Basically, when investing in real estate, your goal is to put money today and allow it to increase so that you have more money in the future. The profit, or “return,” you make on your real estate investments must be enough to cover the risk you take, taxes you pay, and the costs of owning the real estate investment such as utilities, regular maintenance, and insurance.
To win in real estate investing, you buy properties, avoid bankruptcy, and generate rent so that you can buy even more properties. However, keep in mind that “simple” doesn’t mean “easy.” If you make a mistake, consequences can range from minor inconveniences to major disasters. You could even find yourself broke or worse.
How Investors Earn:
When you invest in real estate, there are several ways you can make money:
Real Estate Appreciation
It is when the property increases in value due to a change in the real estate market, the land around your property becoming scarcer or busier. For example, when a major shopping centre is built next door or upgrades you put into your property to make it more attractive to potential buyers or renters. Real estate appreciation is a tricky game. It is riskier than investing for cash flow income.
Cash Flow Income
This type of real estate investment focuses on buying a real estate property, such as an apartment building, and operating it, so you can get monthly rental income. Cash flow income can be generated from well-run storage units, apartment buildings, office buildings, rental houses, and more.
Real Estate Related Income
It is income generated by “specialists” in the real estate industry such as real estate brokers, who make money through commissions from buying and selling a property, or real estate management companies who get to keep a percentage of rents in exchange for running the day-to-day operations of a property.
This type of real estate related income is easy to understand. For example, a hotel management company gets to keep 5 per cent of a hotel’s sales for taking care of the day-to-day operations such as hiring maids, running the front desk and washing the towels.
Ancillary Real Estate Investment Income
For some real estate investments, this can be a huge source of profit. Ancillary real estate investment income includes things like vending machines in office buildings or small stalls in malls. In effect, they serve as mini-businesses within a bigger real estate investment, letting you make money from a semi-captive collection of customers.
Step By Step Guide To Real Estate Investing
Step 1: Build Your Credit Score
Know this that the higher your score, the lower the interest rate you pay
Step 2: Save Your Money
You need a down payment which is normally 5-20% the purchase price. This accompanied by your credit score and actually, income will make it easier for you to get a loan.
Step 3: Proof of Income
Your lender wants to see a consistent paycheck this is to avoid high-risk borrowers. They want to see your 1-2year of tex returns. This means looking at your bank statements.
Before applying for a loan have a lender review your net income or income before tax returns to give you valuable advice.
Step 4: Get Pre-Qualified by Lender
Speak to your lender first before looking for a property. Moreover, get multiple approvals( this gives you a backup option as well as getting the best rate).
Step 5: Do Your Research
Find an area you are interested in investing like Kilimani or Runda. Visit these areas and see what properties are being offered.
Ask yourself: What is going on in the market? What trends are improving? What are the existing prices?
Step 6: Have the Patience To Find The Deal You Can Afford
Avoid waiting too long for a developer or contractor to mee your offer for a property. Spend the extra few thousands if it means going home with a great deal.
Step 7: Do Property Inspections
This ensures you know the state of the property you are putting your money into. What is the condition of the property? Does it require remodels or updates?
Additionally, if you need repairs, speak to contractors on the best way to approach them.
Step 8: Close The Deal!
After finding your property go back to your lenders and finish up on the process. Real estate investing needs you to close deals as soon as you can.
Step 9: Do Repairs and Updates
In real estate, you add equity by remodelling. The more the property is worth the more rental income you’ll have.
Step 10: Find a Tenant
List your property on multiple listing sites like Kenya Homes or buyrentkenya. Online websites ease the hassle of finding someone to let to.