By Livingstone Mukasa
If you are still trying to multiply your money, stay away from rentals. But if you're starting to generate excess cash flow, I want you to seriously consider investing in rentals. Here are the 5 key areas to consider:
1. Location.
A good rental investment starts with a good investment in land. Buy land near a solid economic base & good transport infrastructure and social services. Buy land that is likely to appreciate in the future. Goof up on this & nothing will save you.
2.Secure the land
Before you build, make sure that you build on land whose ownership you have legally secured. For Kabaka's land, liaise with Buganda Land Board and get a land title from them. for private mailo, do due diligence before you purchase it.
3. Manage your design & construction costs.
These costs are inclusive of land. Target to spend no more than 100,000 of your targeted monthly rental income. Also remember, because of Uganda's low wages the best target monthly rent is between UGX 200,000 to 600,000 per unit, per month.
The property rental business is a People Management Business. Recruit your tenants like an HR department and manage them as you would Hotel Guests.
4. Mind about the scale
Just like any other business, rentals get better with scale. Anything less than 5 units is harder to manage.
5. Build contingencies.
Do calculations based on 10, not 12 months. The remaining two months are for repairs, taxes, and vacancies. Managing your expectations in any business is a great way to avoid disappointments.
Now that we have established the basis of our assumptions let’s look at the numbers. UGshs. 100M can get you 5 rentals of UGX 250,000 per month, 1M per month, & 10M per year. Giving you a return of 10% per year (cash on cash). If you maintain your property well, it will appreciate at a minimum rate of 10% per year. Your effective rate return is 20% from cash receipts & appreciation. Remember, you also have the power to increase rents and you also receive your money in advance which money can be invested as it aggregates to build another set of rentals.
Trying to compare Rental (real estate) returns to those from cash equivalents like Treasury Bonds or unit trusts that also suffer from inflation, meaning that their effective returns are well below 5%, is for amateurs and those still struggling to make ends meet.
Those with money to invest choose real estate 70% of the time and don’t think for a moment that they don’t know what they are doing.
The writer is Real estate investor, Financial Advisor, Entrepreneur, People’s Professor of Streetnomics and the Author of “The Great Financial Rebuild” & “Investing for the Future” Contact +256772459167 email: livinbusiness@gmail.com