Real estate will continue to appreciate from time to time despite the fluctuations in the economy, as it is proven to be one of the best ways for an investor to generate income. the Kenyan real estate market, for the past two decades, has grown exponentially as evidenced by its contribution to the country’s GDP which grew from 10.5% in 2000 to 12.6% in 2012 and 13.8% in 2016. The growth is driven by;

• Stable GDP growth which has averaged 5.4% over the last 5 years against a Sub- Saharan average of 4.1%
• High total returns averaging at 25.0% against 12.4% in the traditional asset classes.
• Demographic trends such as rapid urbanization at 4.4% p.a against the world’s 2.5% and population growth averaging at 2.6% p.a
• Infrastructural developments such as improved roads,

These factors have therefore led to the emergence of a trend in real estate, as investors sought to gain high returns and buyers sought aspirational lifestyles and quality products. Though a number of people have earned fortunes from real estate investments, it is associated with many risks and requires extensive research before undertaking the process. This is why getting informed is key in real estate. Below are a few major things for a buyer or investor to consider before investing in real estate:

Location

Deciding where the location of the property is not only key for rental incomes and successful business but also as important as actually choosing the property itself. Location choice increases the chances of good returns. For example, our project, Emaar Residence is located in Westlands, Nairobi; a high-end area with a capital appreciation of 16.3% and a rental income ROI of 11% per annum. Therefore, it is important to check the validity of the title deed and zoning of the property as well as ascertain whether the land taxes and rates of the property land you want to acquire have been paid for. It is of utmost requirement to confirm if there are claims to land or property establishment and disputes before investing. Seeking the services of a lawyer with knowledge in real estate to help handle matters with legal fees can to ensure investors avoid costly mistakes.

Financial analysis

House prices are influenced by a number of factors, including local buyer demand and the amount of housing supply that’s available for purchase. Generally speaking, high demand and low supply cause housing prices to rise. It is important that you are realistic and do not buy property at less attractive terms or higher prices than your analysis understanding. Establishing the amount, you are willing to pay and sticking to the budget is key for an investment. Look at the previous property tax bills, maintenance records and tax returns in order to get knowledge of the expenses and real income. Understanding the following figures; return on investment, cap rate, cash flow, net income, appreciations and taxes will also provide enough information on whether the property fits your financial goals and plans.

Research the market

A new investor should learn the market that they want to invest in. It is crucial to understand the market values to help determine a great deal and property value. The location, the real estate landscape, interest rates should be well considered in order to attract the type of client you intend to rent or sell to. This will help the investor reach the expected returns he/she had set and that will be appealing to the real estate market.

Diversification

Diversification into real estate as part of an overall multifaceted investment portfolio will provide the possible chance of gaining good returns. Investors should avoid making decisions based on their personal preferences. An investor mitigates risks by investing in several properties and increases the potential for returns in the real estate sector. Do make sure you thoroughly look through properties to avoid the trap of analysis paralysis.

Evaluation of property

The type of property you decide to choose will play an important role in whether you make good returns or suffer losses. As an investor, you should research the property landscape, have knowledge of the comparative market analysis and visit the properties in order to determine their profit potential. If you want a long-term gain as an investor you can invest in rental properties. On the other hand, the buy-to-sell approach can offer a higher return in a short term though it is accompanied by its risks.

Distinguish between income and future value

Based on current figures like cap rates, one can always be able to decide whether the investment is worthwhile or not. If you are interested in a short-term option, you can focus on buy-to-sell and fix-and-flip opportunities as they provide a chance to gain higher returns, even though, they can be very risky. However, if you are looking for long-term gains, investing in rental properties is a good choice as long-term investments strategies are functioned to gradually bring returns over a period of time and also a lower risk strategy.

Profit in real estate investment

Understanding the ways to profit from real estate investment is key. When selecting a real estate investments cash flow, as an investor, you have to weigh the annual income against the properties ‘inherent decreasing values to determine how much they do owe in taxes. Typically, investors do weigh the amount of profit they will earn from investing in a property. It is also wise to choose business partners carefully. Implications of a partnership agreement and commitment should be carefully considered when choosing partners. If you make the right choices it can yield a successful experience. Lastly, understanding the terms of agreement when acquiring property and also having a flexible payment term should afford any investor time to evaluate and reinvest should things not go according to plan. This is why at Emaar Consult Limited; we offer a flexible payment plan of four years with no interest.  

Blog author: Rhadet Derrick