Talking about Real Estate as a Business

In this article we are going to show you what it means to be in the Real Estate business and challenges and opportunities that comes with it.

“Like any other business you can't go in and not know whether it is profitable or not. Real estate is one of the most risky business you can ever venture in because it deals with quite significant amounts of capital and it is also the most difficult when it comes to liquidity.”

How Does Real Estate Business Work

Generally speaking, Real Estate just like any other business is very wide. For example you can be in real estate but just into buying and selling of Land or building. You can also be a property management dealer meaning you run someone's properties on their behalf at a fee or you could also be a real estate broker and earn a commission by identifying property for sale in the market. Further more you could be just identifying old property then you buy, rehabilitate and resale or rent out repeatedly.

Now like any other business you can't go in and not know whether it is profitable or not. Real estate is one of the most risky business you can ever venture in because it deals with quite significant amounts of capital and it is also the most difficult when it comes to liquidity. You do not have to risk your hard earned money without knowing and understanding the risks that come with the business. As they say, location in real estate is everything and as a real estate dealer you really need to be mindful of the fact that selling real estate property can be challenging. Therefore it is important to cancel out all the risks involved. By far the most important thing is identifying what we shall call a business model. For those buying and selling of real estate you need to ensure that you know under which business model you will go with, is it a buy land, build and sell at a profit or buy old property rehabilitate and sell or/rent.

To be realistic, in a town like Lusaka for you to make it in real estate business firstly financing is critical as most of the land within the town is way too costly as you will need between K150,000 to K300,000 to either get titled land or property at an ideal location. You further need to ensure that you avoid getting fraudulent land or property by getting genuinely acquired property or land. You also further need to consider the period of building as well as the cost at which you will build the house or any kind of building you wish to sell out. To ensure that you gain a profit out of your property the cost you put in will be cardinal in determining your profit margin. Generally speaking getting clients to buy your property at a good profit margin is not an easy undertaking as most clients who are looking to buy property are also mindful of the cost and also making similar purchasing decisions as to whether to buy land and build or just buy a finished property though there are clients who are wealthy enough to buy off at whatever price but are one in a million. Therefore this makes even the turnover period of real estate property even longer.

This illustration above gives us a clear view of why real estate as a business really becomes a difficult undertaking for potential dealers. The best at which most dealers end up to is being property managers or real estate brokers/agents as its a much easier undertaking especially Land brokers who have made a fortune in towns like Lusaka.

After weighing our previous post on Real Estate Investment vs Real Estate Business its clear that there is huge variation. Firstly the difference between an investment and business is that an investment in real estate means your primary objective is to utilise an initial capital injection and allow it to grow without really regarding its return(rental or lease income) present or future as a realised profit but rather as a saving which should be reinvested for a specific period of time while Real Estate as a business is strictly you utilise your initial capital injection for the purpose of either earning a profit from the sale of property or profits from managing or brokerage of properties.

#letstalkfinancialmatters #realestate #askushow

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