How to prepare a successful real estate investment
Have you sold your company or part of your company, leaving you with a large amount of capital? Do you want to invest your money productively and - why not? - get a foot in the real estate market as a professional investor? Isabelle Beaufumé, Commercial Director at Societe Generale’s CIG Real Estate Agency, specialised in the financing of real estate professionals for almost 40 years, shares her advice on how best to prepare this new entrepreneurial project.
Why opt for real estate?
In a context of low interest rates and uncertain economic recovery, real estate remains one of the most lucrative opportunities in terms of asset allocation and medium- to long-term risk / return trade-off. Another advantage: the underlying element of this type of investment - even when it takes the form of a REIT (Real Estate Investment Trust) - is a real, tangible asset: property. This explains its long-standing appeal as one of France’s preferred investments. Finally, investing in real estate buys you a stake in the great building tradition: an enticing prospect for any entrepreneur.
What type of investor are you?
In the real estate world, you can choose to be either a sleeping partner or an active investor. If your aim is simply to be a sleeping partner - in other words, to entrust the management of your assets to a third party - depending on your appetite for risk and the level of return you hope to achieve, you can invest capital in either a property company which owns buildings for rent, or a real estate development company planning to build new property. However, if you’re tempted by the idea of turning your investment into a real professional activity, you can create your own portfolio by acquiring real estate assets for rent, or else create or acquire a real estate development company.
How can I get the most out of my real estate activity?
Regardless of whether you are a sleeping partner or active investor, your real estate activity will provide you with regular revenues over the long-term, at relatively low risk. If your property is well located, you will get regular income from the rents collected and, when you decide to resell, the resulting capital gains will also be a source of revenue. If you create your own portfolio, start by buying one or more smaller rented properties in a city you are familiar with. You can get the most out of your real estate investments through the debt leverage effect by choosing, for example, a bullet loan, whereby the capital borrowed is repaid at the end of the loan period. In this case, you’ll only pay back the interest on the loan, which will increase your return on the rents you collect.
Can I become a property developer from one day to the next?
The answer is a resounding “no”! Property development can generate high returns in the short term, but it is a complex, high-risk activity. The risks are administrative (building permits, various regulations and authorisations), technical (unforeseen events and stoppages related to work sites, subcontractor bankruptcy, etc.) and commercial (property slump, squeezing of profit margins, etc.). If you are a sleeping partner, be very careful about which property development company or companies you choose to do business with. Always opt for professionals with proven experience. Likewise, if your aim is to create your own property development company, surround yourself with knowledgeable advisers: hire professionals and make us of the legal resources available, such as delegated contracting, so as to outsource your projects to experienced professionals.