Sponsored: Real estate investment myths


Sponsored: Real estate investment myths

By Gitonga Muriithi

Myths often form the basis for fear and hold people back from taking on new opportunities. The same rings true when it comes to investing in real estate.

In general, what people assume real estate to involve are the glamorous skyscrapers in urban areas, apartment complexes, bungalows and massionettes in designated housing areas and basically out of reach investments set aside for a select few.

This is not the entire picture. The limited information and assumptions among the masses keeps them from investing in real estate which is essentially easy to navigate through when the myths are debunked.

Here are some of the myths:

Myth: You have to have a lot of money to invest

A falsehood that has been propagated about the real estate sector is that it requires a lot of money to invest in. This may be true for large scale projects but there are projects which one can undertake that aren’t as capital intensive, albeit you’ll have to get creative to invest in the sector.

Factors such as location and the size of the property will determine how much land you buy. If you can’t afford a one-acre piece of land, you can go for a 50*100 depending on what you want the land for.

Also, a concept in real estate is flipping property where you purchase dilapidated, old structures cheaply and then you spruce them up to current market standards and fetch a handsome sum of money.

There are financial solutions for those who seek to buy land. You can join SACCOs, apply for mortgages and even getting a partner to split costs can help you afford property that would have been out of your reach.

Myth: Value of property will double in a short period

This misconception tends to cause a rush for property buying. Land will appreciate in value but it will not happen overnight. There are certain factors that make the land appreciate. Improvement of infrastructure is one of them and planned development in a certain area which may take five to ten years to gain value.

The opposite may occur (Value will plummet) as well especially if the property is found to have lie in the path of a road reserve or riparian area which will prompt demolition by the government.

Myth: Past Performance Predicts Future Performance

There is a common tendency amongst hopeful real estate investors to extrapolate the trends that were present in the property market in the past and create an extremely bullish future scenario.

However, one needs to understand that the world has undergone a fundamental shift in the last decade or so. Business arrangements like outsourcing, free trade and cross border investments by multinationals had created an unprecedented boom in the emerging economies.

The future does not apparently hold any such revolution in its offing. In case, no unexpected economic revolution fundamentally changes the economic paradigm, it is highly unlikely that the performance of the past few years gets repeated in the future years. Investors betting on a repeat performance are in for a rude shock!

 Myth: Raising rents will cause tenants to leave

A fear among landlords is the raising of rent will make tenants leave. This belief ends up limiting the property owner from making more money from their investment. As such, the myth is not true especially when you have added some functionality to the property which will mean the price will have to be a bit higher.

Another factor is maybe the property is below the market value which when you increase the prices to compete with other properties of the same value, you’ll still get tenants.

Myth: Quick cheap property deals are a must-have

The excitement of purchasing property at a cheap price may make one forgo all the checks and give the cash with the expectation of being handed the land in the fastest time possible. Contrary to what many people may want, quick cheap deals aren’t the best especially if they are mired by a lot of factors that aren’t adding up. For starters, the person selling may not even own the property in the first place and could be trying to pull a fast one on an ignorant buyer.

There could also be underlying issues that the seller doesn’t want you to know, hence the need for a quick sale. Maybe the house was built on a road reserve and is up for demolition or the property has some structural deficiencies that may cost you dearly to repair in the long run.

For such deals, it is crucial to carry out your due diligence before you end up losing your hard earned money. Confirm the authenticity of the land with the authorities with a land search, and also talk to the neighbours to get to know the history of the property before purchase – it could be disputed with a case in court. Also, inspect the property thoroughly to know the condition of the property and catch any inefficiency that may be lurking in the property.

Myth: You can’t sell your home on your own

When it comes to selling property e.g. your home, it is believed that you have to engage a professional. That doesn’t necessarily have to be the case as you can do it yourself with a model referred to as “For Sale by Owner.”

You can take up the professional duties yourself. Taking this route means you’ll have to prepare the home, set the price, market the property, negotiate with potential buyers and close the deal with legal representation. You’ll get to save money that you’d have used on the agent’s commission.

If you are planning to get into real estate, don’t let the myths discourage you. They can be debunked with proper explanation and extensive research.

The writer is Head Of Sales and Marketing, Centum Real Estate

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