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Do Not Borrow Money To Start Or Overextend Yourself With Debt – Tycoon Sudhir On Real Estate Business

30 years ago, as an ordinary entrepreneur, Dr Sudhir Ruparelia used his meagre savings from taxi driving to start his first business in Uganda. The now property mogul began investing in property in 1986, and went on to formally register his Meera Investments, the property arm of Sudhir’s Ruparelia Group, in 1994.

Today, Sudhir is considered Uganda’s biggest success story. The Ruparelia Group’s business interests extend to hospitality, education, real estate, finance, insurance, labour export, and agriculture, among others. The Group has operations in Uganda, Kenya, Tanzania, Rwanda, Burundi, Asia, Europe, and other parts of the world. Sudhir owns over 400 office, retail, industrial and residential properties in Uganda alone.

Meera Investments is now one of the most compliant and largest taxpayers in Uganda and its properties cater to about 10% of Kampala’s daytime population.

Here are the 10 property investment tips from Billionaire Sudhir Ruparelia, whose Ruparelia Group includes over 28 companies in financial services, real estate, education, hospitality, agriculture, and media/broadcasting.

1: Invest in Condominiums

Land in Kampala City is expensive. The traditional Ugandan bungalow with an immense compound can only be sustained many kilometres away from the city centre, resulting in a brutal commute to and from work that can take hours each day. An alternative, more intelligent strategy of utilising land is to build upwards.

Condominiums are efficient in terms of space, and cost-effective as there is a shared cost of maintenance and enhanced security. They also offer an improved quality of life in terms of amenities and location, reducing one’s time (and life) wasted in a grueling commute to get to and from work.

According to Sudhir, the time is coming when people shall abandon their ‘upcountry’ homes to live and work in the city, and only return to their suburban homes over the weekend. This shall stimulate demand for condominiums, therefore creating opportunities for both developers and buyers. Condominiums are the future, according to Sudhir – build some, or buy one.

2: If You Own Prime Land But Have Limited Cash, Turn to Investors

If you own prime land, or perhaps a large home in areas like Kololo, Naguru, or Bugolobi, but don’t have the money to construct condominiums yourself, partner with reputable developers. The developer can shoulder the cost to put up condos, and in return you can get a share of the investment in the form of condo units. That way you can  live comfortably in an easier to manage home, while collecting a monthly income from the spare condominiums.

3: Instead of Paying Rent, Acquire a Mortgage

Building with limited cash takes time. A typical Kampala household spends about three to four years building a house, all the while renting. According to the investor Sudhir, in these 3-4 years, you would have spent anywhere between USh 60 to USh 120 million on rent alone. Only to live 20-40 kilometres away from the city centre.

Alternatively, you could get a 10-15 year mortgage facility to buy a decent and secure condominium in a better planned and serviced neighbourhood, much closer to the city.

“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.

4: Do Not Borrow Money to Start, or Overextend Yourself With Debt.

The desire to own land and have your own roof over your head is innate – everyone dreams about owning your own home. In this sense, everyone is born a real estate entrepreneur.

However, start on small properties to reach your dream, advises the property mogul. Acquire land. Put something on it that adds value – it could even be trees. Don’t rush to borrow money thinking you will make it overnight.

“Do not expand quickly, outside your means,” Sudhir cautions, “Allow organic growth. So long as you have a good amount of cash flow coming in, you need to first focus on projects which you can fund.”

“I believe that your success in real estate will only come if you don’t borrow money. Real Estate can be an excellent business but also extremely dangerous. If you make a mistake and overstretch yourself in leveraging or borrowing, it will bring your downfall,” advises Dr Sudhir.

“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,” adds Sudhir.

Sudhir’s only exception to this rule is where the monthly repayments of the financing facility is equivalent to current rent, then it is a sustainable way to borrow for a home.

5: The Real Estate Bubble is Here to Stay

Uganda’s population and the urbanisation rate are growing fast. With growth comes demand for offices, industrial parks, warehouses, homes, as well as low-cost housing.

“The expansion of real estate is going to keep growing. I think there’s still a huge prospect of growth in real estate in every town of Uganda. With decentralisation, about 15 years ago, all these small towns have now grown into beautiful, big cities outside Kampala― Masaka, Mbarara, Mbale, Arua, Gulu, everywhere. They’ve actually created communities which are self-sufficient in terms of service providers; so growth is there in every region of Uganda today, so I would say if you are ready to invest in real estate, go for it,” Sudhir said.

6: The Government Has Incentives for Investors

The government of Uganda has several incentives for both Ugandan and foreign investors that you can take advantage of to reduce the cost of development. Therefore, Ugandans should educate themselves about the opportunities that are available.

“Ugandan investors have an advantage because their threshold is even lower. If you are investing above USD 300,000, I think that is the threshold, try. Go to the Uganda Investment Authority (UIA) and ask,” he says.

7: There Is No Right Amount of Money For Investing

According to Dr Sudhir, there is money to be made at every level of the sector. You should take time to understand the level where you want to play, what it takes and get into business. It is more important to start with what you have than to wait forever.

“There’s income from every sector and every economic level, which suits the capital needed at that level. Invest in property for that level and then eventually grow,” Dr Sudhir says.

8: Real Estate Is Inflation Proof

Avoid keeping a lot of money in the bank, inflation will eat it. Instead, invest the money in real estate.

“Real estate is one of the safest businesses one can ever have even if there is a biting inflation. Over years, your building or land will remain and grow. Plan right for your projects even if its agriculture, keeping money in the bank is not a good idea. Invest your money but plan it right” Sudhir says.

“For investment, when you consider treasury bills, or bank deposit rates, against real estate; real estate, in the long term, grows fast,” says Sudhir.

9: Real Estate Holds Money

According to Sudhir, when investing in real estate, invest money you can afford to lose. He advises to either build what will generate enough cash flow or have enough money left to meet other ongoing expenses.

“One thing you must understand, when you invest money in real estate, invest money you can afford to lose. Losing in the sense that when you put money in a building, that money’s gone from your cash flow. Put what you can forget,” Dr Sudhir says, adding: “Don’t overstretch yourself. If need be, get a smaller property and after four or five years, get another one and another one.”

“Make sure that whichever real estate business you’re in, manage your cash flow well. Once you put money in real estate, it is gone and what comes out of it is your profit and this is what you must rely on. If you do that, I think you cannot fail. You cannot go wrong if you plan it right,” Dr Sudhir adds.

10: When Buying, Ask the Necessary Questions

Since Investing in real estate is for the long haul, ask the person you are buying from the right questions at the start. It is your right as a buyer to Question about the approved house plan, the certificate from National Environmental Management Authority, among others. This is your right as a buyer and every good developer must have them.

“If you build property in an unauthorised area, then you have yourself to blame and nobody else. Always look for a good reputable builder,” advises Sudhir.

 

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