• Successful Real Estate Investing: The Enduring Promise of Real Estate in Kenya

• #1: Market Intelligence – Know the Terrain Before You Invest

• #2: Strategy & Niching – Don’t Follow the Herd

• #3: Planning & Execution – Stay Disciplined

• #4: Avoiding Hype and Scams – Due Diligence is Non-Negotiable

Successful real estate investing isn’t rocket science.

It does require some diligence, resources, a mindset for success and market intelligence.

To a committed investor, none of these is unattainable.

Done right, real estate investing has the superior potential to create generational wealth and financial security for the diligent investor.

Despite the hurdles that are rife – from the reintroduction of capital gains tax capped at 15% today, to the rampant nature of land fraud and the operation of cartels, an unpredictable interest regime and the daunting prospects for anyone seeking to finance real estate projects – opportunity still abounds.

If you haven’t yet found success investing in real estate, I invite you to flip your lenses and consider a different perspective in what you’ve done, how you’ve done it and your motivations (your big “why”).

The opportunity to acquire property assets and make deals that steadily generate both cash flows and capital gains abounds. Investing in real estate isn’t just about buying a plot on which you will build a home someday in future or sell at an appreciated value.

No. It’s so much more.

Keys To Successful Real Estate Investing in Kenya

There are basically 4 Keys to Successful Real Estate Investing in Kenya. If you are willing to build market intelligence, create a winning strategy customised just for you, follow through on your strategy by planning and executing your custom blueprint, then you’re already as good as there!

You will need to build investor intelligence (a winning mindset), which will not only give you the vision and resilience (stickability) to stay on course, but also the filters and ability to avoid market hype, hysteria and scams.

While successful real estate investing seems to be the preserve of major financial institutions, SACCOs, property developers, land-buying companies and a few investment groups, it is attainable even by retail investors.

At the retail level, most property owners accept grossly underperforming assets, settling for a fraction of what they could achieve despite the opportunity.

Outlined below are the Keys to Successful Real Estate Investing – four basic tools to unlock vast wealth out of real estate:

#1. Market Intelligence: Develop Your Knowledge and Understanding of the Market

There is a famous real estate adage that reads thus “When you buy a home, you buy the neighbourhood“. It simply means that real estate doesn’t exist in a vacuum and that your success (and failure in equal measure), is intrinsically fated with that of the neighbourhood.

Real estate market intelligence is simply the ability to read and understand neighbourhoods and how the different investment decisions you may make can be leveraged to the greatest effect, given the location of the property.

If you were weighing an investment property, here are some questions you want ask yourself as part of building your market intelligence in the specific neighbourhood under consideration:

• What can you immediately ascertain by observation about the property – the neighbourhood, the infrastructure, the residents and other property owners, amenities and facilities, security?
• What are the observable economic trends around the neighbourhood?
• Is the population growth and settlement around the neighbourhood expanding?
• What can you observe about the likely levels of household income of the residents?
• What are the primary developments in the neighbourhood? etc.
• What are the market comparables?
• What are other properties fetching in the same market and why?
• If the property is for cashflow purposes, you will want to observe what the predominant “theme” of the property market in that neighbourhood is.
• Is the area largely owner-occupied or tenant-occupied?
• What is the nature of the neighbourhood – lower-income, middle-income, upper-income?
• What is the nature of tenant-occupancy in the market – are rentals short-term, monthly?
• What are the estimated yields for similar properties in the neighbourhood?
• Between residential and commercial properties, can you assess which performs better by observing occupancy levels?
• In your observation, is the property under your consideration visibly well-maintained, appearing structurally sound serviced?
• Which are the dominant types of units being offered for accommodation in the neighbourhood? Are they single-family homes or multi-dwelling units?
• What is the state of security in the neighbourhood?
• Can you observe if there is availability of mains services (power, water, sewerage)?

Assembling as much relevant information as you possibly can will not only help you make a reasonable analysis of what to expect should you acquire the property, but will also give you the advantage of local knowledge to guide any subsequent investments.

Successful Real Estate Investing requires in-depth knowledge of the market, combined with analytical skills that will be honed with experience and over a period of time.

The market is dynamic, and in due course, with active participation in it, investors can build up a comprehensive body of knowledge that will serve them well.

