other people seem to be doing it successfully, it is deemed a safer, more tangible investment; and it is simpler to understand than derivative contracts. There are two keys reasons an individual or company invests into real estate. The first is capital appreciation, which is the price of the property increasing in value over time. The second reason would be to use the property as a potential source of income through rentals.
In 2009, I wrote a paper outlining an idea for Zambians to come together and start investing in commercial real estate, where the real money is made. But for many people, investing in real estate, particularly commercial real estate (shopping malls, office buildings), it is simply out of reach financially. But what if an individual could pool their resources with other small investors and invest in larger scale commercial real estate as a group? This is essentially the need that a Real Estate Investment Trust (REIT) attempts to satisfy. You can read the idea in full by opening the document below.
Now forming a REIT is not easy, but my objective with that paper was to promote a forum for dialog and get people thinking about a concept like this, and maybe inspire a group of people to start their own mini REIT.
Going back to individual properties, there is no such thing as an investment without risk, and many colleagues have lost money investing into real estate for a variety of reasons. My advice is simple, first don’t invest in something because everyone is doing it and more importantly do your homework thoroughly before making the investment, talk to a professional if you can. Attached is a simplified worksheet that I have used myself and with colleagues when assessing a real estate investment.
There have been numerous articles in the U.S media recently talking about the influx of foreign investors buying property in the U.S. This comes as no surprise, not to mention I have overseen 3 of these transactions over the last two years. U.S. house prices have plunged by nearly a third since 2006, and homeownership rates are falling at the fastest pace since the Great Depression. Furthermore from a risk perspective, the strength of the legal framework., economy and business environment, means foreign investors feel more secure acquiring property in the U.S.
Two key measures now suggest it's an excellent time to buy property in the U.S for investment income. The first is the fact that houses are the most affordable they have been in decades. With home prices down by nearly one-third from their high, housing affordability, as calculated by the National Association of Realtors, has moved to the highest levels since the recordkeeping started in 1971.
Second, the nation's ratio of house prices to yearly rents is nearly restored to its prebubble average. With rents on the rise again as vacancy rates fall, the required annual home price appreciation needed to "break even" on a comparative analysis of buying versus renting costs has also fallen to levels not seen since the 1970s.
But there is an added caveat creating further opportunities in the U.S housing market, the huge number of foreclosed properties owned by banks, after owners’ default the payments on their mortgages. If the house is owned by a bank, the bank is desperately trying to get rid of it and will sell at distressed prices to remove the homes from their balance sheets. In fact foreclosure filings for the third quarter of 2011 were up 1% or 610,337 from the previous quarter and down 34% from the third quarter of 2010, reports RealtyTrac.
In 2010, I was involved in acquiring two foreclosed properties that were brought to my attention; one of these transactions was on behalf of two investors, who became partners after being introduced and looking at the proposal that I had created. Therefore to conclude, I have attached a brief analysis outlining how the transaction worked and why it was an attractive investment. And if this is the type of transaction that interests you, if you have an interest to buy a property in the U.S, then reach out to me through Zambian Entrepreneur!
Part of Zambian Entrepreneur’s social responsibility is to promote and support all activities that enhance the small business environment in Zambia.
For 2012, Zambian Entrepreneur has received a private donation to award two cash scholarships currently worth $500 and $200 respectively to any Zambian Student (in Secondary school or University) worldwide though a business proposal competition and essay writing. The amount may increase as other private stakeholders contribute to the scholarship fund.
Individual students or teams of students (not more than 3 members) are required to write a business proposal outlining a business that they would like to create. The winning proposal will not only be awarded a cash scholarship, but they will work with a member of the Zambian Entrepreneur advisory board to prepare and submit their winning idea for funding consideration.
A smaller cash prize will be awarded to the winner of the essay writing competition. The theme for 2012 is entitled
A letter to our Zambian leaders: What corporate governance and ethical behavior means to us!
Deadlines for both competitions are June 30, 2012. Watch this space for more details and the official rules, or send an e-mail to email@example.com with your name and e-mail address to receive the official rules, when they become available.
http://www.doingbusiness.org/data/exploreeconomies/zambia/starting-a-business (explores the procedure to start a business in Zambia)
http://www.zda.org.zm (Zambia Development Agency)
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