Last Updated on 30/07/2021 by Steve Wanjie
Real estate investor.
Who is a real estate investor?
A real estate investor is a beginning business person who directly (actively) or indirectly (passively) invests in real estate.
Who is a real estate entrepreneur?
A real estate entrepreneur is a seasoned business person looking to build wealth through property accumulation and trading.
Who is an active real estate entrepreneur?
A direct ( or active) real estate investor buys and adds value to a property to sell the same at a higher profit margin.
When you make repairs or improvements to a property you just bought, you have added value to it. You have created room for increased profit margins on sales.
An active investor is involved in the management of the business.
Who is a passive real estate investor?
An indirect real estate entrepreneur is someone who invests in property through third parties. You don’t want to be involved in real estate management.
Your main goal is to earn good returns on investment.
When you buy shares in a real estate development (or management) company, you own a piece of all properties in its portfolio.
Why do investors choose real estate investment?
Why should you become a property entrepreneur?
You choose to become a real estate dealer for the following reasons:
- Cash flow
- Capital appreciation
- Tax benefits
- People need somewhere to live
- You can start small
- Real Estate Cash Flow
Property entrepreneurs enjoy a monthly cash flow from their rental properties income.
The most appealing benefit from property investment is a passive cash flow into the foreseeable future.
The monthly income that a rental property generates could offset all your expenses and put much more money into your bank account in the long run.
Cash flow is the main attraction for investing in real property. The investment is likely to outlive you.
2. Capital Appreciation in Real Estate
Real property such as land and buildings are known to increase in value as long as you hold onto them.
The longer you hold onto real estate, the more the appreciation in value it gains. Rent income also tends to increase with time.
These two factors make property investment attractive to many investors who are looking for solid passive income streams.
3. Depreciation is a loved word in real estate investing.
Depreciation is a tax benefit property businesspeople love because it reduces taxable income and tax liability.
You could be enjoying positive cash flow from your property. But you may show a tax loss as a result of real estate depreciation.
Property (or any other asset) is assumed to decline in value with time hence the term real estate depreciation.
As your property ages, the less the amount of taxes paid due to the number of years. A rental property taxable income keeps declining every other year, regardless of its current condition.
It helps seasoned real estate entrepreneurs to save a lot of money per year on their rental property taxes.
4. Tax Benefits of a Real Estate Investor
a) Deduct your property maintenance, marketing, advertising, legal, accounting fees, and travel expenses.
It helps reduce your taxable income and saves you money when you file your taxes.
b) You get to depreciate costs over time
c) You are allowed to perform a Pass-Through Deduction
P-TD means you can deduct 20% of your qualified business income from your taxes. The money you collect as rent from your rentals is qualified business income (QBI.)
D) You can take advantage of capital gains
e) You can defer taxes with incentive programs
5. Leverage usage in the property market
Leverage uses borrowed capital (or debt) to increase your potential return on real investment.
You use debt to purchase a property in the belief that the income from the asset shall be more than the loan repayment monthly installment.
You took a 20-year mortgage for a rental property with a monthly repayment of 5000 Kenya shillings, while the rent income is 10,000 per month.
That is an example of using debt to make money in the property market.
The beauty of investing in real estate is that you can put down a 20% downpayment and own property through debt financing.
6. People need shelter
Yes, people need somewhere to live. Therefore, rental property demand is always going up because the world population is growing fast.
“Kenya has an annual housing demand of 250,000 units with an estimated supply of 50,000 units, culminating in a housing deficit of 2 million units, or 80% deficit.”Kenya/habitat for humanity
Very few countries adequately meet the demand for housing. The reason real estate investor is likely to become rich. There is a constant demand for rental properties across the globe.
7. You can start small and grow with time.
Regardless of your capital muscle, you need to start real estate investing in a small step (or scale.)
You need to learn. You have to acquire the experience that will help you succeed in the property market. Starting small enables you to learn from the investing mistakes you make without incurring huge losses.
Invest in a single-family rental property or an apartment. See how things work out for you in terms of marketing and servicing.
