Real Estate Investing: First Steps for Beginners

I had read Robert Kiyosaki’s Poor and Rich Dad about 10 years ago, and even then it made sense to me. Real estate investing, cash flow building and passive income generation.Yet, today in 2020, I have no investment in real estate.

Why?

This is exactly the question I haven’t been able to answer exactly for so long.

Apparently I didn’t see an interesting enough opportunity in real estate, my digital nomad lifestyle made the process of buying real estate and subsequent administration very difficult, I hadn’t learned the delegation yet, and I was afraid to borrow bank money.

You may be looking for real estate for investment in the long run, but you haven’t taken that first step yet. So we have a common direction.

Therefore, I decided to write a multi-part series about my journey to investment real estate. I have been working in investments (stocks, p2p loans, cryptocurrencies) for several years, but I am a real layman in real estate. I therefore chose a very slow and gradual process of entering the real estate market. I am a naturally cautious person who does not like to lose ground. And I also don’t like liabilities – and a mortgage is a huge commitment for me. But more on that later.

How I started thinking about real estate

Investing in real estate is a complex and perhaps even outdated process, which is also bureaucratic and, it must be said, processed in the offline world. In addition, it is quite a lot of money from the very beginning – if not our own, then the ones that we suddenly start to “owe”.

Of course we’ll get a tenant and spin the imaginary wheel, but there’s always some BUT.

I knew very well that it would take a few months to a few years for me to prepare mentally. I became more interested in real estate in 2017. But that was the time when I also started to hear that the market is too high and a correction is inevitable. The examples of 2008/2010 and the then financial crisis clearly showed that the current market is waiting for a correction.

Sooner or later.

The correction came, but later, it took another 3 years. I could have invested then, but of course I thought, “Now is not the time.” Of course, no one expected the boom to last 10 years. Likewise, no one expected a rapid stock market crash and the 2020 economic crisis , with which, according to most analysts, we are now entering a recession.

I needed a guide to investing in real estate

During the period 2018, I drew the first basic information for a beginning real estate investor. I received a recommendation for Nela Kubasová, who now runs RealitniShaker.cz . They organize offline and online seminars and trainings.

At that time we went everything offline and of course it has its charm. During the coronavirus period, however, we all knew the magic of online, and it must be said that it is actually better for many seminars. You can let them go from home and you don’t have to go anywhere.

At that time, I attended a full-day seminar and then a weekend VIP meeting of beginning and existing real estate investors.

What was it?

Wow! Exactly what I needed to take off.

I talk more about it, but in this article I want to focus only on selected parts due to the scope.

Why do I want to invest in real estate now?

Of course, I don’t want to rely on the state for someone to give me money for a pension. My intention is to build a business that will work for generations.

I like backup plans and that’s when investment real estate comes. If something is supposed to provide me with a good old age, then it will be a functioning business and real estate.

However, this mindset has been going on for many years. Below are a few selected points that have gradually changed and have managed to influence me so much that today I am thinking so intensively about investing in real estate.

• I want to start using bank money.
• I have mentally matured for this type of investment.
• I am financially ready in the banking sector.
• I am financially prepared to pass the necessary own resources for the mortgage (20% of own resources to obtain 80% of the mortgage).
• Building savings are also available, for a possible financial cushion, reconstruction, etc.
• I want to diversify into physical investment.
• Lifestyle still in digital nomad mode, but I learned to work effectively with the delegation.
• I have time (thanks to the delegation) and I can manage web projects without harm.
• I have people around me who can help me with that.

Investing in real estate for beginners

Nela still organizes a Real Estate Investing seminar for beginners from A to Z, and I selected a few WOW moments that I experienced. I recommend this seminar where I go, because it gave me the first orientation that is necessary to enter this investment market.

My goal is to run this series of articles so that it is visible how information and contacts can help the investor. Clearly describe the way when I think about investing in real estate, when I learn about them and when I really go into action and buy and manage real estate.

Below, with the consent of the entire Real Estate Shaker team, I share selected parts of the seminar I attended and re-viewed the current version of 2020. This is only a fraction of what a participant will take from the seminar, but you will still see a number of useful tips and recommendations.

Buy real estate now or later

It’s said to be a million-dollar question.

Is now the right time to invest or rather wait? Probably the most common question for beginning investors, but not only those who invest in real estate, but in general in any assets. Interestingly, more experienced investors have it quite resolved.

When the markets grew in 2019, we thought, “Will it go up? How much? Is there no correction? ”

When we are in a coronavirus crisis, we say to ourselves: “Shares fell by 30-50%. Real estate is not much yet, some percent are there. Will it go even lower? ”

Whenever we try to prophesy from a crystal ball, something is wrong. The above questions “will it still go up?” or “will it go even lower?” are not the right questions for the investor. Let’s use probability and specific numbers, it will help us to decide.

So let’s take a look at how it is with investing in real estate – now or wait?

If we expect a 10% decline, which should occur in 2022, the wait will not pay off (we consider 6% of real estate yield).

