A better Investing Strategy in Real Estate to Optimize profits.
March 8, 2025
Friends,
Every investment decision should be guided by the potential returns or yields it can generate. At the end of the day, the majority of us, particularly those at the starting level, aim to accumulate as much return/profits as possible.
This is especially true if you are still navigating a struggling business, striving to make a living, or engaged in the battle for basic necessities. For those who are not yet affluent and have a low risk tolerance, the goal should not be to minimize risk but rather to maximize profits with the least possible resources.
No matter the investment, the strategy should always be geared towards maximizing profits. While it's common to diversify investments across different 'baskets,' many of us may find that our limited resources are fully consumed by a single opportunity.
I have consistently observed that, at present, treasury bonds may offer better returns than real estate, particularly the types that most of us invest in of buy land and hold or buy small parcels of land and construct rentals. This raises the question: how can we invest in real estate in a way that maximizes profits and competes favorably with other investment options?
Real estate is capital-intensive, and the more capital you have, the better your chances of reducing unit costs through economies of scale, thereby improving yields.
Wealthy/rich individuals can afford to purchase large properties, such as a 20-unit apartment complex, at a lower per-unit cost, while those with less capital (where majority of us fall in) may only be able to afford a single unit at a much higher cost. Therefore, if one's goal is to invest in real estate, it's crucial to focus on lowering unit costs and taking advantage of economies of scale to enhance yields and compete with the best returns available in the market.
For example, my friends at KPA Estates often advertise properties that are out of reach for a single investor—those valued at over 500 million. These properties may be unaffordable for an individual or even an investment club in one transaction. However, by collaborating with other investment clubs, it's possible to pool resources and create a special purpose vehicle (SPV) to purchase such properties at a favorable cost, leveraging collective bargaining to maximize profits from the investment.
Investment 1
This Property is listed at UGX 750 million for a 12 Unit apartment block in Kyaliwajjala. From my inquiry these are 1 Bedroom apartment and would put an average cost of each Unit UGX 62.5 million or around $18,000 which makes it relatively price friendly in the Ugandan context.
So if you are 1 person who can’t buy a full apartment costing over UGX 100 million alone or even constructing your own, imagine pulling resources like 3-4 people each pulling around UGX 150 million - UGX 200 million, this could help afford you this apartment block that one person wouldn’t afford.
Those mostly interested in Airbnb, this would be a good investment which might return a yield of over 10% per year.
Investment 2.
This apartment block is in Luzira, a prime location, priced at around USD 900,000 for a 26 Unit block, which would bring the Average unit cost to around USD 35,000 for a 2 Bedroom apartment in a prime location or UGX 130 million.
From research, these apartments bring in an average of UGX 1.2 million per month or UGX 15 million per year which, at unit cost of UGX 130 million would put its starting yield of around 11% before any rental income increase or capital gains later, something that would rival the Treasury bond returns of 15% plus.
And at those numbers, why not do it as a group, group of individuals or group of Investment clubs. Think big, think Special purpose, think collectively.
The goal isn't simply to invest in bonds because they currently outperform most individual real estate investments.
If you're part of an investment club with resources, it may be time to consider partnering with other clubs to form a company with an SPV that can acquire properties or develop projects that can yield returns of 10% plus.
If the goal is indeed to get a good return and maximize yields for your investments, and while treasury bonds are a safe option, they are not the only avenue for investment.
Harness the network of investment clubs you're a part of and invest in a way that benefits everyone involved. Engage a lawyer to navigate the legal aspects—these are not decisions to be taken lightly.