Investing in real estate is one of the best ways to secure your future and that of your family. This is mainly due to the fact that it guarantees a steady flow of income unlike the other unpredictable investments like shares in stock market.
However, it never comes without risks which could really be frustrating to any investor.
There are some guiding principles that may be very helpful in getting everything right through the research process to the renting stage of the property. They include;
(a) Assessing investment strategy
It’s important to have a clear vision of the investment objectives and goals. Different properties have their unique potential returns. Two main forms of real estate investment options are
- Purchasing to rent
- Purchasing to resell with profit
Buying to rent gives can provide two types of returns. The value of the property appreciates with time because of improvements. The equity of the property as the mortgage is paid down. There is also potential to achieve steady cash from monthly rental payments.
Buying to resell is the best fit if one has time to inspect construction changes, oversee site workers and endure resell procedure
b)Evaluating the kind of property to invest
Each type of property demands a specific kind of financing. A vacation property is relatively expensive due to extensive furnishing compared to student rentals which is much simple hence cheap.
Occupancy rate and income flow are also considered. Family homes generally attract longer-term tenants while town lodgings would likely host short-term tenants.
The needs of the occupants are put first and what appeals to them is given priority.
c) Research Location
It is very important to ensure a perfect location is chosen for the property. One that ensures a fair rate of occupancy. The tenants should be able to easily access social amenities including schools and a good transport system.
It’s ideal to research the population of neighboring properties and avoid areas where there are many vacancies.
“Location of a property is very important aspect that we have put into consideration before buying a property as a real estate company,” Reuben Kimani, Username Investment said.
According to him, real estate investors consider plots that are in a very strategic location before committing their funds on the property.
d) Assessing financing
Consider all the options in hand before choosing a mortgage adviser. If it is a bank, then the one with the lowest interest rate may be favorable.
In Kenya, banks need an average of 25% – 30% value of property to be the down payment in mortgage investment. There are however some costs not covered by financiers including;
Property purchase tax
e) Calculating expected returns
The likelihood of the value of the property to grow over time can be assessed. This is based on the following formula
Rental yield=annual rent/property price * 100.
It is also important to ensure that one can be able to meet the cost of maintenances when the property is vacant.
f) Managing risks contingency plans unnecessarily to minimize losses.
It may not be compulsory under state law to insure real property, but is it very important to consider insuring your property against unforeseen calamities that can affect your investments.
Insurance protects against such situations as damage to building fittings and fixtures, third-party liability, and others.
It’s also important to familiarize yourself with landlord-tenant losses to be aware of your legal obligation as the landlord.
g) Choosing a tenant
It is crucial to screen selectively and picks tenants as it would be much favorable to have occupants who take care of the property as if it was their own. Be aware of their criminal history and if possible ask for a certificate of good conduct from relevant authorities.
h) Management of property
This can be done through a property management company or by oneself. It involves continued screening of new tenants, an inspection of the property after evictions, collection of monthly rent managing tenancy leases.
Moreover, one has to be proactive during repairs and fixtures of the property following tenants’ complaints.