Many desire to invest in real estate investment in order to make passive income from their investments such as apartments, office buildings, hotels, warehouses, malls and other kinds of properties.
However, over the years it has become a normal occurrence to witness investment properties being auctioned because the owner has been un able to meet their financial obligations. Other investors are unable to recoup their monetary investment because they end up with higher construction costs, properties are left without tenants or buyers and or poor cash flows that are a far cry from their initial expectations. This is because investors lack accurate cost projections including the cost of finance, approvals or professional fees. The poor returns could also be because of an oversupply of the property, little or no demand for the property or the finishes, amenities and services may not be what is in demand.
Interestingly, these cases can be attributed to lack of professional assistance before investing in real estate. The investor through an expert need to carry out a comprehensive real estate market study or feasibility study, which analyzes and investigates the demand and supply of the real estate product, a review of the performance of similar properties, realistic rental or sale prices, an estimate of the total cost, the risks involved, and the financial viability of the investment.
Ideally a market study should be done before a feasibility study. The market study will guide on the strengths, gaps and opportunities in the area and advice on the investment that will yield the highest and best returns. Once the market study has been prepared, if the acquisition is via development of the property, the developer instructs the architect to prepare drawings which are then sent back to the real estate consultant to review. At this stage the consultant can propose certain changes e.g., in the design of a mall they may propose that certain uses for example specialty shops be given more prominence as they are likely to attract higher rents compared to larger outlets which may be able to push for lower rents and as such it may be wiser to allocate the less visible spaces to them.
Unfortunately, many prospective investors skip this crucial stage in a bid to reduce cost. They also assume that seeking professional assistance is time-consuming and complicated. However, the monies and time saved cannot be compared to what may be lost in the event that the investment turns out not to be viable.
A real estate professional would help you avoid these unpleasant surprises because the primary objective of the market or feasibility study is to advise on the viability of the real estate project. In the process of carrying out the viability analysis, the professional will also advise you on the estimated value of the property, if it is to be purchased, to ensure that in the event that you proceed to invest, then you do not pay a shilling more than is necessary
The above details will provide pointers on whether the investment property, is the right investment for you and allows you to make an informed decision. An expert is more like a good coach by your corner who can hold your hand and guide you as you look to invest ensuring that you avoid pit falls and also ensures that you are able to exploit any opportunities that may be available while building on your strengths and keeping an eye on the weak areas in a bid to strengthen them.
Further, a good financial report should also possess indicators such as the Internal Rate of Return (IRR), the net present value (NPV), the payback period and the Return on Investment (ROI). The market or feasibility report will also inform you on whether there are other less risky investments that have higher or comparable returns compared to the envisioned property investment.
When hiring a real estate consultant in Kenya, the consultant should have real estate academic qualifications, be a member of the Institution of Surveyors of Kenya (ISK) and be a registered valuer. Most of the professional firms also provide real estate agency services and as such are in direct contact with potential purchasers or tenants thus giving them an added advantage in assessing the demand for the property and the market trends. These consultants are also involved in the day-to-day management of properties and are therefore able to make design suggestions that improve the marketability and financial sustainability of the investment.
In a nutshell the professional will help you answer the questions; will this investment help me to achieve my investment goals? How much will the real estate investment cost me? What kind of returns should I expect? What is the current and projected demand and Supply for the property? Is there a better investment? Is this the right time to invest?
By Beatrice Kirathe– Director Ark Consultants Limited
This article was published in the People daily on 21st of May 2021.