If we were to expect a drop of 30%, then probably by 2024. The wait would pay off, by 120 thousand according to the numbers in the picture above.

During the real estate crisis of 2008/2010, it took 3-4 years for the real estate market to find its bottom.Below the picture shows the curves that show the index of sales prices of older apartments in Prague, outside Prague, in the Czech Republic.

However, the chart shows sales prices and rental income is not included. By renting real estate, we get cash flow from it.

However, it is very difficult to fit the history of 2008 and the financial crisis with the current coronavirus crisis 2020. As we have seen in the stock market, the recovery has been much faster, also thanks to huge financial incentives from central banks and governments.

Maybe real estate will fall by 30%, but I don’t know at all what conditions the banks will then offer, what the interest rates will be, the conditions, whether I will still be creditworthy, I will have enough cash.

In 2008, rents decreased, eg by 10%. Currently, the decline in rents in Prague is due more to the reduction in tourism and the rapid adjustment of prices in the area of ​​AirBnB leases.

Basic rules

• You can invest at any time as long as the numbers make sense.
• Don’t try to predict the future. Prepare for an investment so that you can do well in every possible future.
• If the bank lends me and I have the money, it is good to invest.

Investment ideas for beginners

• It is better to have a mortgage broker next to you who will recommend financing.
• Not necessarily to apply flat rates. Savings can be saved by applying depreciation.
• Cooperative flats are more complicated (statutes, depreciation cannot be stopped, cannot be stopped,…) for long-term investments. Choose apartments in personal ownership.
• The biggest savings are not a better interest rate, but a better purchase price.
• Borrowing money at an interest rate that is lower than inflation is excellent. Year-on-year inflation in January 2020 was 3.6%. In May 2020, the interest rate was 2.3%.

Priorities when choosing an apartment

1. Yield
2. Purchase price, rent, energy
3. Location
4. Tenant’s quality, employment in the area, condition of the apartment building
5. Type of ownership, condition of the apartment, lease agreement, home accessories

What to check and what to ask for an inspection of the apartment

• Is the apartment insulated?
• What is the condition of the elevator?
• Are there risers and waste in plastic?
• What is the condition of the roof?
• Are the cellars insulated? (especially for apartments on the 1st floor)
• How many are the current contributions to the repair fund?

Helpful links

1. Cemap.cz – displays advertising prices
2. Real Estate Cadastre or cenovamapa.org – displays market prices
3. Cenovamapa.cz  – displays market prices

It is not possible to determine exactly, but for an idea, the advertised price is 0% – 10% – 20% higher than the actual sales price. The current times of crisis and recession will create good room for negotiation and mostly a better position for the buyer.

Mortgage calculator

There are a lot of mortgage calculators on the Internet. At the seminar, however, I received a recommendation for the Golem mortgage calculator – it is simple, visual and interactive.

Why use a mortgage?

This is my next step in investing – using more bank money. A mortgage is an excellent tool for investors who can work with it. I will give a simple example where you will understand everything in 2 minutes.

I have CZK 1 million and I will buy 1 apartment for cash

• I will pay: CZK 1,000,000
• Net income: 5000 CZK (from rent)
• Loan repayment: 0 CZK (I bought for cash, I do not have a mortgage)
• Cashflow: CZK 5,000
• Revenue from own resources: 6%
• My property for 30 years = 1 apartment for a total of CZK 1 million
• My cash flow = 5 thousand / month

I have 1 million and I buy 4 apartments on an 80% mortgage

• I will pay: CZK 1,000,000
• Net income: 4x 5000 / month
• Loan repayments: 4 x 3200 for 30 years
• Cashflow: CZK 7,200 / month
• Revenue from own resources: 8.6%
• My property for 30 years = 4 apartments for a total of CZK 4 million
• My cash flow = 20 thousand / month
• Plus, I have a risky risk

Is the huge difference visible now?

We also invest because of inflation

We all know that and we still hear about it. Inflation is eating our money. It devalues ​​us. But you need to see the numbers. Then I’ll show you.

If we have 500 thousand crowns in a bank account, then in 20 years 2% of inflation will make us 336 thousand crowns. I call this “fuckup.”

What I liked about the seminar from Nela

• Friendly attitude.
• Open information sharing (I also recommend offline courses and VIP meetings, because not all information can be passed on “publicly via the Internet”).
• Access to the VIP facebook group, where other real estate investors are and share their experiences.
• Description of the current situation in the real estate market with a view to what to expect next.
• How to calculate yield and return (practical excel calculator)
• How to search for real estate, location, real estate inspection, tenant, cooperation with real estate for our benefit and the basics of negotiation
• Renovation and homestaging tips (specific examples, numbers and properties)

Few books are enough

I will return once again to the book Poor and Rich Dad by Robert Kiyosaki. I also read his other books such as Cashflow Quadrant. Interestingly, anyone who has read Kiyosaki’s books praises the information. Information, but not the action he would have taken as a result. I’ve found that one book is enough for a few to start investing in real estate.

This case was mine too. The books weren’t enough for me and I needed someone on their way to guide me on the path to investment real estate.