#2. Find Your Niche and Develop Your Strategy

There is no one-size-fits-all approach to real estate investing.

To each his own!

The” herd mentality” will, more often than not, work against you.

Doing what everyone else is doing is an instinctive, non-rational response, driven more by the desire to belong and be accepted, mental laziness and the fear of missing out.

It’s not what you want to hear, but investment goals between people living very different lives are very rarely congruent.

It is also a counter-intuitive proposition that assumes all individuals harbour similar considerations for their investment requirements, have similar tastes or preferences, or even equal purchasing power or economic status.

Successful Real Estate Investing requires that your strategy and acquisitions are aligned with your unique set of financial circumstances and goals, and that the same is reviewed over time to adapt to any variations to the overall plan.

Your strategy should also incorporate the following:

First, your preferred investment niche.

Real estate investing is broad, and the opportunities are diverse. Decide early on the particular niches you want to engage in and to what end.

This could be based on the principle of “low-hanging” fruit, your competencies and skills, the time-frame between entry and exit from the investment and even the purpose for which the investment was made (capital gains and/or cashflows).

For example, a property acquired at public auction may fetch a significantly higher price on the open market than at auction and can be quickly disposed of to grow investment capital.

Vacant land purchased in a rapidly-developing area, on the other hand, may take three to five years to achieve your desired rate of return and may only be disposed of at the term of your exit plan. The niches you choose should also be considered against the need to balance between the investor’s long-term and short-term requirements.

Secondly, your required rate of return.

Benchmarking returns on investments gives each investor firm criteria on which to take on investments.

Before analysing any option, your investment goals, your cashflow considerations, and liquidity requirements over the lifetime of the investment should take precedence.

To begin your analysis, the best place to start is to consider what the lowest-risk assets, like bonds, are offering and to initially eliminate any option that cannot offer a higher return.

You will then want to establish what comparable properties are offering in return to assess the competitiveness of the investment property you are considering.

Ultimately, the basis for evaluating whether or not an investment is satisfactory is whether the return it offers is competitive and represents the best value for your investment prospects.

Other factors, such as risk and income diversification, may be considered if those factors take precedence over your required rate of return.

#3. Planning & Execution: Make Your Plan and Stick With It

Successful Real Estate Investing requires clear and thoughtful planning and execution based on market intelligence and guided by the input of professionals.

Real estate investments are one of the building blocks within the context of your overall financial and wealth-creation plan, and success requires the operation of each of those blocks in tandem with your financial goals.

Execute your plans and review as required over time. Discipline, commitment, and focus will deter the commission of costly mistakes. Some pointers:

Seek professional guidance: Build a reliable team of trusted professionals whom you can consult with in the course of your real estate investment plans.

Crunch the numbers: In determining the profitability of an investment portfolio, the costs incidental to their acquisition and, in the case of rental (income) properties, chargeable costs of operation should be factored.

It is prudent to bear in mind the lifecycle of operable investments and adjust operational costs based on the age and general condition of the property.

Avoid speculation: It is not uncommon to hear the phrase “good for speculation” about property offers in this marketplace. In her book Cracking the Intuition Code, Dr Gail Fergusson makes the argument that human beings are intuitive, possessing the ability to somehow attain direct knowledge of something without any evident rational thought.

It is invariably referred to as “gut-feeling” or “sixth sense”. It may be arguable that many people would still somehow, even in the face of evidence to the contrary, bank on their futures based on sentiment and gut feelings.

Resources for investing in real estate are often significant, and to fritter them away on speculation can be very costly.

Does it add value: Develop criteria to guide all acquisitions rather than ad hoc, rushed or unplanned acquisitions.

It is best to walk away from offers that don’t match your investment criteria or where information is scant or unavailable.

Comparables and alternatives: Before settling on an acquisition, it would be good to establish whether the offer provides immediate equity based on the capital outlay.

As a diversification measure, investors may also want to consider publicly traded securities such as REITs available on the local securities exchange market.

Depending on the investor’s financial goals, time-share property developments may also be considered to further diversify real estate portfolios, enabling fractional ownership in private commercial developments without injecting such large capital investments.

Always have an exit plan. This will inform you of the ideal time to offload an investment.

The decision may be informed by an upcoming liquidity requirement that the investor may have, the need to diversify the portfolio or raise cash to expand into new opportunities.

