Investing is the surest way to build wealth for anyone regardless of their age. And while there are many investment vehicles, real estate stands out as one of the most stable and most rewarding ones. Stick with me as I convince you why I think you should invest in real estate despite the massive discouragement by many “uninformed” persons. And because there are always two sides to every coin, we are also going to be seeing some cons and what we can do about that.
Advantages of investing in real estate
Steady Cashflows
The first advantage of investing in real estate is that it is a sure path to recurring and steady revenue if done right. The keyword here is “if done right.” Those who have understood the game have been able to make massive returns year on year. Making it easy for them to scale the economic ladder and get to the ranks of the wealthy. So if you are in search of an investment that has the potential to make you the next millionaire, look no further.
appreciation potential
Long-term appreciation is one pro that I can personally attest to. You see, growing up in the city, my dad always kept on narrating to me that plots in some areas, such as “Kamakis” in the eastern bypass, could cost you just 30,000 in the late 2000s. Comparing this to the present-day prices of tens of millions, it is quite clear that real estate can multiply your money 10-fold in just a matter of years. A caveat is that it doesn’t always happen this way in all areas. You need to have invested in a strategic location to mint such returns.
High Urbanization
For starters, it is projected that by 2050 half of the world’s population will be living in urban areas. Back home here in Kenya, it is clear that most people are moving to the city in search of greener pastures. This means that the demand for housing in urban areas will always be high. Your aim is to take advantage of this opportunity. Real estate is clearly something you should consider investing in.
Booming rental market
I want you to just look outside your window and tell me if you don’t see any upcoming construction nearby. The truth is that most of such activities won’t be stopping anytime soon. Due to the high land prices in most urban areas, most people prefer renting as opposed to buying a plot and building on it. If you are able to give tenants what they need in terms of space and affordability, then you will reap big in this area.
Diversification
You should not keep all your eggs in one basket for the obvious reason that you risk losing them all if something goes wrong. In your journey of wealth creation, the same concept applies. Diversification is a sure bet in keeping you wealthy. It also reduces your investment risk, especially in these turbulent economic times. Real estate provides you with an alternative pathway to diversify your portfolio and hence spread your risk on a real asset.
Tax incentives
The Kenyan government knows the power of real estate as a driver of economic growth and a source of employment. For this reason various policy measures have been passed to make it easier for you and me to invest in the sector. Incentives such as tax breaks on stamp duty when buying your first home. And the reduced deductions on mortgage interest have made investing in real estate tax-efficient. And while we are still not where we need to be, it is a good start.
Disadvantages of investing in real estate
Unclear title deeds
With the massive benefits that you can get from investing in real estate, there also comes a risk to the same. One disadvantage is the issue of unclear title deeds in the country. This makes tracing ownership quite difficult and also opens up a major window for crooks to get involved. However, advancements in technology have led to platforms like the Ardhisasa portal. It digitizes land records to help you avert such challenges.
Land grabbing
Another phobia that has deterred many people from investing in real estate is the massive cases of land grabbing. It is important to understand that Kenya as a country is still a work in progress. And sometimes those entrusted with the duty of protecting us end up stealing from us. For you to ensure that you don’t get conned, make sure that you do THOROUGH DUE DILIGENCE. This is before buying or transacting any land or property.
bureaucratic complexities
Bureaucratic issues in government land offices strain the efforts of many investors. The tedious steps in following up and acquiring permits. Complex licensing processes, among other verifications, take months. This can be very discouraging, especially if you need to invest as fast as possible. To avoid this, make sure you have all the required documents for any legal process before applications. This will ease the process and ensure that you get the required response ASAP.
High initial costs
The price of land and property, especially in towns, is not cheap. Due to high demand, most lots will cost you several million in prime areas. This has made the price of real estate shoot up drastically, making it hard for anyone to invest in it. To address this challenge, you could partner with friends or family to invest. Or buy land in satellite towns, which are much cheaper and have the potential to grow fast owing to their proximity to urban areas.
Property management
While real estate is marketed as a passive investment, there is a lot of work that goes on behind the scenes. This is where property management comes into the picture. If dealing with tenant requests and issues is not your cup of tea, then I recommend getting a property management company. They do all the heavy lifting for you so that you can enjoy your cash with peace of mind.
You can engage our parent company CRESSO PROPERTY MANAGEMENT for such services.
Tax inefficiencies
A major challenge facing Kenya today is the high debt crisis. To counter this, since the government can’t borrow more, it has resulted in hiking taxes. The real estate and construction sector has felt a huge weight of this move. And it has contributed to a downside of the sector. Unlike other sectors like agriculture, which enjoy subsidies and tax shields. Real estate attracts multiple layers of taxation.
A single property is taxed from entry with stamp duty. During the ownership period (through rental tax, land rates, and rents). And at exit on capital gains. Without careful structures and documentation, an investor may end up with lower net returns compared to other asset classes.
