Kenya's Real Estate Market
Kenya's Real Estate Market

Kenya’s Real Estate Market

Investing in the Kenyan real estate market is a great idea to ensure your family’s future. It offers a steady income flow compared to other volatile investment options such as stocks.

But it does not come without risk. Which, understandably, can be discouraging for any investor.

In this article, we will discuss some important steps to help you fix it; From the research phase of renting your property. Vision is everything. Before spending your money, be clear about what your investment goals are. Not all properties will give you a single return. Although there are various forms of real estate investment, there are two major classifications:

  • Resell for profit
  • Buying to rent

If you have time to oversee construction changes, inspect site workers, and go through the process of selling, then buying and reselling is best suited for you.

Otherwise, buying rent is a better option because you can get two types of returns.

First, the value of the property appreciates in the long run due to the improvement. It is unlikely that you will own the same property from the same tenant to another state.

You also increase the equity of the property by paying the mortgage. As your mortgage balance decreases, the value of the property increases over time.

Most importantly, you can realize ongoing returns in positive cash flow in the form of monthly rental payments.

Assessing the type of property to invest in

Do you want to buy a townhouse, vacation rental, student hostel, or apartment?

The property you have invested in will affect your financing. For example, a vacation rental would be expensive due to refinement compared to student accommodation that would be simpler with only the necessary fixtures and fittings.

Another factor to consider is the occupancy rate and the flow of income. For example, family home would attract long-term renters. Homes are considered to be financially stable and can pay rent regularly.

On the other hand, student hostels can mean a regular change of tenants or deal with people unable to pay rent.

It is important to note that you will not occupy the property. Keep the needs of your target tenants focused on you.

Therefore, an ideal combination of valuable investments is a property that matches your investment strategy, meeting the needs of your potential tenants.

Research site

Finding the right place to invest can be a minefield. The last thing you want is to be held with a rental property that no one is ready to engage.

A true location would be like satellite cities with high growth potential, which is within an appreciable distance to the Central Business District (CBD). Your tenants will enjoy suburban life, but the city still has access to all functions.

And with access to basic amenities and favorable social amenities such as a sound transportation system, schools, the demand for your rental property will increase. You do not have to bother about getting tenants.

Don’t forget to check market saturation. If there are too many vacant houses in the neighborhood, it may be either a seasonal cycle or a sign of deterioration of the neighborhood. You can start by looking at the available property in the neighborhood.

Most importantly, stay updated with news to learn about pipelines and remodeling populations with remodeling plans. This indicates an investment opportunity.

Evaluate your finances

Typically, an investment property will require a larger down payment than an owner-occupied property. Your regular 3% down payment is the owner of a house, it will not deduct.

Most banks in Kenya will require 30% – on average 20% – of the property’s value as a down payment for an investment mortgage. To get you started, there is an easy list of regulated mortgage companies by the Central Bank of Kenya.

But before you compromise, talk to a mortgage advisor to find out the range of options available. You want a bank that charges minimum interest and minimum payback period. 

The good news is that it is possible to get a lower interest rate or more money from your bank. But first, you need to prove your credibility and possibly bring the following quotation from various sources to give you higher negotiating power.

In addition to the cost of acquiring a rental property, keep in mind other expenses that you need to cover before renting the property. 

  • Maintenance costs
  • Institution fee
  • Purchase of property
  • closing costs; Stamp duty and notary fee

Additionally, do not rely on your payments to be covered within the first month. Make sure you have financial support in your bank account in the form of a deposit.

Expect Workout Return

How do you determine whether a rental property makes financial sense?

You can assess capital growth potential to understand whether the value of your property is likely to increase over time. Study the average rental prices of similar properties in the area you want to invest in to get an estimated rental return and calculate the rental yield of your property.

The rental yield is the percentage of estimated annual rental income divided by the cost of acquisition of the property. You can use this figure to assess whether the rent you receive can take care of the cost of maintaining the property, while still providing benefits.

Additionally, make sure that you can take care of maintenance costs when the rental property is vacant. As a landowner, this is not something you can avoid because it can take a replacement, days, or even months for someone to move out.

Risk management

As an investor, the only safety net of your potential problems is to ensure that you have a contingency plan in place to mitigate the risks.

Although Zamindari insurance is not mandatory under Kenyan law, you would be crazy not to cover it. Insurance protects you;

  • Damage to the manufacture of fixtures and fittings
  • property damage
  • third party liability
  • Mortgage EMI Payment

To reduce your costs, find out if your insurance provider can insure homeowners with homeowner’s insurance. It is also important to note that some banks will have insurance as a condition for financing your mortgage.

Finally, no one wants to call their tenants in court. Become familiar with Kenyan landlord-tenant laws. The safest way to do this is to hire a lawyer to prepare and certify your tenancy agreements. Then, if possible, put them on the retainer to handle any other unforeseen legal matters.

Choosing a tenant

If you want to do this on your own or through an agent, screening tenants is important. You want someone who takes care of a place like yourself and pays your rent on time. Otherwise, you spend most of your day chasing them, which is not pleasant at all.

Request a copy of the payment and a copy of the work contract to prove their ability to pay the rent. An ideal tenant should have three times the rental price, consistent work history, and a steady job income.

Also, look for criminal history. Ask your potential tenants for copies of certificates of good conduct from the Kenya Police. And if somehow the tenant does not meet your needs, then it is okay to choose someone else. Just make sure that your decision is not based on tribal or any other segregation, or else, you are opening yourself up to potential credit.

Asset management

Now that you have a tenant on your property, it does not mean that you can sit, relax and wait for the money to arrive.

Property management includes:

  • Handling tenancy leases
  • Pay monthly rent
  • Sending late payment and eviction notice
  • Property inspection before and after
  • Arranging for payment of deposit after exiting of tenant
  • Screening of new tenants

You can either hire a property management company or do it by yourself. The fee will vary from one company to another but will cost between 8-12% of your monthly rental income. Additionally, you should be proactive when it comes to repairs and fixtures for a property. Do not wait to call your tenants to check the condition of the property. Keep a list of handymen, plumbers, electricians who will do regular maintenance for your property. It also means that if a tenant moves out, it becomes easier to find a new one.

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