Secrets to real estate investing

24 July, 2024 / Articles

As you read the blog, I am pretty sure you have heard of investment before and so, defined in the framework of forgone consumption of money at the current time in favor of placing the funds into investment vehicles (such as stocks, government bonds, bank fixed deposit and real estate etc.). The value of the investment vehicle increase in the future and therefore, grows the value of the invested funds.

Real estate is investment sector that has continued to grow both locally and internationally. Locally, its contribution to the country’s GDP has continued to grow for the past two decades, from 10.5% in 2000 to 13.8% in 2016, as per KNBS. The sector has also continued to be shaped by various trends such as infrastructural development, improving client preferences and tastes, a growing population as well as an expanding middle class and the continued entrance of multinational firms who act either as clients or competitors, hence shaping the industry standards. As an investment asset class, real estate has toppled other investment asset classes in terms of returns and risk involved, and as a result, more individuals and institutional investors are shifting their focus on investments to real estate.

This is attributable to factors such as:

  1. High returns, which as per our research, has averaged at 25.0% per annum over the last five years as compared to traditional investment assets such as stocks and bonds which have generated an average of 14.6% per annum over the same period.
  2. Real estate provides investors with investment platform for hedging funds against inflation.
  3. Secure tax incentives such as treatment of interest payment on mortgages as a tax-deductible expense.

However, real estate investing can be daunting, due to the facts that; a) it is capital intensive b) it exists in a very dynamic market and c) requires a great deal of expertise for successful investment venture. Despite these, it is possible to reap big from real estate. The following are the key measures to focus on before going into real estate:

  1. Market research is paramount. This simply helps you to gauge the uptake, demand and general performance and potential of your intended real estate investment. It also helps the developer to see what competitors are doing, identify market gaps and structured products that can fill the particular gap in the market.
  2. Financial analysis which helps to establish the expected return on the real estate theme of interest which constitutes of return on investments and internal rate of return from the real estate investment theme. This can be achieved by through the services of a real estate expert.
  3. Information symmetry: traditionally, most investors only know of brick and mortar which tends to be capital intensive, time-consuming. However, other ‘sharp’ ways have emerged such as REITs, private equity, and structured products where a private firm customizes each as per the needs of the investors. This offers aspiring real estate investors to tap into the sector without having the intense involvement that the real estate development requires.

A comprehensive execution of market research and financial analysis provide an investor with the status of the main performance indicators on real estate investments in relation to the achievement of the targeted financial objectives. Notably, one can either subscribe to a periodic real estate performance analysis report, such as Cytonn Reports or choose to carry out the analysis personally. Whichever the case, real estate research and financial performance analysis offer the platform for an investor in the sector to identify the existing investment opportunities in the various real estate themes, allocate funds to the best opportunities and maximize returns from the invested funds.

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