In Nairobi’s Westlands Area, you could invest in a two-bedroom apartment. These apartments cost at least 3 million Kenya shillings.
All you need is a 5-year mortgage plan that allows you to put down a 20% deposit ( or Ksh 600,000.)
Furnish the apartment and rent it for at least 150,000 Kenya shillings per month. Your monthly loan repayment should be around 60,000 Kenya shillings.
You are in profit territory (150k – 60k = 90k) though you are using debt to own the apartment. You have a general idea now.
You could list it with Airbnb apartments in Nairobi or contract a property management firm to manage it for you.
You could choose to buy a small old building and renovate it into a rental property.
8. Re-invest business profits to grow your property operation
The most skill in business is knowing how to scale your operation using generated profits. You shouldn’t take money away re-invest it instead to scale the business portfolio.
You should start investing in multi-family units to secure your rental income. Sometimes one family will vacate.
The others shall ensure cash flow is maintained.
What best methods do you use to invest in real estate?
How to invest in real estate best ways:
a) Real estate investment trusts
REITs (real estate investment trusts) are a passive way of investing in the property market.
You would not own a physical property but earn a passive income from investing in a REIT.
REITs own commercial real estate. In their portfolios, you may find office buildings, retail spaces for letting, rental properties such as apartments, multi-family units, condos, maisonettes, etc.
REITs are known to pay high dividends yearly from the income they make from properties owned and managed on behalf of real estate investors (or shareholders.)
Are there REITs in Kenya?
Kenya has only one REIT listed on the Nairobi Stock exchange, Stanlib Fahari i-REIT.
Other notable REITs in Kenya are;
- UAP Investment
- CIC Asset Management
- Nabo Capital
The REITs market isn’t well developed in Kenya. In comparison, the US REIT market is large and highly developed.
The largest REIT in the USA is American Tower which has a market capitalization of over $103 billion.
b) buy and rent a property
Buy a rental property and go on and rent it to a willing tenant for monthly rental income.
Many real estate investors in the USA follow this investment route.
c) Buy land, Build and rent it
You can choose to buy a piece of land and develop it into a rental property. Many people in Kenya follow this route.
d) Buy land, subdivide it, and sell smaller pieces
You could choose to become a land dealer. Buy a piece of land, and subdivide it into smaller pieces.
You may make a 200% profit when you go down this route, especially in Kenya.
Supposing you acquire one acre of land in Machakos County for 1 million Kenya shillings.
You could subdivide the one-acre into eight pieces of land (or plots.) Sell each piece at Kenya shillings 400,000.
You will make Kenya shillings (400,000 x 8 = 3,200,000.)
After deducting expenses incurred in processing the transactions, you should have at least 2 million in profits.
e) Real estate flipping
Invest in dilapidated buildings. You buy, renovate and rent, or sell it at a profit.
Which are the best locations to invest in real estate in Kenya
The best places to invest in real estate in Kenya include;
- Maasai Mara, Narok
- Nairobi’s outskirt towns, e.g., Kitengela, Kiserian, Athi River, Kangundo road, and Juja
Which is the best real estate market niche to target in Kenya
The best property market segment to invest in is the affordable home niche. The mass home (affordable) market is underserved in Kenya.
The masses cannot afford to buy a home in Kenya and thus live in urban slums out of choice.
The affordable home price range is between 500,000 and 5 million Kenya shillings. Any developer who goes for this niche shall use the Equity Bank’s model for mass banking.
Build homes for Kenyans that don’t cost more than 5 million Kenya shillings, and you will capture the mass housing market.
A real estate investment career is a fascinating one. The chances of becoming rich are real, especially when done right and intelligently.
All you need is a good credit rating and the ability to raise between 20 to 30% mortgage downpayment to acquire property. The returns are high because the demand is higher than the supply.
It is not hard to become a real estate investor because you can start small. Always make sure to take investment courses to upgrade your knowledge and market skills.
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Steve Wanjie is a digital marketing specialist, SEO Expert, expert article writer, blogger, sex educationist, and businessman. He is the founder of Dijito Marketing and Laikipo.com. He works and lives in Nairobi Kenya.