January 25, 2014   by

Besides buying stocks, one of the most popular investments with Chamas is property.  Whilst this is a relatively straight forward sort of investment unlike stocks; you still need some know-how on how to invest the smart way.  Here are some ideas.

Real estate investing is not a get-rich-quick plan, so be prepared to be in the game for a long time. Just like those who invest in stocks or build businesses, it takes time to build wealth and to weather the storm that the market may bring. Decide for yourself if real estate investing is really the path you want to choose.

Make a Plan
To make your plan, begin with a piece of paper.  Write down where your Chama is today (your monthly contributions, expenses, assets, etc.) and also where you want to be. Then, simply write down a plan that will get you there, using common sense.  For example, perhaps you want to cash in on your investments in ten years with an extra 400,000 per month in income. How many properties would it take to make 400,000 per month in income? Let’s say a minimum of Kshs10,000 per month in passive income per unit, which means you, would need to have 40 units within 10 years. Perhaps that means buying 4 bedsitters per year for ten years, or maybe that means buying one flat per year for ten years. Whatever your goals are, map it out and see if you can make it make sense to your Chama. It’s also helpful to have an investment consultant look over your plan to see if it’s attainable.

Prepare Your Financing
It’s important that you understand how your Chama is going to pay for the real estate investment before you jump into finding one. Many Chamas try to find a property, but are disappointed when the financing doesn’t work out the way they wanted. If your group does not have all the cash you need for a property, talk with several local banks or mortgage lenders to learn your options. A typical real estate investment will require around 20 percent down payment, though some banks can go as low as 5 percent or even 100 percent financing.

Find Property
Before you start shopping for your property, make a list that defines exactly what you are looking for. Your list should include: location, property type, condition and price.  By carefully defining your criteria, you are able to quickly weed out properties that won’t fit your plan.

Offer, Negotiate and Close
At this point, you will probably want to hire a reputable real estate agent who understands investments.  Keep in mind that the real estate sector is littered with quacks thus stick to reputable, well known realtors to avoid being conned. Let your agent know your exact criteria list, and begin looking at properties with your agent. Typically, an agent is paid by the seller which means it’s free for you.  Once you find that property, your agent will help you negotiate with the seller and get the best possible deal. Remember to keep your criteria in mind when working through the negotiation process. Once you have a deal agreed on by all parties, be sure to hire a qualified inspector to look at the property and look for any unforeseen costs. This period is known as your “homework period.”

Manage well
Even a great investment, if managed poorly, will quickly become a poor investment. If your plan included managing the property yourselves, be sure to learn all you can about being good landlords. Alternatively you can hire a property management firm to manage the property on your behalf.  Keep in mind that your Chama has to pay the agent at least 10 percent of total rental income for their services.  Management of your property should be handled with care as a well managed property attracts quality tenants.


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