The mistake that will kill your profitability
I'm going to tell you the fatal mistake that will kill the profitability of a rental investment if you don't realise it. It's a mistake that over 90% of property investors make. For me, it is the mistake to avoid in the course of your project.
I recently met a real estate investor who told me about his misadventures with the purchase of an investment property. He had bought a building with 6 lots and during the construction phase he had dragged down all the costs.
When you go into an old but functioning flat, you usually have two choices:
- or we go in, raze everything, put it all back together, make a clean start,
- or you go home, sort things out, keep some things and get a detailed estimate from the craftsman.
He was telling me about his misadventures because he really did, in principle, a very, very big sorting out inside and he wanted to try to keep as much as possible in order to get the lowest possible estimate and not to touch many elements. The result after several months: out of the 6 lots, there was one where the hot water tank broke down, another where the siphon was leaking, another where there was a problem with the seal on the washbasin, and yet another: a problem with the shower head...
He listed a series of problems, he was a bit broken down and, for me, this is one of the worst mistakes to kill your profitability. Why is that?
He did not think about the consequences of his actions. He was a novice and did not receive enough advice.
The consequence is direct and radical, every month or two, as there are 6 lots and it's an investment property, he has to put his hand in his pocket because he has to change the hot water tank, the washbasin, the shower screen, etc., every month this degrades his profitability, because at the beginning he wanted to reduce the work budget.
Or, l’enveloppe travaux vous l’empruntez. Dans 99 % des cas, vous empruntez le montant des travaux, ça veut dire que ce montant des travaux est emprunté, par exemple, sur 20 ans. La charge est lissée sur 20 ans. Or, s’il y a un pépin de ballon d’eau chaude que vous n’avez pas changé parce que vous avez souhaité le retirer du devis, vous allez peut-être économiser 500 € entre la fourniture et la main-d’œuvre, directement. Le problème c’est que quand vous devez changer le ballon d’eau chaude, au bout d’un an ou deux ans, parce que vous ne savez pas quand est-ce qu’il a été installé, c’est de l’argent qui sort directement de votre poche. Vous n’allez pas, à ce moment-là, réemprunter pour un ballon de chaude et étaler la dépense sur 20 ans, c’est impossible.
So there's every chance that you'll be disgusted by real estate and that you'll be one of the 90% of French people who don't know how to invest in real estate and who complain because they say that real estate is expensive.
It is in your interest to shave, without being overzealous - it must be necessary - but to shave the whole thing and build on a solid foundation.
It's like in life, it's like in business, it's like in a company, it's like in love, it's like in personal relationships, if the base is not stable, you can't capitalise on it and you can't progress.
You need a sound basis for a profitable property investment.
To have a healthy base is to raze the flat, to put it back together again.
You have to borrow any expenses that may cost you money because the charge is smoothed out over 20 years. On the other hand, you will save yourself problems, your tenant will be happy and you won't have to constantly put your hand in your pocket.
This is a major piece of advice. Without it, you are embarking on a property transaction with an unstable foundation and, as a result, financially and in terms of time, you are going to have to use your personal cash flow. Take the money from the bank, you borrow at 1%! It's like the bank saying: I'll take care of your hot water tank, and you'll pay for it over 20 years and you'll only pay 1% of the direct cost. Take it, don't make this mistake which will kill your financial profitability and disgust you with real estate simply because you don't master this part.
If you master it, real estate will be at the service of your wealth, at the service of your enrichment, and not the other way around.
I invite you to think about it, not to make this mistake, to take advantage of the bank's money and take it, since it gives it to you at an extremely low rate: take it, make beautiful flats, beautiful renovations, build a healthy and solid foundation for your property and you will see your real estate wealth take shape.
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