Some rules to achieving success in real estate hold true regardless of wherever in the world you are. However, every real estate market has its own challenges and quirks – and Kuwait is no exception.

As a manager of a family real estate portfolio that includes residential towers, luxury apartments and commercial property developments, Mohammed Alhusaini told us more about his role. He begins by saying, “[my job] is to optimize the performance of the family’s existing holdings, as well as structure new deals to expand the portfolio value and improve cash flow within the company.”

Alhusaini also explained to bazaar what the seven key rules of success are when dabbling with the Kuwaiti real estate market and how to become a successful landlord.

1. Master Your Sector

When it comes to sectors within the real estate market, there are three: residential, commercial and industrial. Although no one sector is inherently ‘better’ than the other, each has different challenges and rewards associated with it. Alhusaini advises future investors “to choose one sector and become an expert in it rather than to jump between them.” Residential real estate includes villas, tower blocks and apartment buildings. This sector is the simplest to grasp, but is the most oversupplied of the three. As a result, residential real estate in Kuwait is very competitive.

The commercial sector is mostly made up of office and retail spaces which require more involvement from a property management point of view, since most people need to hire dedicated onsite staff to manage tenants’ requests and maintain the property. Commercial tenants are highly price-sensitive, driving competition between landlords. Despite these challenges, the return on investment for well-designed, well-managed commercial properties is high. This is especially true as in most industries; companies must rent a physical space to obtain a business license.

Finally, the industrial sector encompasses specialized spaces for industrial activities like warehouses and factories. These spaces often require special permits.

2. Use Leverage to Increase your ROI

In Kuwait, real estate loans are not as straightforward to obtain. Term limits are often in the single digits, and interest rates are high. As a result, using debt to your advantage and operating properties to their full potential is essential to growing your portfolio. To do that, you’ll need to nurture a strong relationship with a bank.

3. Understand Your Risk Tolerance

Leveraging your property may seem like a no-brainer, but investors new to the real estate market should understand that taking on debt comes with risks. Once you have purchased your first property and are ready to move on, you’ll have to make a tough choice about how to grow your property portfolio.

Growing too slowly and relying on pure-cash transactions will tie up your capital, limiting the size and value of your portfolio. On the other hand, overleveraging for growth can be dangerous. Although high risk often results in higher rewards long term, it is important to make a conscious decision about how much you’re willing to take on.

Although the long-term effect of leveraging is positive, it is important to understand that while the debt is being paid off, a highly leveraged property will be operating on a far lower margin of safety than one purchased with cash. Additionally, it is important to note that property appreciation in Kuwait has been unstable for the past decade, and on a downward trend since 2016: losses as a result are also magnified by debt.

4. Learn to Navigate the Legal Landscape

If you plan on building, buying or selling properties in Kuwait, you need to be aware of the various permits required. Code violations are extremely common, and can cause significant damage to the value of properties in escrow, or even scare off otherwise qualified buyers.

Although purchasing a residential property is the most accessible point of entry for many, the law bars businesses from owning some types of residential properties. This diminishes the true value of a residential real estate portfolio to a lending institution. As a result, you may find it near impossible to use an existing residential property as leverage in a new transaction, unless you have a very strong existing relationship with your bank.

It is also common for legal issues to arise. Developers in Kuwait often face long waits for legal permitting, and suffer from a lack of structured information about the correct order and importance of obtaining them. The best way to tackle this is by hiring a third-party expert to help you with the entire process and avoid costly mistakes.

5. Buy-to-Sell, Buy-to-Hold, or Broker?

Three of the most popular strategies to make money in the real estate industry are Buy-to-Sell, Buy-to- Hold and Brokering. Each of these strategies has its own advantages and disadvantages.

Buy-to-Sell: Investors using a buy-to-sell strategy look to buy properties that they consider to be undervalued, with the goal of turning them around at a profit. A typical example is a building for which the owner has defaulted on payments, and must sell the property to settle the remaining debt. Another common example is a property which has not been updated in many years, allowing the new owner to improve the property through renovation and thereby increase its value. The final stage of this strategy is to sell for a premium that exceeds the purchase price, any operational costs during the holding period and the cost of renovations.

Buy-to-Hold: This strategy is quite simple. A property is developed or purchased to act as a fixed income investment, usually through renting. The key to a successful Buy-to-Hold investment is structuring it in such a way that the cash inflow minus the cash outflow is positive.

Brokering: This is a very low-risk way to enter the real estate game, which allows you to canvas the property market and make a cut on sales when deals are made. In Kuwait, property sales cannot legally be processed without a broker. As such, it’s not uncommon to charge 1-2% of the property value as commission on a sale; however, deal-flow can be difficult to predict and commissions are highly variable month-on-month.

“Although I personally prefer to invest in Buy- to-Hold properties, combining the two strategies of buying-and-holding and buying-and-selling is what makes for the most successful deals in my experience” Mr. Alhusaini shares.

By combining the two strategies, you don’t need to worry as much about either one. For example, a distressed property is to be sold for 70% of its original price. An investor who is only interested in the short-term gains will not be willing to bid much higher, in order to preserve future profits. However, a Buy-to-Hold investor may be more willing to purchase the property at 80 or even 90% of its market value, as their potential for profit is based not only on the final sale price of the property, but also on its earning potential while it is being held.

6. Invest in Property Management

If you own a rental property with one unit, managing it yourself is perfectly feasible; however, you should be prepared to deal with late night maintenance calls and rent collection issues. Once your portfolio expands beyond five or so units, operating the properties is more or less a full-time job. Investing in a high-quality property management service is key

As far as managing your properties, you have a few options: owner-operated, property management firm and internally managed.

7. Equip Yourself with the Right Software

There are two main types of real estate softwares that you need to consider: property management, and accounting software.

Property management software is used to organize and keep track of rent collection and property upkeep. If you hire a property management firm, they will most likely have a preferred software that they will use for your portfolio.

Accounting software, on the other hand, is focused on the financials of maintaining a profitable property portfolio.

One piece of software that incorporates both property management and accounting is the Banani app, a mobile platform developed specifically for landlords.

Million-dollar question: Should I invest in real estate?

Like any business, succeeding in real estate requires passion and a competitive spirit. Kuwait is no longer a straightforward real estate investment; It is no longer undersupplied and land prices are not growing like they used to. Kuwait has seen its fair share of downturns and market irrationality. Despite this, property sales are made every day, proving that there is still an opportunity for investors to make profits on real estate in Kuwait: the market rewards those who are methodical in their approach. If the points above were more encouraging to you than discouraging, then you might be well suited to investing in real estate in Kuwait!

For more information regarding the app, or investment advice head to bananiapp.com or follow them on Instagram @bananiapp for more information. Photos courtesy of Bilal and Abdul on Unsplash.