Real estate is indeed a lucrative investment. It has been quoted as one of the top 10 lucrative businesses in Nigeria and top 20 profitable small businesses in the world. However,the most lucrative businesses also have their ups and downs. In the case of real estate investment, loss may be suffered by investors due to some management misjudgments that may be taken by them. Most of these misjudgments can be avoided if the acquisition, sale and management of real estate property have been committed to the hands of professional Realtors (real estate agents).
Anyone may ask why investors are reluctant to hand over the management of their property to professional Realtors and save themselves from business loss. The first reason for this unwholesome disposition is the availability of wealth of information online. Anyone may set up a blog and give advice on how to self-manage one’s property.
The second reason is the lack of trust of professional realtors. Investors often think that realtors are out to take their pound of flesh out of them and make wealth from their own property. The last reason is the lack of readiness of real estate investors to pay additionally for the cost of managing their property by professionals.
Most real estate investor make the mistake of assuming that the fees paid to real estate professionals are not commensurate to the services they render but in most cases they run into trouble and now return to the same professionals for assistance.
For example, most people who want to buy land or houses will not want to pay a lawyer at the beginning to assist in due diligence on the property but when they start having problems, they now run back to the lawyers and in most cases they do not have money to pay the lawyers at this stage having spent all they have in the transaction.
We have done an in depth research into the conditions of property management by non-professional individual real estate investors and what we found out as disadvantages or dangers of it are truly breath-taking and ‘dangerous’ to business.
1. Wrong choice of Location.
Every serious-minded professional realtor knows that the location of a property is more important than the property itself. It is the location that will determine the market value of the property. So, once a prospective investor has made a misjudgment in their choice of area, they have upturned market situation in their disfavor.
This problem however pops up often times when property investors choose to buy or sell property by themselves. A professional will give you proper advice of the location of your investment in real estate depending of your purpose for which you are acquiring the property.
2. Wrong choice of property
More often than not, when real estate investors who are not professionals want to purchase or sell property, they are influenced by secondary factors which have no real business value. Some may choose to purchase a particular property because of its colour and may choose to sell another because of reasons that are not sound in business. Others may acquire properties as a result of mere emotional considerations that should not have any bearing in making business decisions.
On the other hand, it is elementary for a realtor to steer clear of his own emotions when making choices of what property to purchase. He fully understands that someone else’s finance is at stake here and he will have to take responsibility for any unnecessary risks he may cause them to incur. This will influence his attitude towards the brief . He will ensure that he/she does proper research to ensure that there will be maximum profit and security of the investment for his/her client.
3. Not understanding market situation
Sequel to the point on investors’ wrong choice of area and property is the more dangerous point that investors are not aware of market situation and the operation of the forces of demand and supply in real estate business. An average investor ordinarily believes that the value of landed property always go up.
Little do they know that sometimes they go down and sometimes they remain constant over a period of time. Generalizing based on their good expectations is natural for real estate investors but the negative impact of this cannot be over-emphasized. But the professional is on the ground with current information.
4. Wrong valuation of property
Non professional estate investors do not usually have full understanding of the market situation in the area where the property is situated. They also know little about the factors which which operate in the real estate business, particularly on the specific kind of property to acquire and where.
They may not know when to buy and when to exit because the lark proper information about the business. The deadly result of these is that investors are often caught in the trap of wrong investment in this area, leading to poor profit in the investment, for example, building for rent in a low class area may have a more flourishing business doing one/two bed rooms flats than three bedrooms flats and detached houses but you may not know this if you do not have the ability to access the demand structure of the area.
5. Poor bargaining
Who does good business without good bargaining? Maybe a nonprofessional real estate investor but definitely not a professional realtor. Realtors understand the power of bargaining in business and unlike most real estate investors, they take real estate as real business. They often go their way in striking win-win deals, for the benefits of the dealer they represent, the buyer as well as themselves. The point is, with a professional real estate manager, Everyone Wins
6. Managing the emotions of buyers and sellers
There is a place of inter-personal relationship in business. Both property buyers and sellers are human beings that demand some measure of reciprocated respect and understanding. As professionals who are out to maximize business opportunities for everyone, Realtors are eager to make decisions that satisfy everyone, or almost every one.
Even when a prospective buyer or seller do not agree to their business terms, they do not easily give up on them because they are aware that there is always a prospect of some future dealing with such a person. On the other hand, real estate investors often wear their hearts on their sleeves and may sometimes not be able to put up with annoying dealers or buyers.
7. Problem with facility management
How much do real estate investors know about a ruined toilet or about broken walls? How well can they strike a good deal with plumbers? If investors are asked these questions, they would be eager to answer in the positive.
But the reality is that facility management is full of intricacies that are often not in the knowledge of non-professionals. When a professional is involved in the management of your property, you are sure of your property being in good condition all the time . The facility managers are also in a better position to deal with your tenants.
8. Working too many hours
One of the most serious problems with self-managing one’s property is that the investor has to work longer hours than expected. An average investor has his active business and merely treats real estate investment as a means of generating passive income.
The ordinary result of this is that the investor undergoes too much stress than is necessary and may eventually burn out, leading to bad business decisions. What’s the point of losing out on both ends – not achieving one’s business goals and having health complications? Let professionals take the stress for a fee.
The other problem associated with treating real estate investment as a means of generating passive income is that the investor has too few hours to work on the real estate business. Having to shuffle between his active business and the passive real estate investment, the investor may sometimes have to neglect some important real estate business matters. With that little information and time to work on his business, the danger of economic loss by the investor can be reasonably imagined.
9. Not understanding legal implications
This is one area of importance which is unarguably the most important area of concern in the real estate investment. The reason is very simple. The legality of your title, contracts, assignments, approvals/documentations of your property is number one. It can be very dangerous for real estate investors to manage their property without full understanding of laws guiding this all important area of business.
Most people have lost their properties to fraudsters, armature agents because of lack of knowledge of the law in area. Real estate investors who manage their own property may not have the knowledge of applying these legal rules in their dealings. A lot of them do not have the expertise or licence to draft requisite agreements and contracts and they end up signing things they ordinarily should not sign.
A visit to the courts on daily bases in Nigeria will reveal to you that most of the problems that real estate operators (families, businessmen/women ) encounter are quite avoidable if they involve professionals from the beginning. Also investors in real estate would have a better profit on investment if they get the professionals involved in the management of their estates from the beginning. This is why we set up business advisory network to draw you attention to these facts and to assure you of our assistance .