Here are the factors to consider when investing in a real estate property like an apartment.
1. Cash Flow
Will the property bring net positive cash flow? Simply put; will I make profit from this investment? This is very important to ask supplying you with assess the market critically.
What will help you make good judgement here depends on these factors;
The demand in the local marketplace for unitsIf there is a huge demand sold in the market, you will not experiencing a long vacancy period. This will ensure you start getting returns immediately the property is finished and even when a tenant gets out, the time you need to bring in another tenant will be a short one.
The type of market you are going to invest inThe type of market will dictate the amount you can charge as rent. If you operate outside the expected range, you will miss out on tenants. Therefore the market will impact directly on the things you can receive as rental income. There will be estate were a two bedroom unit in an apartment attract monthly rental income of between Ksh.20, 000 and Ksh30, 000. Exactly the same two bedroom unit if moved to another estate will attract a maximum of Ksh15, 000.
The cost of financingIf the cost of capital or finance is high, the return will be decreased. If you secure financing at an rate of interest of less than 10%, then you certainly stand a chance of sincerely making good return from the investment than if you secure funding at an interest of 13% or more.
The amount of your down paymentThe amount of deposit you commit will reduce the funding required hence the price financing. If you set a deposit of 40% of the cost of the project, then you will undoubtedly look for financing of 60%. If another person places a down payment of 20%, the remaining 80% will surely be financed by debt capital hence more interest expense.
Once you have looked over all these points, after this you need to ask whether you'll make money by investing in the property you have on your mind? If you don’t possess a clear answer, look out for a property developer who offers consultancy or financial analyst.
2. Appreciation
You need to consider whether the place you desire to invest as the good potential of appreciation of property value and rental over a period of time. You need to invest in a place where rental income is inclined to go up and definitely not down over a period of time.
If you buy in an estate where rental income or property value rarely appreciates, then you are putting your money into a high risk area. If the value does not appreciate, there is a high chance that this value will come down over the same length of time analysis.
5. Risk
Risk is something to plan for. It’s said that you expect one of the best but you prepare for the worst. You have to ask yourself what happens if all your assumptions were wrong. If you expected the units to get fully occupied or at least 70% occupied until you only attain 35% occupancy? You expected the value of the property to go up giving you secure funding but overall the value has dipped?
When you plan perfectly the threat, you really are adequately conditioned for any outcome. Before investing in any property development project, assess the risks involved and see if you will still make cash if the risk occur.
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