Money and Personal Finance

Introduction

It is with mixed blessings and a heart of gratitude to God Almighty that I introduce you to the stock market; where the rich make their millions. Once again, you are welcome.

Investment is very important in the life of every human who wants to be balanced in life; retire earlier than expected, own a fortune etc. you might have heard or come across cases of some individuals who were relieved of one financial problem or the other through their investment.

There are many ways to invest your money of which some are:

• The stock market
• Real estate
• Bond
• Mutual fund
• Money market etc.

Our discussion shall focus mainly on the stock market. The stock market has a wild range of money making opportunities wrapped up in it waiting to be exploited. These we shall discuss in pages ahead.

The Nigerian Stock Exchange

Due to the findings of many researchers, stock analysts, institutional investors, fund managers etc. the Nigerian stock exchange has been defined in many ways. My aim is for you to understand what the name simply means. Going by the name; “the Nigerian stock market”. It is a place where units of shares of companies in Nigeria (or branch in Nigeria) are being exchanged for money.

Stock investment

Stock investment really means giving your money to a company and holding some part of that company (shares) in view of making profit.

The profit I mean is your own profit based on how good the company you invested in does after some time.

Stock and shares

These words; stock and shares, are used interchangeably to mean the same thing. But it should be noted here that all shares are stocks but not all stocks are shares.

Shares: unit(s) of a company held by you according to the amount you lent the company. If the company is making profit and their price is increasing on the exchange, you also are making profit. There is no time agreement between you and the company. You can sell at any time and make gain/loss according to the price the stock is going at the exchange.

Stocks: buying in bulk. e.g. 60%, 50%, of the entire number of shares of the company at an agreed return and an agreed time.

When most people think of “investing” they think of things like stocks and bonds and Certificate of Deposits (CDs) with high interest rates. Of course, with the economy where it is, it might be more prudent for investors to start looking into investing in precious metals. If you haven’t invested in anything before, here are a few tips for investing in precious metals.

1. Gold is the most popular precious metal to invest in, though there are others (silver, and platinum) available, which makes gold the most volatile in terms of price. The more something is traded, the less predictable its future worth. Gold can be bought as bullion or gold bars, or as coins. If you plan on purchasing gold, or any precious metal, make sure you have a safe, or safety deposit box. Don’t talk about your investments in precious metals you never know who could over hear the conversation. Gold is untraceable if it gets stolen.

2. Platinum, while not as popular as gold is actually the more precious metal and is usually worth several times as much as gold. Platinum is used for electrical contacts, dentistry, coating for the nose cone of rockets, laboratory equipment as well as jewelry.

3. Before deciding to invest money, it is a good idea to learn about the different types of precious metals that are available. Typically people trade not in the metal itself but in items formed from the metal-bars, and special coins.

4. Make sure that you shop around. There are metal deals both online and off and while the market has one price for the precious metals, individual dealers might have their own mark up rates.

5. Learn how to really look at bars and coins fashioned from your precious metals. Imperfections, the design and the overall condition of the bars and coins will affect the buying and selling price of your investment.

6. Because precious metals fluctuate so much in price, they should not be the only thing you invest in. Of your total investment portfolio, precious metals should only make up ten percent-maximum.

7. Precious metals, while they should only make up ten percent of your portfolio, are some of the safest things to invest in because they keep their value, even in the event of political or cultural problems. A bar of gold can’t declare bankruptcy thereby destroying the value of your investment.

8. Don’t think of buying precious metal jewelry as an investment. Fashion dictates the value of a piece as much as the gold content. Retailers mark up the jewelry 50% from wholesale prices. And wholesalers mark up 50% from the manufacturer. A gold bracelet costing $1000 retail may only have a value of $100 as gold. If you’re thinking of buying antique gold jewelry buy it for its value as an antique not as a precious metals investment.

These are just a few tips to help you get started in the area of investing in precious metals. When you are ready to start investing, your broker and precious metals dealers will have plenty of information to help you make informed choices.

Investing in the real estate market has gained in popularity among the many investors out there, due to the relatively safe nature of the investment as opposed to the ups and downs associated with the stock, forex exchange or other investment ventures. Not everyone has what it takes to make profitable real estate investments but for those looking to invest in the real estate market it would be wise to have a look at the below mentioned points.

