WHAT YOU MUST KNOW BEFORE INVESTING IN KENYAN REAL ESTATE

There are several important things you need to understand and check before you get into a property transaction in Kenya. Like any legitimate business, there exists the very real possibility of getting swindled.
To avoid complications, it is first important to check the validity of the title deed, the zoning of the property and whether the land rates and taxes have been paid up to date. It also necessary to check if there are any caveats against the property or any pending disputes on ownership.
After all these check out, the process of purchase is pretty straightforward. But if you are new, it will save you a lot costly mistakes to enlist the services of a qualified legal counsel.
Then there is the issue of financing. If you choose to get a loan or a mortgage to finance your property investment venture in Kenya, be sure that you fully understand exactly how much you are going to pay back. Flexibility on the payment terms is a very good thing.
Finally is the consideration of security and insurance. Real estate investment, as any other asset, should ideally be insured. Shop around for the best insurer, and make sure you understand the terms, especially the fine print. See an article from the Daily Nation Newspaper  Property Market

Property investment options in Kenya
Now that we know that investing in real estate in Kenya is a great idea, and we know what to look out for so as not to make mistakes. We can look at some ways one can invest in property in Kenya.

1. Buying land
The most popular real estate investment avenue in Kenya is Land. Investing in Land in Kenya is appealing simply because once you buy, you really don’t have to do much, most people buy and wait then resell later at a profit. As the real estate mantra goes, don’t wait to buy, buy and wait.
There are a several ways to add value to this sort of investment, such as fencing it, connecting power and water lines and building an access road. As with many real estate investments, location is always King.
Of course the option of developing the land is available, and depending on what one chooses to build and the location of the property, different levels of revenue can be obtained.
2. Building residential property in Kenya
Residential property is another property investment avenue in Kenya. Actually if one has the finances, one can buy land, build residential units and choose to sell or let. This strategy offers higher returns but requires a lot of expertise and is capital intensive. There are ways of making this work better by using different building technologies.

3. Commercial Real estate
Finally we have the option of investing in commercial real estate. Not known to many people, commercial real estate offers more reliable income than residential property investment in Kenya. This is because the lease agreements with the tenants is usually for periods not less than five years and with a rent increment clause that ensures the owner gets incremental income from the property over the lease period. This is also capital intensive and requires a degree of expertise.
Now that you know where to start, you can have a look at kimisituinvest and have us start you on your way to making it big by investing in property in Kenya.

THE MOST IMPORTANT FACTORS FOR INVESTING IN REAL ESTATE

Compared with other types of investments, real estate investing involves a relatively favorable risk/reward profile, with relatively low liquidity (ease of entry and exit). Let’s see some of the most important factors to consider when investing in real estate.

  1. Location of the Property

Why is it important? The age old punch line “Location, Location, Location” still rules and remains the most important factor for profitability in real estate investment. Proximity to amenities, peaceful conforming areas, neighborhood status, scenic views, etc. are major factors for residential property valuations. While proximity to markets, warehouses, transport hubs, freeways, tax-exempt areas, etc. play an important role for commercial property valuations.

What to look for? A mid-to-long-term view, about how the locality is expected to evolve over the investment period. Today’s peaceful open land at the back of a residential building may be developed into a noisy manufacturing facility in future, making the residential valuations less profitable. It is advisable to conduct thorough check about ownership, type and intended usage of neighboring areas, establishments and free land in the locality.

  1. Valuation of the Property

Why is it important? Real estate financing during purchase, listing price during the sale, investment analysis, insurance premium, and taxation — all depend on real estate valuation.

What to look for? Commonly used valuation methodologies include:

  1. Sales comparison approach: Recent comparable sales of properties with similar characteristics –most common and suitable for both new and old properties
  2. Cost Approach: All cost summation minus depreciation – suitable for new construction
  3. Income approach: Based on expected cash inflows — suitable for rentals
  4. Investment Purpose and Investment Horizon

Why is it important? Given the low liquidity and high-value investment in real estate, lacking clarity on purpose may lead to unexpected results including financial distress, especially if the investment is mortgaged.

