There are many ways to crack the bank in real estate. There are conventional methods and there are some relatively savvy manoeuvres (legal) which have helped investors take advantage of the market from time to time. Some creativity, calculation and skin is required though. Let’s discuss one…
The market
In a hot real estate market like Nairobi, money flows in both ends of the pipe, enabling witty investors to make money quite often. The trick is what some have called “Follow the Builder” where you constantly grow your equity. The downside is that you will need to be quite flexible and may be relatively young.
The way to make profit in any investment is to buy low and sell high. It is relatively easy to make a profit when you sell your home if the market is rising sharply like it has been in most parts of this country for the past 10 years. However, when the market slows down, you may get into trouble. Luckily, in Nairobi prices of real estate have generally never stagnated or fallen. So it’s time to have fun when you can because I can promise it will happen one day. The question is when not if.
New communities
In major cities in Kenya, there are builders who build hundreds of houses each year. Within a relatively a short period of time entire communities spring up. This presents you with an important opportunity – a New Community.
Related; How To Avoid Being Conned while buying land in Kenya
Builders will typically sell first phases of communities for a discount in comparison to later phases. This is natural because on one hand, they need to get the cash flow moving and on the other, it is harder to sell at high prices because the community typically consists of dirt and construction equipment. Join the parts and you have a great profit opportunity staring straight in your face.
On the move
The idea is to get in on the first phase of the build-out. You will buy the property at a discount, which gives you built-in equity. As the community is grows and gets established in the market, can you sell the home for a profit at a higher price.
While at it, your work is to watch and wait for the builder’s next projects and find another location to replicate the profitable design. You may end up living in each house for a year or more and picking up nice profits along the way, but it can be worth it.
The only real downside is you have to be on the move.
Tax consequences
I’ve seen this work well for a number of people who have done it more than once. However, you need to be aware that generating profit this way can have tax consequences and be ready to deal with it. So you need to run the numbers thoroughly before you leap because depending on the capital appreciation of the property in a given market, taxes may wipe out significant margins.
Also Read; How to Make Money in Real Estate in 2018
Interest
Finally, if you are financing this manoeuvres with borrowed capital you need to do very precise calculations. Generally, the country’s interest regime is not so friendly and your hard-earned profit can be squandered by interest charges and other finance costs. In fact, when using lenders money you will have need extra prudence due to the burden of interest and taxes.
Adopted from Kilundo Mbithi, A Registered Agent and Lead Investment Consultant at investorclinics.com
