Author: sofi

Investment Financing in Kenya Real Estate

Real-estate investments in Kenya have the potential to double and even triple in value per year-with the right property. So, how does an investor finance a property investment? There are at-least two main options available in Kenya: group investments and mortgages.

Other than being able to prevaricate against risks such as rising inflation, real-estate investors are able to enhance their net worth, generate high capital gains and potentially register quick rates of appreciation.

Property Investment Financing Options

1.Group Investments

This is the most efficient and commonly used financing option by lower-middle class and those in informal employment who cannot qualify for bank mortgages and loans owing to their irregular source of income.

Group investments, locally referred to as ‘Chamas’, hold more than Ksh80 billion of wealth in Kenya in terms of savings and investment, with one adult in every three being an active member of a group investment club. They have registered the greatest success among women, youths and self-employed people.

To function, members make daily, weekly or monthly contributions for a specified duration of time and with a specific financial target. Once targets are reached, they identify a potential property, buy it and either start saving towards developing it or splitting it into equal portions among group members.

Alternatively, banks develop investment groups and invite interested parties to make monthly contributions. If the group member wishes to buy a property, they simply borrow (with interest rates applying) from the group based on their contribution. Group members co-sign the loans and they bear the cost of repaying the loan if one of the group members defaults.

The success of group investment is powerfully driven by a cultural impetus to pool funds together to invest and to borrow.

Most banking institutions and building societies in Kenya have realized the potential the option has and have developed programs targeted to boost group investments – it is based on the idea of creating a savings and investment opportunities.

2.Property Loans & Mortgages

There is a thin line between loans and mortgages in Kenya, and people often use the two terms synonymously.

These are facilities offered by various financial and lending institutions, such as banks and building societies, to help you buy property:

Loans and mortgages are given to successful loan applicants who meet the minimum loan-qualification requirements.
Loans and mortgages can be fully or partly financed by you. The majority of lenders, however, finance the property up to 90%.
Various lenders have varying interest rates and income-generating loans being charged a 15% interest rate per year and estate development attracting 13% p.a.
Property for owner-occupation may receive 80% financing while for investment property, such as rental units or holiday homes, may receive up to 70% financing.

Repayment duration for loans and mortgages

Maximum of:

15 years for individual borrowers
10 years for limited companies
2 years per phase for real-estate development

Additional Costs

Most loan and mortgage applicants in Kenya are oblivious to the hidden charges that come with taking loans and mortgages.

Stamp duty

Currently at 4% of the cost of property.

Valuation fees

Fees vary depending on the valuation surveyor, and it is crucial you have your own prior to the property being valued.

Legal charges

Determined by mortgage amount. Higher loan amounts attract higher legal fees. Banks have their preferred law firms they deal with, so ensure you learn from the lender their preferred law firm.

Bank facility charges

Varies between banks and is meant to cover loan facilitation

Penalties

Charges for clearing the mortgage before the agreed time; varies between

Property insurance

It is not mandatory and it is paid per year. It protects the property during loan repayment period.

Mortgage life policy

Varies between lenders and covers your outstanding balance in case you die.

How to Create a Budget Around Debt Repayment

In order for you to start putting extra money aside to pay off your debt, you must first gain control of your monthly spending. After all it is your spending habits that have led you into debt in the first place. Before each month begins, you must sit down and allocate every single Dollar of your income to a particular spending category. Every Dollar has a purpose. You must create what is known as a Zero Balanced Budget. What this means simply is that when you total up your income and subtract all of your expenses, the balance is $0. Every single Dollar of your income must be put to work for you, there is no spare money. Not even a spare cent!

When completing your budget, you must allow for every single area of spending. If you do not then you will not have money for it when it comes up. For example, if you do not include money for tires or car servicing, you will not have the money for them when they are required. It is easy to account for the general monthly expenses such as food, lights, heat, mortgage and so on, but you must also include a category to cover annual expenses such as clothes, car maintenance, insurance etc. My own personal budget is created using EXCEL, but you can simply use a pen and paper if you wish.

OK you have now created your budget but this is only half the plan. If you do not stick to your budget then it is all but pointless. You need to record every single penny that you spend on a daily basis. You can simply jot it down on a piece of paper or notepad or you can use any number of smart phone apps. I personally use an app called Spending Tracker and it allows me to export my spending record to EXCEL. Last point on this is to record your spending as soon as possible after you spend the money or you will forget.

When you have created your first budget and recorded your spending for one month you will be ready to adjust your budget. It is extremely unlikely that your first budget will go according to plan. If it does then you have not set it tight enough and you need to cut it more. Using your spending record, adjust your monthly expenses as required to get a more accurate budget. Keep doing this until you have developed a budget that you can live on and includes all of your spending requirements.

Once you find yourself following this budget process regularly and consistently, you will free up money to pay towards your debts. If you do not, then you have an “Income/expense gap” problem. I will tackle this in a later article. If you need any further help with budgeting or budget forms, please do not hesitate to get in touch.

Improving Your Credit Score – A How-To Guide

Getting the perfect credit score has been quite a challenge for a good number of people. However, such a score will guarantee you a lot of things. This means that you need to go out of your way and work on raising your credit score if it has been down. Luckily, there are ways to achieve this quickly, and this guide will look at how to improve your credit score.

Be Timely with Your Bills

Your payment history accounts for about 35% of your credit score. Looking at these values, you really need to ensure that your bills are paid on time to avoid losing valuable points. If you have been sitting on those bills, then it is time to get up and settle all of them. It is also pertinent to understand that accounts that have been late for more than 90 days attract the highest negative score. Therefore, start with those payments that are long overdue then hasten to complete even the most recent ones and remember to pay them in full.