The benefit of an exit plan is that the investor can assess the market ahead of time to either explore new opportunities or simply plan ahead of time for new commitments/engagements that they may have.

#4. Investor Intelligence and Mindset: Avoid the Blindside

The market is often a place of drama and theatre. In Kenya, the scams and their perpetrators are rarely obvious. But you can develop an eye to spot them by building your own investment intelligence.

The worst scams aren’t even the ones you know of – they’re the ones that get perpetratod on the most unsuspecting individuals who may never even realize that they acquired an over-priced asset years after they received their ttile deeds.

Getting caught up in get-rich-quick schemes carefully orchestrated to manipulate naïve, unsuspecting buyers should never be your fate.

But with limited familiarity or understanding of the mindset of a real estate investor, discerning between observable trends and facts on the one hand, and myths and hyperbole loosely couched in a semblance of truth on the other is nearly impossible.

A cursory look back ten years into the real estate market in Kenya often reveals a litany of deceit and scams that have immobilised many retail property investors, from non-existent plots to fraudulent home ownership savings plans, off-plan schemes gone awry, overleveraged developers who failed to deliver projects financed, and get-rich-quick schemes abound.

Think of any conceivable fraud imaginable, and it probably exists in this market, including frenzied “gold rush” projects which inflate returns on land to unimaginable values until, of course, the bubbles burst, leaving “investors” with egg on their face.

Is it possible to escape the wiles of these fraudsters? Perhaps not entirely.

But the savviest real estate investors play the game understanding that it is a marathon and not a sprint, schemes and wiles notwithstanding. 

The greater concern for any real estate investor in this market should be on developing both the market and investor intelligence to make safe bets and optimise returns.

Successful Real Estate Investing requires a resolute focus on your goals and a clear intent to interrogate decisions through the lens of proper due diligence. Not hype. Not “feel-good” feelings. Not smoke or innuendo or blurry lines.

The longer you play the game at that level, the more success you will have in picking winning horses, putting you firmly on the path to successful real estate investing.

• Acquiring vs Investing in Real Estate: Is There Any Difference?

• Is Your Home an Investment – Really?

• Understanding the Buyer’s Motivations

• The Analytical Approach of Real Estate Investors

• Acquiring vs Investing in Real Estate: Why Speculation Isn’t a Bankable Strategy

• Acquiring vs Investing in Real Estate: Motivation as the Key Differentiator

Are there any subtle or discernible differences between merely acquiring real estate vs investing in real estate? Does active speculation in the property market constitute sound property investing? On the face of it, there doesn’t appear to be any difference and speculation, as an “investment strategy” is so widely practiced and accepted in this market.

One could even argue that because the values of property in this market are perpetually on the rise, any acquisition in property is a qualified investment because the likelihood of capital gains is nearly guaranteed. Of course, those who may make that argument have not factored the opportunity cost of the acquisition or the likelihood of price stagnations in a depressed market as happened in the last quarter of 2017.

Acquiring vs Investing in Real Estate: Is there any difference between the two?

So perhaps this is a moot conversation.  However, it is obvious that without a guiding philosophy and approach, the acquisition of property is just that, a means to an end without the clear, targeted objective of wealth creation.

It is the goal of wealth creation embedded in the philosophy and motivations of the buyer that makes the key difference. It goes without saying that any real estate investor will most likely have acquired real estate.

Because you cannot invest without acquiring, in a real sense, except for the respective motivations behind the purchase; and the approaches applied, there is no difference between merely acquiring real estate and investing in real estate.  With that said, not everyone who acquires real estate is a real estate investor. And to demonstrate this, we shall consider the questions below:

• Is your home an investment?
• What are the real estate investors motivations?
• Why isn’t speculation a bankable strategy?

Are Permanent Homes Investments?

By volume, next to vacant land, homes are the hottest ticket item on the property market in Kenya. Indeed, the acquisition of vacant land as a precursor to constructing a home is the most popular form of vacant land purchase. Naturally, then, the acquisition of homes is a good point from which to debate the similarities and dissimilarities of acquiring real estate vs investing in real estate

Many property buyers contend that a permanent home is the best investment. Granted, securing a home is an endeavour well worth a hundred times the emotional security it provides. However, if you follow the classic meaning of the word “investment”, then the test is whether the property is generating a return or not. Insofar as homes don’t do that and are not principally acquired for that reason, then they don’t fall into the classic definition of the word “investment”. The reason why the value of one’s primary place of residence is excluded in calculating an individual’s worth is that:

• Homes are deemed to be “permanent acquisitions” in their very nature, and;
• Homes do not generate income.

