As I explained in my previous post, Biggerpockets helped me in getting general information concerning real estate investing. The personal course I took in the Netherlands, on the other hand, mostly helped me in evaluating properties financially. Below I’ll highlight the main points I’ve learned from both real estate courses.
1. Bigger pockets
1.1. Business plan
As in any big project you try to accomplish, a business plan can give you direction and keep you motivated throughout the process. Real estate is no different. It’s important to plan out what you want to achieve and how you will do it, even before getting started. Write down your goals and the timeframe in which you want to attain them. Think about which strategy you will follow to accomplish this. Do you want to buy and hold properties? Would you prefer flipping houses? Or is wholesaling real estate more your cup of tea? Pick one and focus on getting really good at it.
Also keep in mind what you niche or market will be. Raw land, single-family homes, small apartments, big apartment blocks, commercial etc.? Be sure to pick something you’re comfortable with as a beginner. Being a novice investor, it’s also smart to start off in an area that’s within driving distance from where you live.
Next, find out what you need in a property to make it into an interesting deal. Establish the criteria you will be looking for (but more on that later). Your business plan should also identify how you will finance your deals. Will you be using cash, private money, a conventional mortgage, seller financing etc.? Be sure to think about this and write it down before you start placing offers on properties. Write down how your personal finances are as well. How much equity do you have? Lastly, think about how you will make your deals profitable. Document all the income and expenses you foresee and prepare for unexpected setbacks. Consider possible backup plans and have several clear exit strategies.
Writing a business plan is a good starting point for your real estate investments. It is just a roadmap however, and will probably change over time. As you continue learning, you might change strategies and make your plan more detailed.
1.2. Investment criteria
Before you start looking for good deals, you need to define for yourself what a good deal entails. This will not only help you in avoiding bad investments, it will also help you stay focused and deal with analysis paralysis. Write down the criteria a property needs to meet. Not only criteria concerning the property itself such as property size, number of rooms, state of the property, location (town/neighborhood), appreciation potential etc. Also have criteria about the financials. What is the maximum purchase amount, how much ROI do you need, how much monthly cashflow, etc.
Understanding how to evaluate properties is one of the most important skills to learn if you want to start investing. It’s common knowledge among real estate investors that you make your profit when you buy! In other words, appreciation should never be your main goal. This means buying the right deal, at the right price so that you can reach the profit you have in mind. Buying bad deals or underestimating expenses are the biggest reasons for investments to turn out wrong.
1.3. Assembling your team
Another great thing Biggerpockets taught me, is the importance of having a team by your side. These are the people you can rely on throughout the process of your investments. You don’t necessarily need to know who these people will be exactly when you just start off, as long as you know the importance of several others in helping you reach your goals.
Probably the most important person to have in your team is your mortgage broker. He will be responsible for actually getting your project off the ground. Preferably he or she has experience with other investors and has creative ways to get your finances in check. One of the easiest ways to find a good mortgage broker, or any other person is your team, is through the referral of fellow investors.
Other important people on your team are your real estate attorney, your accountant, insurance agent, contractor, realtor, property manager and handyman. Be sure to shop around, and have trustworthy, experienced people by your side. They should be experts in their fields, easy to reach, punctual and reliable.
A last person that can be of great help in your ventures, is a mentor. A mentor is a person who is already seasoned in the things you want to accomplish. He or she can guide you and help you learn. A relationship with a mentor should not be forced though. If you find someone who you think would suit as a mentor, let the mentorship grow naturally. Make yourself valuable and think about what you have to offer to the relationship. Maybe you can offer your time, your expertise in another field, or even just your friendship, as long as you think of the relationship as a win-win situation.
2. Course in The Netherlands
As said before, the main thing I learned from the course in The Netherlands is how to evaluate properties financially. One quick way to do so is to calculate the return on investment (ROI). It simply shows how much yearly interest you make on the amount you invested. For calculating ROI, you divide your net returns by your own resources and multiply by 100. Ideally your ROI is at least 10%.
ROI = Net return / Own rousources * 100
To calculate your net returns, you have to subtract your yearly costs from your yearly income. Your own resources are simply how much of your own money you invested in the property. To make it easier for myself, I have made a little spreadsheet where I simply need to fill in some property specific numbers (price, rental income, own investment, interest rate, taxes, other costs etc.), and the ROI and monthly cashflow are calculated automatically. Note that you’ll probably have to visit a couple of banks as well, to know how the financial will be, how big of a loan you’ll be able to get and at which interest rate.
Now of course, having to do these calculations for every single potential property can be quite some work. You would have to evaluate for each property which costs you will have, how high they will be, what you rental income will be etc. To spare you all this work and to be able to financially evaluate deals even faster, there’s a simple rule of thumb you can follow. If you divide the price of the house by the yearly rental income, you will know how long it will take you (in theory) to pay back the loan. Ideally this will be less than 10 (years).
2.2. Other takeaways
Besides the financials behind real estate investing, there’s some other more general points that I found interesting in the course and want to share with you:
- Don’t only look for deals in the conventional ways. There’s other situations that you could take advantage of when looking for properties. Couples who are getting a divorce generally want to sell fast, houses of people who pass away need to be sold etc. You can even get creative and slip little notes in the mailboxes of interesting properties, or write an ad in your local newspaper. Talk to people and let everyone one know you’re looking for property as they might know someone who’s thinking about selling.
- When evaluating deals, calculate the price per livable m² to be able to compare properties easier. Know the average prices and key numbers for real estate in the area you want to invest in.
- Choose your partner/bank very well. If you have to pay more interests for a partner who does commercial real estate and who helps and thinks with you, it is more than worth it. Also check if they offer refinancing and regard rental income as personal income.
- Shop around for everything. Your solicitor, lawyer, insurance etc. Compare prices and services and ask for recommendations.
- Always bargain on your deals. If you can’t get something off the price, then try to make them add other things to the deal. For example you could have them fix the electricity, pay for the taxation or leave the furniture in the house.
- Do your due diligence on the potential tenant. Check for ID’s, ask for copies of their work contracts and their payslips, Google and Facebook check them, etc. This could save you a lot of future headache.
3. Own research
Once you have found a property that suits your strategy, meets your criteria and your simple rule of thumb, then there will be no way around calculating all the specifics and really doing your work. This is a part where I had to do a lot of my own research. As none of the courses I did were specific to Belgium, I had to find out for myself how the laws and taxes are, how the buying process goes, which costs you have when buying etc.
Not only per country, but also per area these rules and laws can differ. For example, in some parts of Belgium you might need a permit to be able to rent a house out per room while in others you don’t. There might also be other criteria that the rooms need to fulfill. You might also want to find out if you need permits to extend your property or to divide the property in different apartments. Be sure to also read up about the possibilities to increase your rent annually.
If you’re interested in investing in Belgium, feel free to send me a message and I’ll happily share all the information I’ve gathered. I won’t be sharing this here as many of you are probably not interested in investing in Belgium. However, no matter where you’ll be investing, make sure you look these things up for yourself!
And as always, don’t forget to make it happen!