UGANDA, Kampala | Real Muloodi News | Two of the most significant milestones in our lives occur when we decide to buy a house, and when we decide to start a business. Although the need to make money is unquestionable, the desire to own a family home is also a pressing matter in every household in Uganda.
With two equally essential needs, one wonders which should come first; buying a family house, or venturing into business? Industry experts have differing opinions on the matter.
Shem Bageine, a real estate expert, recommends having a house of your own and looking at business opportunities later.
“Ideally, looking at it from a human perspective, you want to have a place you call home. So essentially, the prudent thing would be to ensure that first, you are living in your own house before going in for investments. There is the possibility of the investment failing, which would be a disaster if you do not have a home yet. Therefore, my recommendation is to first get stable where you are with a house of your own and then look at investment opportunities. You could even use the house as collateral to get a loan facility to invest in other real estates,” Bageine advises.
Conversely according to Simon Muhangi of Fountain Real Estate, a business is an asset, whereas a home is a liability.
“From bills, maintenance charges, you will simply spend on a home. Conversely, buying an investment gives you a promise of increasing your income, and it gets easier to acquire a home. You can get a mortgage and finance it over time with less pressure. Take a scenario of two people earning USh5m per month, then one gets a mortgage of USh300m while the other gets a loan to invest in another business. The one who got a loan will have more income on their account while the other one will service the mortgage and maintain the house, thus more expenses,” he shares.
Muhangi advises you to buy a house later when your income is steadier. If you buy a house now, stick within your price range. Living in a home that you cannot afford will only cause you monthly financial headaches.
The managing director of Broll Uganda, Moses Lutalo, says the decision depends on whether one has a family.
“If you have a family, it is prudent that you first ensure the security of owning a home. However, if one is single, they lose nothing by investing the money and out of the proceeds pay rent,” he says.
Perhaps the most successful real estate muloodi of them all, Dr Sudhir Ruparelia of The Ruparelia Group of Companies, recommends that either way, don’t overextend yourself with too much debt. “So long as you have a good amount of cash flow coming in, you need to first focus on projects which you can fund,” he says.
“My biggest advice to anyone is, first, work hard at one or two jobs or businesses. Create your cash flow and build your first house with no borrowings. If you want to expand beyond that, you can take some loan knowing that you have got rental income from four unique properties,” advises Dr Sudhir.
According to Sudhir, the only situation in which it makes sense to take a mortgage is where the repayments are equal or less than the rent you are currently paying.
“If you can get a mortgage facility whose repayment is equal to the monthly rent you are paying, get it. Either way, you were going to pay the rent, anyway. This way, you will accumulate wealth and you will not waste your rent,” says Dr Sudhir.
Bageine further urges investors to take extra precautions such as location, opportunity, and cost, among others, when investing in real estate.
Location
Choosing the right location is the ultimate principle of real estate.
“Strategic location is important in real estate. For example, some buildings have lost tenants owing to lack of parking, being in the wrong corner, or are near traffic lights. In such instances, one cannot get the anticipated returns,” Muhangi points out.
Bageine agrees, “For example, a three-bedroom apartment on the ground floor in Bugolobi Flats will fetch more than the one above it even though they are on the same block,” he shares.
He adds that location also affects what you can do, because the cost of a plot in some areas could build your structures in another.
“For example, with USh500m, you can build a house or two in Ntinda. However, the same amount is not enough to get you just a plot of land on Kampala Road owing to its location and what happens around it,” he clarifies.
While the location impacts how much your investment will cost , the location also determines how much your investment can earn.
“For example, are you in Kampala, Kasese, Mbarara or Mbale? The turnover of say a mall in Kampala is far more lucrative than if it were in Kasese,” Bageine shares.
Cost vs Expected Income
When buying an apartment at USh2 billion, Muhangi says you need to work out your expected returns.
“Most people predict to earn 10 to 15 per cent per year so that in 10 years they are getting their investment back. For example, a property of USh1b should earn USh10m per month. With this projection, you are sure that you will get back your capital and quickly sell it off should you wish to because it can easily fetch income. Anything that goes beyond ten years before you can get your investment is not worth it,” Muhangi shares.
However, Bageine cautions that one ought to do due diligence because the investment put into residential real estate may not be as good as that of commercial real estate.
Lutalo adds that unlike residential real estate, with commercial real estate, a commercial landlord can recover the costs of operating and repairing the property through a commercial service charge issued to the tenants.
“That charge will take care of maintenance, insurance and other bills. That is not so common in residential save for serviced apartments, which is also still low in yields,” he notes.
Capitalising on Opportunity
Although one may have an investment appetite, few know where the market is.
“Areas such as Kyanja and Namugongo are great places for commercial real estate, whereas in the outskirts, residential real estate thrives. However, the amount of money available for investment will guide you because one with USh1b and another with USh10b have their eyes set on different investment areas,” Muhangi shares.
Muhangi says it makes business sense to buy an apartment worth USh 1 billion rather than a home worth USh 1 billion.
“From these [apartments], you will get income and comfortably transition into your preferred house,” he argues.
On the flip side, Bageine says it makes little sense to invest in an office block yet still rent an apartment.
“While investing in your home first will not give you money, the satisfaction of having it matters a lot because you will have it where and how you want it. Contrastingly, when doing an office block, you must factor in several preferences, which is not an exact science. Failure to gauge these preferences may cause you not to generate the returns from it,” he says.
According to Bageine, some people opt to build to take up residency in one unit while renting out the others. This is hitting two birds with one stone, combining having a home and an investment.
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