I meet all kinds of real estate investors in my day-to-day work, a particularly enjoyable aspect of my job. Old-school investors, people with what is obviously new money, investors just starting out, but also people who have been obliged to become investors due to an inheritance. Each has their own vision, style, approach and wishes. I often ask myself the question: “What is it that makes someone a good real estate investor?”
My personal opinion is as follows. A good real estate investor is someone who is sceptical and at the same time curious. It is usually someone with good communications skills and someone who gets on well with people. On the other hand, that person also needs to have excellent administrative skills. Above all, it is someone who has a substantial affinity with real estate and is willing to take a small amount of (calculated) risk. In my experience, successful investors like to absorb all the information and news they can lay their hands on, but they also subsequently like to create their own vision having done their own homework. A project developer with shiny brochures and projected high returns will not be taken at face value. Or if a banker says that house prices are set to rise, a good investor will ask themselves whether this really is the case and also whether the banker is just saying that in order to sell more mortgages. Or conversely, if a fund manager says that house prices are likely to fall, does this manager aim to share important information or is the intention to attract investors for his or her fund? A good real estate investor is sceptical and critical when it comes to information provided by commercial parties. We are all familiar with stories of people who have invested in projects (often not even built yet) that end up being nowhere near as profitable as investors had been led to believe, if they make any profit at all.
In my experience, small-scale investors in real estate can be fairly successful, as long as you are prepared to do – and keep doing – your homework on crucial aspects. You do need to ask the right people for advice, such as professional rental agents, but also take the time to do your own calculations. It helps if you are good at getting on with people. It is important to be able to enter into long-term business relationships with tenants, your estate agent, real estate manager, maintenance team, but also the neighbours of your property (or properties). Residential property is a people business. Potential tenants need to know exactly what to expect from the property they are going to rent and also have a full understanding of their responsibilities in relation to the rental. They need to be able to understand the tenancy agreement and any supplementary terms and conditions fully before they enter into the contract with you. This can prevent problems at a later stage. If you contract out the management of your property, it is crucial that you and your manager are on the same page. Your manager also needs to be fully aware and remain informed of the latest developments in relation to tenancy law and local regulations and legislation. A good working relationship with your technical team is also very important. Furthermore, it is crucial that you are well-organised and record exactly how much money has come in, how much has gone out and which repairs have been made. Repairs that you are responsible for in your capacity as an investor need to be dealt with quickly, and notifications from tenants require a rapid response and follow-up if applicable. You do not need to manage or do everything yourself, and in fact this is unwise if you input the income from your investment in box 3 of your Dutch tax return. A prestigious tax consultant has already written a blog about this on interhouse.nl. When contracting out all the tasks relating to the management of your property, selecting a good real estate manager with a proven track record and good reputation is essential to long-term success.
In summary, the following tips may be helpful:
- Try to buy properties in locations that can reasonably expect to see an increase in local economic activity and definitely not in areas that are likely to experience a contraction. This might include a sufficient number of employment opportunities or a new (international) school in the area. The idea is that house prices and rents will go up and not down in the long term;
- Aim for a minimum vacancy rate when switching tenants. A property that stands vacant for a single month costs you 8.3% of your rental income on an annual basis. A good and engaged manager will do all it can to prevent a property standing vacant by acting in good time;
- Tenants must be treated in a respectful and correct manner. Make sure that you meet their expectations. This will prevent problems during the tenancy period. Select a real estate manager that also employs this type of strategy, is experienced and even excels at this;
- Repairs need to be carried out quickly and cost-efficiently;
- Correct records that provide insight into all income and expenditure are essential;
- Trust your instincts. If people are not telling the whole truth, follow your intuition and act accordingly;
- If you have a loan, check periodically whether this is up-to-date for both the short and long term.
Finally, it is important that you have and retain an affinity with real estate. I find it impossible to walk past an estate agent’s window without looking to see how house prices are evolving compared to rental prices in a specific region. Are you like that? Then investment in real estate might well be something for you too. If you would like to exchange ideas on this with an enthusiastic businessman and real estate investor, I would be happy to invite you to do so at my office.