Real estate is one of the most preferred
methods of investing because not only does it provide good returns, but it also
cushions one from inflation. However, real estate investment is very capital
intensive. As the old saying goes, “it takes money to make money†and finding
the right sources of finance is important.
This post provides ideas to
get your business fired up and ready to go.
1. Use
employment Income.
If you are formally
employed, don’t quit straight away to start your business. Use the income
you’re your current job to help get your real estate business off the ground.
You then start your real estate business as a side hustle as you build up
savings to start off your new venture. By working part time in real estate, you
maintain an income to keep you going as you learn and start growing your career
in real estate. You can market your properties on
the side.
2. Tap
into your savings
Tapping your savings is the
easiest way to start off. It may take longer to save enough money to get
started, but the upside is that you enjoy all the profits. You can use your
savings to buy a property and put it up for sale. This may be land for sale where
you buy a single plot and divide it or buy a bigger piece of land and subdivide
the same.
3. Sell
Properties to raise capital.
If you already have assets
that you can sell such as vehicles, shares in the stock market, or other pieces
of land, then this could be a funding source for your real estate career. If
you have been saving for retirement, you can withdraw some funds up to 50% from
pensions. However, draining your retirement account is typically a bad idea
because it jeopardizes your future financial security in case the real estate
business doesn’t succeed.
Important: How
to use Google Maps to sell more as a real estate agent.
4. Take
a loan from friends or family
Many small business owners
get started by taking funding from friends or family who can give you a loan.
While they may offer flexible repayment terms or a low-interest rate, this
option comes with risks if it jeopardizes your relationship.
Carefully consider what
would happen if your real estate venture fails or it takes you much longer than
expected to repay the loan. It’s essential to document the terms of a loan from
family or friends, so there aren’t any misunderstandings later.
5. Get
a business line of credit
A business line of credit
from a bank or credit union allows you to tap funds up to a limit when you need
them for your business. As you repay amounts withdrawn plus interest, your
credit line increases to the original amount, which you can continue to use.
6. Borrow
From the bank.
The above options have been
using relatively cost-free money. If you don’t have any savings or assets to
fund your real estate business, another option is to borrow from the bank. Many
banks offer business loans to start or expand your venture. The major hindrance
to financing of property development by banks has been high interest rates.
Related: How
Premier Agent helps you succeed as a real estate agent in Kenya
7. Get
a partner/joint ventures.
Pooling of resources is
usually done by individual investors with common investment goals mainly in
real estate. The resource pooling creates greater purchasing power thus more
diverse and rewarding investment opportunities through simple economy of
scale. Finding a partner to team up with is always a good way to start.
Beyond providing financing, the partners may also offer services, expertise or
a network that would boost your success.
8. Joint
ventures with capital investors
Joint ventures are
arrangements where parties pool their resources together. Normally, real estate
joint ventures combine the real estate development expertise and financing
capability of a developer with a landowner’s contribution in the form of land.
With real estate in
Kenya having some of the highest returns, this method of financing is quickly
gaining traction. The land owner and the capital investors usually form a
company specifically for the project with agreed terms on how the profits from
the project will be shared. The firm owner transfers the land to the project
company while the investors provide funds for the construction of the project.
9. Presales
This is where you prepare a
show house and then request buyers to make payment before completion of the
project. The revenues obtained from buyers reduce the capital that is needed to
fund the project.
10. Government
funding opportunities
The government is usually
the largest player in every industry. To support various initiatives, funds
have been set aside through various bodies like the Youth Enterprise
Development Fund, Uwezo Fund, Women Enterprise Fund, Kenya Industrial Estate,
Industrial Development Fund, Agriculture Finance Corporation and the ICDC.
Visit their websites and/or offices for more information on eligibility and
process.
Conclusion
As you can see from the
above there are various real estate financing options get you started in real
estate. How you fund a specific deal greatly affects the rate of return.
Understanding the financial aspect is therefore crucial. Remember, every investment
option of real estate financing has its own set of pros and cons, and the
financing approach greatly depends upon type of the property and the situation.
