AVOIDING DISAPPOINTMENTS IN REAL ESTATE INVESTMENTS.

At the end of 2022, a new structure where we had been the main contractors was put on the market for tenants to take up space. This is a beautiful building in one of the recently sanctioned cities in Uganda. Being the first of its kind in the bustling town, it was initially met with excitement. Small crowds often gathered across the road, watching in awe as the heavy construction machinery gobbled up pre-existing houses in preparation for the new construction.

The funfair continued throughout the construction phase. Anticipation grew with every floor we climbed into the sky. People talked about the quality of the work. It was nothing like they had ever seen before in this town. When it finally came to market, it was no surprise that the owners wanted to charge top dollar from the would-be tenants. This is when problems began to manifest.

The first sign of trouble had been the owners’ refusal to listen to any offers or requests from prospective tenants until the building was ready. This indicated an unwillingness to consider what the market had to say. With a know-it-all attitude, avoiding disappointments in real estate investments becomes difficult.

As we later found out, the building designs had not catered to the specific needs of tenants. This made it difficult for the landlord to charge to the tune of prior planned rates.

Tenants always think about what value they will be getting before they commit to a building. This value is often determined by their needs, as opposed to what the owner thought was important. For this building, the owner had completely neglected the tenants’ needs. At the point of letting out spaces, it was already too late to make any changes. Adjustments would have been too costly and the building would lose economic viability. The owners had to settle for whatever amounts tenants eventually offered.

Another problem I noticed was that the proprietors had not bothered to do a detailed analysis of the economic viability of the project. In this analysis, they were supposed to look at all the numbers involved. Starting with establishing how much funds they were willing to commit, the expected rate of return, and whether there was a reserve fund for any unanticipated changes. They should also have invested in finding out what rent people in this area were paying, how much they expected to raise this value and the possibility of competing buildings coming up in the neighborhood.

This scrutiny would have aided them in planning the project better. It would have provided clarity on fitting within the project’s financial constraints. This is important yet often overlooked during the planning phase. For all commercial investments in real estate, economic viability should be the key driver of all decisions.

Lastly, what do you do when you realize that you made some fundamental errors in your planning, and now you find yourself with a building that tenants won't take up at your originally planned prices?

As much as egos and emotions are involved, a smart investor should make logical decisions about how to proceed with their asset. It makes no sense to leave most of the building unoccupied for long periods simply because you are waiting for a tenant who can pay your price.

The owners refused to rent out spaces at amounts less than originally planned, which resulted in a low occupancy rate.  Turning down potential tenants offering slightly less rent than desired could do you more harm than good. If you do the maths on the rate of return on investment, payback period, and capitalization rates, you will realize that a different approach could get you to your goals faster.

This project was one of the turning points in my career. I learned that clients needed help way before they even got to breaking ground on site. That is why I decided to focus on helping people maximize returns and minimize risks, through conducting research, providing advice, and aiding decision-making on real estate investments.

Do not neglect to be guided by scientific methods in your investment approach, chances are you will regret the outcome. Sadly, many people do not realize the seriousness of the problem because they are not tracking numbers. If investors hold themselves to rigorous accountability systems, projects will yield higher returns, and real estate will become a coveted opportunity for investors in Uganda.

To learn more about investing in Uganda’s Real Estate industry, visit https://www.barosgroupltd.com/

About the author;

Benard Sonko is a real estate investment manager and founder of Baros Group Limited. For comments and inquiries, you can reach him on +256742140251 or info@barosgroupltd.com