Investing in Real Estate-Your Questions Answered

In continuation of the real estate subject, I would like to respond to a couple of questions emailed to me by my great friend, and reader of my articles. Instead of answering him directly, I have decided to answer the questions on this platform openly, such that those with similar questions will have any idea on what it is like to invest in real estate particularly Kenya. This was the email; “Great article Jerry. I have three questions what are the mechanics of taking a loan in Kenya how much capital, and how much would the best bank give me. Also how do you know when it is the best time to buy property at home, as in how do you read the market? I know in states for instance property values were very low after the recession, and it was the ideal time to buy. Also how do interest rates affect real estate investors, and does the bank have the power to increase interest on a loan you took before? I love real estate, that's my dream” There are two types of real estate buyers in my book, and understanding yourself before making the purchase is an essential negotiation tool when seeking a bank loan to finance your project. Some people will buy the property purely as an investor, someone that will buy a property for rental yields and capital appreciation while others will buy property as a way of having a residency. Finding the funds to make the purchase can be challenging in Kenya. When you approach the banks, just like in other developed countries, what they look for is your ability to pay the loan. If you are buying the property as an investment (rental yield/capital appreciation), it may be easier to service the monthly payments for the loan because of the extra income coming from the property itself. Most banks will give you a loan of up to 80 per cent of the property value, with a maturity period of 15 years. Majority of the rates are between 19.5%-24% presently. You must be able to put a 20 percent down payment, and also 10% to cover other closing costs, which include stamp duty, legal fees, valuation, arrangement fees and mortgage protection policy premium. The banks have no powers to increase your agreed interest rate, unless the overnight lending rate goes up from the central bank. As you can see, these rates are high, considering that in Canada, you could get a mortgage rate of 3.09%, a secured line of credit at 3.5%, or even unsecured line of credit at 5%. Why not consider borrowing in Canada and investing in Kenya. Never make a decision by comparing the rates here to Kenya; it’s like comparing apples to oranges. There is not an ideal time to get into the real estate market in Kenya. The prices of land and property have appreciated faster because of the rising urbanization and population too. With a lot of people moving from upcountry to the cities has really pushed the prices higher, and I don’t see it abating any time soon. The cost of land and houses will just go higher and higher, therefore just buy as soon as you are able. Just to give you an example, a couple of years back say 2007, a plot in Thika Road that went for like Ksh 600,000($7100), is now at the very least going for Ksh 3,500,000(41,200). Property prices are always rising in Kenya; there is not an ideal time to get into the market My suggestion for you, look into buying apartments that are priced in the Ksh4-7 million ($47,800-$83,400) ranges. You could buy in growing places such as Rongai and Kitengela. These investments have a rental yield that ranges from 6%-11%, which is far much better that Canadian cities. Bear in mind that the property will be still appreciating as the lower middle class is slowly and steadily growing. To get into real estate, requires a lot of financial discipline. It’s supposed to be a long term investment project to build your net worth and portfolio, reason why you need a careful thought and research on the same. Good luck!