Time is of the essence

When making any sort of investment you should have a clear understanding of the time period that you want to invest your money for. Buying property and then renting it, is one of the most popular and safest real estate investing methods in the market today. If you plan to own the property for a longer time than you should bear in mind the additional costs that you would have to incur, such as repairs and maintenance. No matter how durable your property is, if you plan to keep it for a longer time period such as 15-20 years, you will most likely have to carry out extensive and expensive repairs.

On the other hand if you are planning to hold on to the property for a short time period such as 5 years then you have to be careful with the money that you invest in the repairs and maintenance. 5 years is considered a short period in the real estate market and you are advised not to carry out large scale repairs unless you feel that you will be able to recoup your expenses at the time you decide to sell your property.

Credit history

To become eligible for a bank loan you would have to take care of your credit card debt and pay your utility bills on time. Banks loans are generally required to finance real estate investments because of the large amounts of down payments needed in order to secure the purchase of properties. Keep in mind banks have seemed to have tightened up lending recently due to the housing crisis and this factor can prove to be extremely important.

Professional advice

Due to the current recession prevalent in the market, there are more sellers than buyers in the real estate market. This can work to your advantage as you now have more options to choose from. But it is highly recommended that you get a professional realtor to look over the property that you want to buy. A professional realtor would be able to advise you best about the true value of the property in the current market. He would also be able to guide and inform you about the pros and cons (if any) attached with the property, such as the type of neighborhood, security issues and the proximity of the property to hospitals and schools.

There are many things to consider when buying real estate but if you get these three right you are well on your way to seeing some success.

Billboards are income properties without the usual landlording concerns. Perhaps the biggest problem with investing in billboards is that there are limited opportunities to do so in most areas.

I like the idea of a billboard investment. No toilets to fix, no tenants to evict. Just lease the space, let the renter do all the painting, and collect the income. Of course it might be necessary to upgrade the billboard or repair it every ten years or so, but that just doesn’t compare with the regular problems that come up with other rental real estate.

The best way to make money with billboards used to be buying property and then putting billboards on it. However, this is getting more difficult all the time. Many communities are limiting the number of billboards allowed, or just plain outlawing all new ones.

One way around this that I have seen is to have billboards that aren’t billboards. The most common example is old truck trailers that have been made into “mobile” billboards. These presumably don’t fit the definition of a billboard, and so are left alone. It is just a truck trailer parked near the highway that happens to have advertising on it.

I’m not sure if these are legally secure enough to make advertisers fell comfortable. If not, the rates would be much lower. I might try this if I had a property alongside a highway or busy road, but I wouldn’t invest in property based on this scheme.

Buying billboard Properties

The new laws and regulations almost never make existing billboards illegal. They are grandfathered, meaning they will be allowed as long as they are there. It may not be okay to replace them, but they can generally be there as long as they can be repaired. These are the properties that you will want to look for to make money with billboards.

The math is relatively simple compared to most real estate deals. On the expense side, you have your financing, property taxes, insurance, and occasional repairs. Advertising for advertisers is usually done on the vacant sign itself, for the cost of the paint. If these expenses are less than the monthly rent coming in, you have positive cash flow, and it may be a good investment.

You’ll want to know how long the lease has to run. Billboards can remain empty for months, so you have to account for that if you buy one with a lease about to expire. Look around at how many empty billboards there are to get an idea of how easy or difficult it will be to get it rented out again.

Do some research on rental rates before you start shopping for properties. Find out the range of rents in the area, as well as information on vacancy rates, if you can. Then, as you narrow your search, get the average rates for other billboards on the same streets where your prospective properties are for sale.

You want the rates on a property you buy to be in line with others in the area. It’s even better if they are low. In that case you might pay a price based on the existing rates and raise the rent when the lease is up.

Ideally you want a property that will have decent cash flow from day one, and has a long term lease with a client who has repeated renewed the lease. Then you might just take that easy return on your investment for many years as the rent also pays off your loan.

