Showing posts with label Property sales. Show all posts
Showing posts with label Property sales. Show all posts

Monday, January 7, 2013

Of inherited land and selling: Part 2


Alex is a smooth talker, no wonder he actually always had a way of convincing even the toughest of the fairer sex and of course his stint as a pastor gave him a chance to horn this attribute. Typical of him to first mention religious matters and keen to know how I was doing in that regard. After laying the base with the religious niceties he dropped the bombshell. Of course I knew of how he sold his inherited property, bought a cheaper plot, build the mabati house and squandered the rest. So when he narrated how he had this nice business idea that I buy a taxi, he runs it, grow the business into a fleet of taxis bla bla; it was never lost on me what he had gone through.

And so I asked him, “How comes you never thought of buying that Taxi with the cash you had after sale of the ½ acre plot?” He was quick to answer, “of course I had thought of that but opted to start the business of importing mitumbas which unfortunately never really kicked off and somehow the cash I had kept diminishing to a point where it dried up mysteriously” I knew I was in a scenario where I had to wriggle my way out because in all fairness I never felt that buying a taxi would amount to a worthwhile venture, not with him as the main guy. Actually, the idea of entrusting my good friend with a business having known his history was the last thing I’d entertain.

However, this was a friend in dire need of help and leaving him in that status would not be good. And so, I floated an idea to him that in my opinion seemed workable and practical. I told him of a housing development we were undertaking and that I’d recommend him to the Project Manager just to assist him source materials. Just to go round looking for the best deal for sand, ballast, quarry stones, cement and any other material the guy could get just for some small commissions. Interestingly, he accepted that idea and as we speak he is a broker sort of and doing just fine. At least he can feed and clothe his family and even educate the kids.

Whenever I speak to him he wishes he’d turn back the hands of time especially due to the lost time but at least he is now much more positive about his life and earns an honest living. He claims he’d can never sell anything he inherits as he is convinced that there is a curse on ‘that land’. Of course he hopes that there is more land to inherit form his mum but it may not be the case.

Someday I asked my old man the reason why anyone who sold inherited land around our village always squandered the cash. He told me that it had an interesting history around it. The land was acquired after the infamous Mau Mau war with the colonial masters. It claimed many lives and some people were maimed and all that. When our great grandfathers got the land, having been active fighters, they pronounced a curse on it; that it must never be sold outside the family and it must be passed on from generation to generation. Any sale had to be within the family. It is therefore the case that anyone who sells to anyone outside the family will therefore never help themselves. An interesting perspective but I opted not to engage my old man further on the matter.

Some very strange stories around my village regarding fellows who have sold inherited land. The funniest was this guy who sold the small piece he inherited. He called the villagers from all walks of life, bought them 5 goats, dug a big trench and jumped over it, leaving the villagers on the other side of the trench. The trench and the subsequent jumping was a symbol of him having the crossed the divide from poverty to riches. He waved the villagers bye and zoomed off into riches leaving them to enjoy the 5 goats to mark the big occasion. Sad part is that he left his family as well only to return back after 1 year having squandered all the cash. Of course he found the wife had already left and got married to someone else and moved on with her life. His only brother accepted him back and gave him some shelter….interestingly it was a story reminiscent of that prodigal son in the bible; I guess these things started way back. Pretty sad that they never learn from other's past experiences. Someone told me that this is tantamount to get bitten by a dog which is chained somewhere.
A friend of mine once told me that the reason these villager have failed to do anything worthwhile with the cash is the fact that they are not used to big money. Obviously if you are playing in the league of maximum ten thousands and all of a sudden you have a windfall of a million, the natural reaction is to assume that you are filthy rich. Most become very generous and get to shopping sprees, get away with some nice girls and assume life will always be like that. Certainly no big money remains big if all you are doing is spending; the net result is a shot back to reality and destitution which is much worse having come from the crest of a sinusoidal wave.

Let our people learn, that whatever you have worked hard for and is acquired through your own sweat, you can freely sell but what you acquired by way of inheritance, you need to pass on to the ones behind you.

Next we shall look at some business practices which are not so good that are attributable to business men who are seemingly doing well; think micromanagement (know when to let go), blowing your own horn as opposed to that of the team, leading as opposed to managing, amongst others.

Wednesday, December 12, 2012

Mitigating against leverage risks

Guest post by Samuel G. Njenga

The higher the leverage, the higher the risk but as we saw last time the higher the profit margin.

We all agree that in Kenya, a developer’s world only makes a lot of sense when the concept of OPM (Other Peoples’ Money) is utilized to the maximum. So then along the same line of thinking, developers in Kenya are clever enough to utilize the less risky of the OPM; off-plan sales.

The idea is of course to sell concepts on paper and expect that potential buyers will show up, pay deposits for yet to be built units. As the construction goes on, the buyer injects more cash and preferably by the time the construction is over, the buyer has fully paid for the unit. This is clever coz it essentially means the developer utilizes the cash from the would-be buyers and makes some coins. However, this arrangement works best when there is a show house and buyers can see how the end product will look like. In some cases even without the show house buyers could still trust the developer especially if they have a name…importance of a name?

The other very important idea that developers consider is to ensure that a loan is structured with several draw downs. Interest is normally charged on the amount drawn as opposed to the total loan amount. After the first few draw downs. A clever investor is able to gauge on the response from clients on the units. One can reasonably tell whether there is interest on the units once the ground breaking is done. Most buyers will be comfortable once they see progress on the site. And by the way, one might be very happy to see so many would be clients visiting the site and commenting on the good work done, but a seasoned investor knows that a lot of demand may not translate to effective demand.

Effective demand is quantity of a good or service that consumers are actually buying at the current market price.

Of course we also have latent demand when a customer/consumer is unable to satisfy their demand, mostly due to lack of money.

What if you already have the loan and the sales are not forthcoming? One option would be to re-negotiate the re-payment terms with the bank so that they extend the period where u service the loan interest without paying the principle and whenever a sale is done, the bank receives their cash. Kenyan banks are kinda flexible and are also alive to the market conditions.

Developers are also keen to change the prices as the construction continues. In other words, the buyer who buys off plan will always get a very good offer and the one who comes in when the unit is ready, then pays much more. Sometimes the increase would be as much as 10-15% so it is always wiser to buy off plan or at least when the ground is broken.

Next, let’s look at the importance of location when investing in real estate.