Mistakes real estate investors should avoid

Wednesday October 23 2019
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Invest in property that can easily attract buyers to save yourself from losses. Photo by Ismail Kezaala

Real estate investing involves purchasing property with the intention of earning income through rental income or resale, rather than as a primary residence. Real estate investors typically purchase homes to rent out to tenants, apartment buildings, and commercial buildings. The last few years have been favourable to investors in Uganda.

According to National Housing and Construction Company Limited, Uganda’s residential housing deficit currently stands at two million units and continues to grow by 300,000 units per year.
And the housing requirement in Kampala will be at 750,791 units, other towns 1,092,318 units, rural areas 8,482,889 units and nationally 10,325,990 units by 2020.

These are the kinds of figures that inspire investors because they are assured of growth.
However, this potential growth can be curtailed by a number of mistakes just like real estate investors have found out along the way.

Nicholas Ssebagala joined the industry five years ago and has finally managed to build a substantially profitable business.

“I joined the industry by mistake. My brother-in-law needed money fast and my wife convinced me to buy his plot. Fortunately, I had just attained a managerial position at my then workplace which could help me access a bank loan. I bought the plot but did not have the money to develop it, so I kept it and sold it two years later making good profit because the area had become a hub for Kyambogo University hostels,” Ssebagala relates.

The allure of getting insane profit excited Ssebagala’s so he did not think twice when another opportunity came up. Unfortunately, the property was too big for him alone so he looked for a partner to make up for the deficit of the asking price.

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Caution to the wind
“The deal went well. We bought and built two apartment blocks and I was hooked by the ease of it all. And then I got an even bigger opportunity which obviously promised me bigger money. My new partners encouraged me to mortgage the apartments to get funding for the new investment. I found out too late that my other partners were conmen and they disappeared with all the money,” Ssebagala recounts.

Ssebagala says from this mistake, he learned never to form partnerships without doing enough due diligence. He also learned that purchasing property on loans is such a big and risky gamble.

Formality
Hasheem Katongole, an investor, reckons one of the big mistakes investors make is treating real estate like a gambling sport.

“Real estate investment is a business and should be treated as such. I have been in the industry for more than ten years and I have seen many people lose money that way. It is not uncommon for a broker stuck with property to start a rumour about its future suitability.

“You have probably heard about the city moving this way and that way, or government planning to tarmack this or that road, things that never materialize because they are unfounded. I know people stuck with plots they bought exorbitantly based on this kind of speculation because they cannot sell them at their cost price and any other price would be a loss,” Katongole reveals.

As a player in the industry, Katongole says his purchases are based on creating cash flow; he is able to buy properties and sell them only when he has gone through the numbers and he is sure they will make profit for the business.

Smart buying
If you have the right strategy, you establish smart buying criteria and you stick to your criteria, real estate is the best way to build wealth and achieve financial freedom as quickly as possible.

Katongole also advises investors to run a formal business because real estate is extremely risky. There are many logistics and variables involved that make more sense for a business than an individual.

“As an individual, you have few opportunities for loans and many other helpful financial services,” he adds.

He urges investors to get structures in place that will run the business efficiently and profitably. You need supervisors to make sure the properties are in good condition, rent is being paid on time and all taxes are being paid or else you find out when the problems have become too big to be solved,” Katongole notes.

Expensive property
Having experienced loss after buying high priced posh properties, Ssebagala cautions other investors against it. “I bought two gorgeous homes in Munyonyo a few years ago and after failing to get buyers to give me a fair price, I was forced to move into one and rent out the other. Getting the kind of people who could even afford to rent that one house was tough. Instead of continuing to make losses, I rented it out to whoever showed the ability to maintain it properly,” he says.

Motive
Every investor needs to have a defined motivation. If the motivation is simply to make money then, they might as well give up. It is true real estate is one of the investments that can create immense wealth in a short time but it is also a demanding business. You need a bigger and deeper motivation to keep going when you lose money, get conned out of property and have to deal with unscrupulous people every day.

Do not spend too much

The biggest mistake real estate investors make is paying too much for a property.
Many real estate investors forget that their profits are not made when they buy, but when they sell. Getting property at a good price is how to make money in real estate.

If you start at a high purchase point, your return on investment will suffer because the property will appreciate very little; you may even suffer a loss on the property. If you don’t get a good deal on the front end, you also will have a difficult time getting a reasonable return after all the carrying costs real estate requires.

Owning real estate requires many ongoing costs (maintenance, property taxes, etc.) relative to other forms of investment); you must be especially sensitive to the purchase price, as even a significant appreciation from the purchase price to the sale price can lead to a subpar return.
Source: fortunebuilders.com

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