Only 14% working Kenyans are fully confident about their financial well-being after retirement. This is according to a Retirement Confidence Report released by a leading pension administrator, Enwealth Financial Services. The survey was done in partnership with Strathmore University and Institute of Human Resource Management.
If you’re facing retirement and are short of the funds you need, consider investing in real estate. Investing in real estate is one of the oldest forms of investing and many people consider it to be a safe investment compared to other more volatile investments like stocks. This is because traditional real estate investing, or buying rental properties, provides more stability than the stock market does.
True, it’s not the asset that first comes to mind. But income property can be an important bridge to retirement for those without quite enough to retire in the traditional sense. Although there are many ways to invest in real estate, this article will focus on how you can get started.
Do I have enough money?
You probably do. We hardly take time to figure out what we could have done better. The herd mentality is the cancer plaguing us today. We simply do what we see others doing yet we can “collect” what we have and reinvest in properties that have good passive income. Once you determine how much you need on a monthly basis after retirement, here are a few things you can do to build your retirement income.
Sell the dead assets: Dead assets are properties that do not generate income, such as idle land. A few are lucky to have land that can be leased however majority have rushed for the “pot plot of gold” somewhere near the cattle grazing nomads. The size and location limits what one can do with these plots and farming would not be economical given the size of plot.
Change your lifestyle: To many this is an impossible task although it is easier said around our social gatherings over a cup of tea or glass of wine. We are quick to advice others what to do but we find it difficult to do what we say. I have found out that even the well paid and learned in our society struggle keeping up with the Jonseses. There is no better way to clarify what that looks like than watching the 2016 American action comedy film.
We usually increase our expenditure at the same rate of our earnings or even some more. If you do not believe me, next time when you sit with your gals or boys for a social moment ask them whether they know someone who lives beyond their means. They may be quick to point out someone else “out there”. Is it any wonder why the Asian and Somali community do better than the native Kenyan residents?
Let me help you make some more sense out of this. If you cut unnecessary costs i.e. quite the expensive lunch, beer, cigarette, taxi, airtime, shopping, interest on loans and invest an average KES 500 in a 10% compounding interest vehicle for 10 years, you will save KES 1,824,000 and you could earn KES 1,289,643 in interest. This would bring the real price-tag of what you are spending your money on to KES 3,113,644. Double the savings and the price-tag doubles to KES 6,227,287
Do your homework
The easy way out is not choosing to consult and understand the market, since you want to make an informed intelligent decision, you have to spend time studying before you spend. One easy way you could do is find a real estate agent who is street smart and positive about possible investment scenarios.
Invest for cashflow
You want to earn at least 10% from the capital invested in the rental, net of all expenses. It is possible to find awesome bargains with very high returns on investment and if you can manage the property yourself, you can collect more income. If you purchase the right property at the right price and on the right terms, a rental property can produce significantly more income than traditional passive investments.
While many investors focus on home-price appreciation—how much their house has increased in value since they bought it—you should consider cash flow as your primary concern when deciding whether or not to buy real estate for retirement
Flip properties for profit
Flipping properties is a risky proposition that can be a good strategy when the market is hot. The flip involves buying a property, fixing it up and then selling it at a profit. Or buying it at discounted price then selling it. If you’re willing and able to take on some risk, this strategy can pay off big.
There are risks involved with flipping properties because you have no guarantee that you’ll make money after all your expenses (including renovations) have been paid for. To mitigate this, find a location that is still growing, e.g. if the infrastructure is still incomplete then this could be the right property for capital appreciation.
Even if the real estate market has bottomed out and is about to turn around, there are no guarantees that your property will sell for more than what you bought it for—or even cover what you’ve spent on purchase.
Partner with another investor
If you’re not an expert, it can be hard to know how much to pay for a property and how to find good deals. One way to mitigate the risk is by partnering with other investors on a deal (or two or three).
KEY TAKEAWAYS
- Rental real estate can be a good source of retirement income.
- If you choose you can cut back on your expenditure and save enough for retirement.
- Real estate market can produce bargains that offer high returns.
- Choosing a good location is more important than finding the cheapest property.
- You should look to earn about 10% per year on your investment, after costs.