True, their value may increase over the years, resulting in capital gains down the road. Others will even proffer the argument that by saving on rents, homes “add” to cash flows (in truth, they don’t, but instead they merely reduce cash outflows, which may very well be consumed through other liabilities, lifestyle choices – just saying!).

There are exceptions, though, so rather than end up in the weeds arguing this one out, let’s see a few. If a permanent home gets disposed of at a significantly higher price than what it was acquired for, then yes, it may qualify as an investment. Specifically, if the cost of acquiring a new permanent home is less than the value of the old one you currently live in, at the time it is sold, then the old home was indeed an investment.

In the West, it is common to find duplex homes which allow the owner-occupier of the home to rent out a portion of the property to a tenant enjoying both the benefit of living in the property while earning an income out of it. Closer home, it is not uncommon to find owner-occupiers who construct what we typically call “extensions” in order to earn a rental income. In addition, it is also not uncommon to find owner-occupiers renting out rooms or the domestic servants quarters to tenants.

For the other reason that there is no predetermined “exit strategy” to homeownership, and that homes ultimately have to be replaced in the event of their disposal – unlike other properties – homes, especially those held as their owner’s primary residence, by and large, are not considered as investments. 

The Buyer’s Motivations in Acquiring the Property

Despite the feather-ruffling arguments that may be elicited from these views on home-ownership, a deeper understanding of motivations in property acquisition may clarify the difference between property (home) buyers and real estate investors. The key distinction between the two lies in their motivations – one, the need to create wealth, and the other,r the need to meet the needs of emotional security.

There is a convincing argument to be made about how meeting emotional security bolsters an individual’s ability to focus on wealth creation, and it cannot be gainsaid just how much achieving emotional security impacts the individual’s ability to plan and execute higher financial goals.

The Analytical Approach of Real Estate Investors

The other distinctions include:

• Property buyers tend to make acquisitions of a more permanent nature, while investors make acquisitions with fixed timelines and delineated exit strategies.
• Real estate investors follow a well-regimented, analytical approach to making their acquisitions with consideration of a wide array of observable market knowledge, trends, data, statistics and dynamics guiding their decisions while property buyers tend to acquire properties more along the lines of sentiment, tastes and preferences, lifestyle choices and other subjective (emotional) criteria.
• Real estate investors consider a mix of properties that can generate both long-term capital gains as well as properties that generate periodic cash flows, while property buyers tend to focus more on properties for personal use. Real estate investors tend to consider a much broader and diversified portfolio of property investments, including multi-dweller residential properties, commercial developments, early adoption in off-plan schemes and subdivision of vacant land, institutional-use properties and the full array of other opportunities in the market. Property buyers largely consider residential or agricultural-use properties.

The differences in knowledge of the marketplace between these two groups are as distinct as night and day, with investors very broadly informed about the property market, while property buyers have limited knowledge, which tends to be location-specific or centered on their key interests only

Why Speculation Isn’t a Bankable Strategy?

In many property advertisements in this corner of the world, you will often come across the phrase “good for speculation” as part of the property pitch. Speculation is synonymous with the words gossip, hearsay, gambling, conjecture, rumor, assumption, and guesswork. So while many people may have inadvertently made some gains off the speculation phenomenon, it is an approach driven by hope and not any applied knowledge of the market or any key investment considerations or sound tactics.

Just like gambling, at best, continually relying on a speculative approach yields an aggregated zero-sum when gains and losses are factored against inflationary pressure and the opportunity cost of the property investments made.

Acquiring vs Investing in Real Estate:

Conclusion

• Diligent property investors, as distinguished from mere property buyers, tend to be more analytical, calculating and singularly focused on the value of the transaction’s capability to generate capital gains and/or yields, and not just on the emotional satisfaction that owning the property would provide.  Their “why” is king!
• The motivation behind acquisitions is the most fundamental aspect of real estate investing and is perhaps as important as how property ownership is secured, if not more. Motivation distinguishes the savvy investor from the mere property buyer.