In part 1 of this series we talked about living your dream during retirement. We also said that you shouldn’t finance this dream using your pension. Click here to read the article. Let’s see how to finance this dream.
A wise kikuyu man once said that when you have a need, you take hold of your own goat and either slaughter it or sell it. We are assuming that you are a rational investor in real estate and that your decision to buy or sell is logical, calculated and informed.
What is the rational in which investments are bought and sold?
Market Value
Market Value is the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.
International Valuation Standards
Investment value
“Investment value” or ‘worth’ is the estimate of the value of the property to a particular investor. This is an entity-specific value.
RICS Valuation Standards
All things being equal, an investor will buy a property investment if its investment value is considered to exceed its Market Value and will sell if the property’s Market Value exceeds that opinion of its investment value.
An individual’s opinion of the Investment value will almost invariably differ from the Market Value because everyone has different income requirements, expectations, attitudes to risk, tax position, etc. It is those differences of opinion that create a market in which investments are bought and sold. RICS Valuation Standards.
Do you know the return that you expect from your investment?
From the definitions and explanations above, we make an assumption that you know the kind of return that you expect for your investment. Do you?
Real estate investment compared to other investments.
Whenever we are looking to put money in a fixed deposit account or money market fund we always ask what is the rate of return. What we are normally looking for is a rate of return that’s higher than the prevailing inflation rate or the rate issued by a risk free investment like a Government bond.
However, there are other factors to consider, not just the interest rate. You also consider the liquidity of the asset which is generally the ease of purchase and disposal.
That said, let’s see what to sell and what to buy.
What to sell to finance your retirement plan.
- Any of your properties that is not earning you money.
- That plot in the middle of nowhere that you don’t even know it’s exact location.
- Land that you own that doesn’t have a title deed.
- A development or land who’s market value is higher than its investment value?
What to buy
A development or land who’s investment value is higher than it’s market value?
Do you remember the 2 bedroom apartments that I was telling you about? Their price has increased from about Kshs 4m when Corona started to about Kshs 5.6M currently. They have a Kshs 800,000 discount for the first 100 buyers in their new phase which has a master ensuite and has waiting list of ready tenants.
What’s next?
Talk to a valuer to help you know the difference between investment value and market value of your properties so you can make an informed decision.
Next article
How Kenyans in the diaspora can prepare to retire in Kenya.
I appreciate your feedback. Please reach me on 0723477035 or email info@kariukiwaweru.com
Valuer Kariùki, MRICS
Registered & Practicing Valuer
Chartered Valuation Surveyor.