What to look for? Identify which of the following broad categories suits your purpose and prepare yourself accordingly:

  1. Buy & Self-use: Savings on rentals, benefit of self-utilization and value appreciation
  2. Buy & Lease: Regular income and long-term value appreciation. Requires building a temperament of being a landlord — for handling possible disputes & legal issues, managing tenants, repair work, etc.
  3. Buy & Sell (Short-term): Quick, small to mediocre profit – usually buying under construction properties and selling slightly high once ready
  4. Buy & Sell (Long-term): Large intrinsic value appreciation over a long period; a solution for long-term aims like retirement planning, child’s education, etc.
  5. Expected Cash Flows & Profit Opportunities

Why is it important? The investment purpose and usage influence cash flows and hence profit opportunities.

What to look for? Develop draft projections for the following modes of profit & expenses:

  1. Expected cash flow from rental income — Inflation favors landlords for rental income
  2. Expected increase in intrinsic value due to long-term price appreciation
  3. Benefits of depreciation (and available tax benefits)
  4. Cost-benefit analysis of renovation before sale to get better price
  5. Cost-benefit analysis of mortgaged loans vs. value appreciation
  6. Be Careful with Leverage – Know the Pitfalls

Why is it important? Loans are convenient but may come at a big cost — you commit your future income, to get utility today for a cost of interest spread across many years. Understanding how to handle loans of this nature allows you to benefit from it to the maximum. While ignoring the risks can lead to major pitfalls.

What to look for? Depending upon your current and expected future earnings and paying capability, consider the following:

  1. Decide on the type of mortgage loan that best fits your situation (Fixed Rate, Adjustable Floating Rate, Interest Only or Zero Down Payment)
  2. Be aware of the terms and conditions and other charges levied by financiers
  3. Hunt around and bargain for a better deal using a tool like a mortgage calculator to find lower interest rates. Also look for lower insurance premiums.

REASONS WHY YOU SHOULD NEVER MISS THE AGM

Many people don’t know the importance of attending, Annual General Meetings, below are reasons why you should never miss the AGM
An annual general meeting (AGM) is a meeting of the general membership of an organization. An organization may conduct its business at the annual general meeting. The business may include electing a board of directors, making important decisions regarding the organization, and informing the members of previous and future activities. At this meeting, the shareholders and partners may receive copies of the company’s accounts, review fiscal information for the past year, and ask any questions regarding the directions the business will take in the future.
You get an unfair advantage on information
By talking to the company’s insiders (CEO, CFO, Chairman, auditors, etc), I get access to a lot of information not yet written in the annual report, any press release or analyst report.
During the meeting, shareholders pose questions to the board in front of other
Shareholders. Usually, the answers given are more politically correct. Post meeting is the best time when shareholders can ask more sensitive questions and, from my personal experience, most management are willing to give you candid answers. As a matter of fact, directors tend to share more sensitive information about their company one-on-one and face-to-face when it wouldn’t be wise for them to share publicly.
You get to find out if management is aligned with your interests
By observing their body language and candor (or lack of), you can tell if the directors are being truthful and ultimately aligned with your interests.
Though observation can be subjective from person to person, it is still better meeting and interacting with the management to get a gut feel for yourself rather than not know at all the people who are supposed to be growing your hard-earned money for you
You get to meet like-minded investors
By talking to other investors, you get to learn fresh perspectives why other investors invest in the same business as you. You might discover new distinctions that might improve your research and analysis as an investor.
Sometimes, if you are really hit it off, they might invite you to their private mastermind group for discussion of investment ideas. You wouldn’t know such a group exists until you get invited to one.
Look management in the eyes
To a large degree, investing in a company involves the placement of trust in the people running the firm. As a shareholder of a company, we are entrusting our capital to the firm’s management team, in the hopes that they would treat us fairly and run the company with integrity.
Attending an AGM allows us to meet a company’s management team face to face and gives us the chance to size them up personally