There is a strategy that I hesitate to mention, because it seems unfair to me. But it can be profitable. I heard about from an investor who bought a lot real estate with billboards in Arizona. Once he had enough properties in city, he lobbied for a ban on all future billboards,and joined any groups that were doing the same. He urged the city council to “beautify” the city by banning new billboards, knowing that they would always “grandfather” existing properties, including his.

Once the law passed, future competition was eliminated. No new billboards could be erected, despite a city that continued to gain population and businesses. The result, of course, was predictable. Advertising rates on the existing billboards skyrocketed over time. He said he was making a lot of money on the ones he had.

Self storage units have simplified management and potentially consistent cash flow. That makes them an attractive investment. You have to shop well, however, because the return on investment is probably low in most areas now, due to competition.

Investing in self storage units was a great idea almost anywhere 30 years ago. Now that every little town has several of these facilities, you may have to do some serious research to determine if there is still room for one more. On the other hand, if there is a need for more storage space, there are some real advantages to this kind of real estate investment.

Build a new self-storage complex and you likely won’t have any real maintenance costs for many years to come. Other costs can be predictable as well. This means that if you did your research, and so can get those units rented out, you can have fairly consistent and predictable cash flow for years.

Investing In Self Storage Units – An Example

Suppose you decide that you may want to build a self storage facility as an investment. First, you look at what is out there, and what the various sizes rent for. You call several places and ask if they have any units available. If they all had vacancies, you would likely drop the idea, but you find that most are full, meaning there is probably some demand for more.

You call the county and find that there have been no permits issued for self storage buildings. You check the census statistics online and see that the population of the county is growing. Noting the income statistics, and the high prices on homes, you figure that most newcomers will be renting. These are the ideal customers for self storage business.
The demand is there, you decide, or at least it will be soon.

You see a plan for a 102-unit building that you like, with three unit sizes. With 90% occupancy, the facility should bring in about $4,800 per month. You have projected the regular expenses (taxes, insurance, advertising, maintenance, legal costs, etc.) to be about $12,000 per year, or $1,000 per month. You decide you don’t want to manage the place yourself, and find a management company that will do it for $500 per month.

Subtracting that $1500 per month from the projected income of $4,800, you arrive at a net income before debt service of $3,300. This is the amount you have to work with to cover your financing and provide a decent return on your investment.

There is a piece of land on the edge of town. You can buy it for $55,000. You talk to a company that specializes in building self-storage buildings, and get a quote for the 102-unit building you want. You call a paving company and get a quote for a driveway. You also find out what fencing will cost. You estimate closing costs, initial advertising costs, holding costs prior to getting the units rented, and every possible expense you can think of to get this project up and running.

You project the total cost to be $270,000. With your plan in place and in writing, you go to the bank. They will loan you only 70% of the money – $189,000. At 9% annual interest, amortized over 30 years (but probably with a 10-year balloon), this will cost you $1520 per month. It also means that you’ll need $81,000 additional for the deal.

You don’t have the money, so you put a second mortgage on your home to borrow $54,000. The bank is okay with this, because it leaves $27,000 of your own cash in the deal, which is 10% of the total. The second mortgage is at 7.75% for 30 years, costing just $387 per month. Your total debt service will be around $1900 per month ($1907, to be exact). With your regular expenses of $1500, you’ll have $3,400 going out.

This means that if all goes according to plan (90% occupancy – $4,800 per month), you will have cash flow of $1,400 per month on your investment of $27,000. Not bad, but once you get that occupancy rate up to 95%, you will have cash flow of $1,665 per month – and without managing it yourself. That’s a 74% annual return on your investment. You also feel relatively safe knowing that you can have as much as a third of the units vacant and still have cash flow.

You need forms signed that release you from liability from theft or damage, while still assuring the customers that you have decent security. You have to think about locks (better to let the customer provide his own, perhaps). You need to know the law in regards to opening units and selling the contents when rent isn’t paid. In other words, there is a lot to learn about the self storage business, but it can be a great real estate investment.

One last piece of advice. Don’t try to do this on too small of a scale. The rent you collect for each self storage unit will not change, but the cost per unit will go down with bigger complexes, because of per-unit cost for land goes down. For example, A $60,000 piece of land is $3,000 per unit for 20 units, but you might fit 120 on the same land, which makes it just $500 per unit. Good cash flow is easier to achieve with a decent-sized self storage building.