REAL ESTATE INVESTMENT FUNDS IN UGANDA

Funds are common investment vehicles all over the world. They supply capital from various investors who collectively contribute money to purchase securities. Each investor retains ownership and control over their share of the fund. They rely on the fund manager for management expertise in the assets that they invest in. In Uganda, there are several mutual funds and money market funds, however, Real estate Investment funds are rare to come by.

What are real estate Investment funds?

A real estate investment fund invests its capital into income-generating real estate properties on behalf of its contributors. It enables investors to benefit from various investment opportunities, management expertise, and lower investment fees.

Because funds pool together larger sums of capital than an individual would, they can invest in various properties for which each contributor can have a share. This offers diversification for the investors, in that they don’t have all their eggs in one basket.

Real estate investment funds usually have a life cycle that can range between 5, 10, to 15 years. During this period, the investors will receive regular payments from the cash flows generated by the properties. At the end of the period, the properties are sold off and the proceeds are distributed to the individual investors.

Who is a Real Estate fund manager?

The fund manager, who is also known as the Sponsor, or General Partner, is responsible for the success of the fund. They spend time, say 1-year raising capital from the limited partners, which they invest in purchasing, renovating, or constructing properties.  This is usually a person or firm that has extensive Knowledge and experience in the real estate industry. An example of a real estate fund manager in Uganda is Baros Group Limited.

A fund manager’s goals must be aligned with the investors’ goals. There are various ways of ensuring this, which include preferential treatment of investor payments.

Whenever there is a profit to be distributed, the investors take priority before the sponsors can pay themselves. Also, the Sponsor’s rewards are often tied to investment performance, which gives them extra incentive to maximize performance.

How Ugandans are currently using real estate investment funds.

The investment landscape in Uganda today, especially in the real estate sector, remains largely unorganized. There is a lack of qualified real estate investment firms who can professionally steer investors’ capital.  The few who have been able to mobilize investors are only able to provide land acquisition services. That is why the majority of real estate investments in the country are centered on buying pieces of plots, and waiting for them to appreciate.

The few individuals who have managed to get into commercial property development have done so through property syndication. This is usually a group of friends who trust each other enough to pool money together and invest in a single property. Syndication still requires significant capital investment from each of the partners because the number of investors is usually few.

Real estate investment funds in Uganda are a relatively new concept, although People have been investing in groups especially when it comes to buying land.

What opportunities are present?

Uganda is a developing country, and there are still a lot of prospects for generating wealth in the real estate sector. With a rapidly growing population and an expanding economy, the need for commercial, residential, and industrial property is only going to increase.

A well-managed fund can maximize returns by taking advantage of this growing demand. Investors will benefit from the increased returns on their investments.

How to decide on which fund to invest in

Real estate investment funds usually present a business plan to their investors. This plan details the Fund’s strategy on how they will generate profits from their investments. It helps investors to match their investment goals with the risk profile of the fund. An investor should first determine what they want to achieve out of the investment. This is in terms of return figures, diversification, and risk management. Compare this with the Fund’s business plan to determine if there is a fit.

Common Real Estate Fund strategies.

1.      Core:-

These funds seek to minimize risk by buying high-end properties in top locations that are guaranteed of good tenants. They present very low risk, but their returns are also lower than the other investment strategies. This type of fund is ideal for an investor who is seeking the security of a constant income.

2.      Core plus:-

 These are investment strategies in secondary locations that may present a few challenges compared to the first strategy. Challenges could include the loss of an anchor tenant, or a dying neighborhood. This strategy presents a bit more risk than the core strategy, however the returns can be greater.

3.      Value add strategy:-

 In this strategy, the investor purchases a property that requires some work to improve it and maximize its potential. The returns are higher with this kind of strategy, however the risk profile is also quite high. It is good for investors who are looking to get a much higher return and have a higher risk appetite.

4.       New build strategies:-

This is the riskiest investment strategy in real estate, but it also provides the greatest potential for return on capital. The fund manager identifies a potential site for development, mobilizes resources, manages construction, and then runs the property to generate income. Because of its speculative nature, this strategy involves a lot of risk, but the potential return is unlimited.

There are several benefits of investing through a real estate investment fund, some of which include access to passive income, an opportunity for growth of equity, hedging against inflation, and, investment diversification.

Investors in Uganda could utilize the professional management of a real estate investment Fund to maximize the benefits.

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 at +256742140251 or info@barosgroupltd.com