Real estate investment opportunities are on the rise and competition for the best deals is tougher than ever. The best goes to the best, and the rest go to the others unless luck comes knocking on your door. Because really good deals are usually in high demand, they are hard to come by especially when you do not even recognize how they are supposed to look like.
In real estate investments there are commonly two types of deals investors look for in the markets. The first an income deal where the investor looks to acquire cashflow generating properties. The second type are capital growth deals where investors acquire properties with an aim to maximize on capital appreciation.
There are of course instances where a combination of the two variations is possible. However, the rule of thumb is that if you are looking for an income deal, stick to income deals in your research, and the same applies when looking for appreciation deals.
When you want your capital to grow, you have a couple of options in real estate. One is the fix and flip option where you buy old or rundown properties, fix them and sell to the secondary markets. Another method is to buy into off plan projects and sell to the secondary market. Despite the risk, many have profited using this method. A more common way is to buy vacant land and bid your time, here location is key.
Local experts agree that in the more developed countries like America where the real estate markets are much more developed and developers deliver their word so it’s easy to buy off-plan or to fix and flip. However, in Kenya these strategies may not work as easily as buying and holding land.
Delays in project completions are still common place with some investors having to wait for years after the contractual time period has elapsed while being forced to pay more than the initial price, this can be a big disability on capital and emotionally draining as well. In other cases, investors have been completely fleeced by rogue real estate companies. here is no shortage of such unbecoming stories on the media.
Even though land buying is one of the most common ways for capital growth investors in Kenya, it is not without disclaimers either.
Capital growth investors in real estate are, as in the stock markets, essentially value investors; the higher the margin of safety, the higher the potential returns. As such, the secret to successful capital growth investments is to buy properties that are trading at a discount to their market value and sell them when the market offers higher margins. To do this you have to avoid buying at futuristic prices, this calls for some homework on your part.
In Kenya, the challenge with this type of investment is that land speculation is rife and finding land at great discounts to value can be an Uphill task if you are not privy to the markets. This is where experts come in. An expert is not a broker who wants to sell you land but an independent professional or firm with access to market knowledge, qualified skills and resources to direct to the right kinds of deals.
In any case, it is a greater advantage to skill up on the subject matter if you truly want to excel at it or at least get the basics. Basic concepts like sales prices and rental rates, cap rate or yield, capital growth rate, market comparables and real estate trends in your area of interest are good to starting points.
Particularly if you are just starting out, you may not have the luxury of hiring an agency to do the donkey works for you and that is the opportunity to learn.