Commit Yourself with a Credit Card

Having an active credit card or two is also one sure way of improving your credit score. If you qualify as a responsible card holder, there is no way your credit score will be down. Being responsible means making your payments on time. In case you do not qualify for a traditional credit card, you could try a secured one. As much as this card requires you to make a deposit first, it is still helpful in healing your credit score.

Avoid Opening Many New Accounts

Each time you go for a new credit card, the company always carries out a hard check on your credit health. Opening many accounts means that more checks will have to be carried out. If there are too many checks carried out on you, your credit score will definitely suffer when applying for the cards. This is because these checks are associated with people who are desperately trying to get credit and it is best to minimize them.

Limit Your Utilization Rate

Although it is advisable to get a credit card to improve your credit score, do not max out this card. Close to 30% of your credit score is based on your credit utilization and the lower this value is, the better your score. It is easy to calculate your usage. Simply divide your credit balances with your credit limit and anything between 0-20% is fine. Otherwise, limit those expenses that you make on your credit cards or you could also talk to your provider to increase your limit.

Do Not Close Old Accounts

If you have been thinking of closing your old credit accounts to create more room in your wallet for the new ones, then think again. Something close to 15% of your credit rating is based on your credit history. This implies that if you have old credit accounts, your chances of easily getting a better score are quite high. By closing your old accounts, you are limiting your history to the age of your oldest credit card which will lower your score.

Negotiate Where Possible

As much as you may have wanted to do everything right, there are times when you may not be able to meet one or two payments. This falling back on payments can ruin your score but you can negotiate your way out before it does. In case you lost your job somewhere along the line, make your creditors aware of this and ask them to recall any collection notice they may have put on your account. You can also ask for a good-will adjustment from some of your creditors. In fact, many people do not do this but you will be amazed at how understanding they can be.

Living without credit is not a possibility in today’s living conditions. No matter how bad your credit score might be, you always have a chance of reviving it and getting to enjoy even more credit. These simple tips will help you breathe a new lease of life to your credit score that will finally bring it up.

How to Invest Your Equity Release in Retirement Investments

A number of events over these last few years have seriously impacted the way in which we all plan for our futures. For people who are approaching retirement age, they might just realise that their pensions are not quite enough to keep them going. The cost of living is always climbing, and other complications tend to creep in over time. For these and other reasons, pensioners often choose an equity release plan to help keep them afloat and avoid serious financial problems.

A great way in which you can be sure that you receive an adequate income over the years is by investing your money in the right places. Regardless of the type of investment you opt for, you will need some extra money to pay for the initial financial contribution. Whether you are more inclined to invest in a buy-to-let property or invest a lump sum in a short-term investment policy, you will need access to cash in order to start the process. As they say, you need to spend money to make money.

If you don’t have the necessary cash readily available, then you can take out an equity release on your existing property in order to cover your new investment. The value of your property, the type of equity release plan you choose and your age will all contribute towards determining how much you can release against your property. For example, the older you get, the more equity you can release. The greater the worth of your property, the more money you can release too.

By determining how much cash you can release, you can make informed decisions in terms of how you choose to invest that money. Many people choose to invest a large portion of their equity release so that they can benefit from their investment in years to come. They also pay off debt such as loans and credit cards so that they are free of yet another burden. Other pensioners choose to invest their newly released cash in a holiday home. This second property can eventually become their permanent home, or they rent it out in order to earn some extra money each month.

3 Effective Ways to Avoid Inheritance Conflicts

These issues come up mostly while talking with those who have gone through conflicts in their families during property division process in any of their estate settlements. In most of the cases there are references to the input from one of the members of family “once removed”, and not necessarily the ones who are the so called immediate heirs. These other people who are usually spouses or grandchildren don’t always have the similar emotional connection when compared to the ones who are immediate heirs. In most of the cases this may be unintentionally done. But, when children or spouses have things they want and they make demands, they often end up creating situations that finally result into conflicts.

Here are 3 ways that can help in avoiding such conflicts.

Understanding the Personality of other Heirs: It is very important that you try and understand what kind of people the other heirs who are also involved in the settlement issue are. Analyse their basic traits and find out the way to communicate with these heirs. This approach often resolves most complications even before they arise and clears off lot of misunderstandings. Personality difference is often the main cause behind a conflict concerning settlements. It will become more and more difficult to avoid conflict or maintain peace without understanding the differences.

Keep the Home Untouched before Formal Division: It is very important that you don’t claim your right on something that logically belongs to other heirs. It can also mess with their emotional sentiments and can further complicate the case for you. This is why it is important that the house remains untouched or undisturbed till a legal division is announced. An in-depth scrutiny of the property is important before there is any legal division and you can contribute to the process by not disturbing anything. Without the consent of other beneficiaries or heirs if you remove items from an estate or a home it is very much possible that the issue will get complicated. Very often we see people making this mistake of just going into a property and picking what they want without any consent with the concerned people and such actions are often justified by them through some facts or instances of the past. That being said, legally it will only complicate the case.

Only Beneficiaries or Immediate Heirs should be Part of the Property Division: Property division is a sensitive case and hence it should not be made a mass trial. Only immediate heirs or beneficiaries should become part of the process and other outside influences like children of heirs, grandchildren, in-laws, spouses etc should be kept away from the process. This is particularly more important at the beginning of the division process.