HOW SOON DOES YOUR REAL ESTATE INVESTMENT STRATEGY START TO PAY OFF IN UGANDA

If you plan to invest in Uganda's residential and commercial real estate properties, the period taken to start receiving income from your investment will be an important consideration. The earlier the cash flows in, the better for everyone involved. If the investment funds are sourced from a bank, they usually give you a grace period of 6 to 12 months, before they come knocking on the day. It is important that by the time this happens, you are ready.

Even if you use your capital, you shouldn’t treat it like you don’t have the pressure to start earning. Receiving payback sooner enables you to take on other investments.

In this article, we explore the different real estate investment approaches and how they may influence the time it takes to receive income from the property.

Depending on which route you decide to take, finalizing a real estate investment can take a couple of months or years to complete. Let’s examine the different ways to go about investing, and how long each will take.

1.      Direct purchase of an already operational building.

If you want to start earning immediately, this is the perfect way to get into real estate investing. Buildings come onto the market with existing cash flows, signed tenant leases, and a management team already in place. In these scenarios, there is predictability in income since you already know what the current tenants are paying. You can also do background research on how the asset has been performing.

If you are considering using bank financing to acquire the property, this would be the ideal approach in your strategy.  You can start paying back the loan the following month, which relieves pressure. Presenting such a deal to your bankers will garner their support easily because the numbers can speak for themselves. Taking advantage of rental collections to repay the bank loan provides more leverage, enabling you to build wealth faster.

2.      Purchase of a structure that requires renovation or minor improvements

There may be opportunities to purchase buildings that are currently in a broken state. These will require some work to resuscitate them into a profitable venture. The repairs usually do not need a lot of time to implement, therefore if your timeline is within a few months, this may be a good alternative. Such properties usually come with great value because you can purchase them at a good price. The buyer has more leverage during negotiations since they can always point at the defects when negotiating the price down. With a good value-add plan, you can restore the property into a valuable asset.

However, purchasing a broken property exposes you to significant risk. Some of the probable risk factors include the fact that you may discover more repair work to be done after you have started renovations. This could push your timelines and require more capital investment. In case you are not prepared to absorb these costs, a few months of repair work could turn into a grueling long-term project, which will adversely affect your income projections.

There is also the fact that you still need to advertise and fill up the property with tenants. Getting tenants may take a while, further putting pressure on the investor.

3.      New Construction

The majority of real estate investors in Uganda prefer this mode of investment. It gives a sense of control over the outcome, and people usually have a personal vision they want to execute on their investment property. A new build could take six months to years to complete. Depending on your source of capital and how patient it is, you can take this approach.

When it comes to timelines, this route of investment poses a number of risks. The challenges of a bureaucratic approval system by the authorities, common construction delays when the work starts, and the time lag required to fill the building with tenants may pose a threat to your investment strategy. This route is not ideal for bank financing because of the uncertainty. Nevertheless, there are several ways you can make sure your project remains on schedule, although that discussion is beyond the scope of this article.   

When you are looking to start buying or building properties, consider your real estate investment strategy and how the timelines interrelate. This will help you take the most appropriate approach to your real estate investment 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