DEFINING REAL ESTATE INVESTMENT GOALS

Are you one of those people who do something because it’s a trend, or do you take time to examine how it fits into your overall plan? Recently, I was approached by a gentleman in his late sixties. He had received a windfall of cash and was wondering how he should invest it. When I asked him what he wanted to achieve with his investment, he was not clear on his investment goals.

He had one major problem. Ever since his retirement eight years prior, he hadn’t had a reliable source of income. This situation often left him desperate for cash month after month. This was even though he was wealthy in assets such as land and houses. He was living a miserable life.

When I asked about which ideas he had for this planned investment, his answer was “to buy land, because he knows it appreciates over time, and it would make him money” This is when I guided the discussion to what was most important to him at this stage. We set upon defining real estate investment goals to help him understand what his best approach would be.

Types of real estate investment goals

·         Safety

·         Capital Growth

·         Income

Let’s delve into each of these goals and how they may relate to our investor in this story.

SAFETY

Safety usually becomes a concern whenever there is considerable risk. The fact is that in real estate, there is no such thing as zero risk. Every investment you make stands a chance of making or not making money. However, not all risk is the same. Investments like purchasing land in an undeveloped area hoping for change to happen faster may be disappointing when development speed doesn’t match expectations.

On the other hand, you could hit a jackpot by buying early in an area that subsequently undergoes massive transformation. Investments like rental properties in densely populated areas will provide more safety in terms of expected returns and cash flow.

If your goal is to maximize the safety of investment returns, you better consider the more guaranteed strategy than the speculative one.

CAPITAL GROWTH

Capital growth in real estate happens because land supply is fixed. In any given location, as more people move into the area, there won’t be more acreage created to house the new population. This therefore pushes the value of land in that area and creates wealth for existing land owners. Investors whose goal is to maximize capital gains should look out for such areas that are up and coming. These are areas where the population is fast rising.

The signs of this change include new roads being constructed, schools and hospitals setting up, the price of land rising, and major employers moving into the area. This strategy is most suited for young investors who have the time to wait and benefit from the wealth created by the rise in the value of these properties.

Income

Income investing is where the investor aims to receive regular payments from his assets. This goal could be a result of someone wanting to fund a certain lifestyle, enjoy retirement, and cater for regular expenses like school fees, holiday travel, home expenses, etc.  People who have earned some money in their careers prefer this type of investment to generate passive income. It provides a comfortable lifestyle with less worry about being able to meet financial obligations. It is also suitable for wealthy individuals whose aim is to create stability of income. People planning for retirement would greatly benefit from income investing.

It should be noted that there are several ways to combine different types of real estate investment goals into one strategy. You can acquire assets that provide safety, capital growth, and income at the same time. This requires careful research and analysis to zero down on the appropriate properties for these goals. You may want to engage the services of an experienced real estate investment manager to help you formulate a winning strategy.

In the case of our investor mentioned in the story at the beginning, we found that he needed a mix of safety and income investing. We devised a strategy that allocated his investments to suit these goals.  

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