Real Estate - an example which I observed

Thursday 17 September 2015

Good properties are an interesting way to invest. Besides "paper assets" like (bank accounts and bonds), equities and direct investments in companies, as well as gold and silver, there are many property investment opportunities which enhance the portfolio.

Investments in real estate are varied. What strategy should you choose to build a real estate portfolio?


I am not in favour of investing in real estate in remote locations. With that I refer to buying homes in areas that I am not familiar with, or which I seldom visit. It is difficult to keep up to date with changes in the social structure of a city and trends in urban planning of its infrastructure. In addition there is the rental and full time management of your real estate. To leave this to others is not a viable option.

 

Two fundamental rules apply for me when it comes to real estate:

  1. location, location, location and
  2. keeping a close eye on it and looking after the property.

 

Whoever is capable of doing this in a large volume, can become a large property owner. I found a nice example of this while staying in Italy:

 

A lady friend of an acquaintance of mine lives in Milan. After suffering from a stroke she had to downsize the home she was living in. Finding a cheap apartment for rent in Milan was not easy. After a lot of effort she managed to find 70 square meter apartment for about € 1,200,- a month in rent. The going rate for such an apartment was € 1,500.- per month.

 

The owner appeared in person for the handover of the apartment. A neat elderly gentleman with his son who was in his mid-thirties. Both were very friendly, and said that they were aware of the higher rent they could secure but instead placed a far greater emphasis on having decent and reliable tenants.

 

For the settlement of monthly rent payments they insisted on a two-month cycle, each rent payment to be paid in advance, which gave them the advantage that they only had to bank the cheques six times a year. So far so good.

 

As the lady friend of my acquaintance was hard up for money she phoned the secretary of the landlord a few days later. She asked if they could make an exception in her case. She would rather pay her rent on a monthly basis. The secretary responded:

 

“ Yes I can understand your position, but please appreciate, however, that this would be a burden for the owner as far as the administration was concerned. There was only the old man, his son and the secretary to attend to a total of 700 apartments they owned in Milan.” - I like that.

 

A true story, which makes me think back, when I consider real estate investing (including real estate funds) about many investors I have got to know over the years.