Category: Tips Advice

Real estate investment could be the next big thing to try out in Kenya. Indeed, you can be the next millionaire if you successfully invest in this booming business.

You should know that you need lots of patience when investing in real estate. That’s because you will not get the returns immediately or after a short while.

However, you need to make excellent decisions before making your investment. That’s why you need this guide to make nice moves in the business.

What is Real Estate? 

Real estate can mean developed or undeveloped land. A developed real estate means you are buying an already complete building that would start bringing returns sooner.

On the other hand, undeveloped real estate means buying raw land that you would later build whatever buildings you need.

Types of Real Estate

You should understand the real estate you need to invest in to help you make sober decisions.

We have:

• Residential real estate 

This investment involves the building of residential houses. To properly invest in this kind, you should choose a location close to schools, hospitals, and commercial premises. 

• Commercial real estate 

Commercial real estate is the building of business premises. These kinds of buildings are popular in large town CBDs like Nairobi, Kisumu, Mombasa, and Nakuru. 

Most likely, you will get business retailers and wholesalers on these premises.

Building a Real Estate Portfolio: Mistakes To Avoid

• Industrial real estate 

As the name suggests, industrial real estate houses industries that manufacture, pack, and store goods. In each town, there is always a designated location set for industries. Therefore, if you want to invest in building warehouse go downs, you should invest in the allowed location.

Steps to Invest in Real Estate in Kenya 

1. Save money first/ build your credit score.

Of course, you need a lot of money before you can buy your first real estate. However, saving enough money to develop a real estate business may take longer. 

And that’s where you should consider taking out a loan. In this case, you will need a high loan amount, so your credit score and earning potential should be high.

To build your credit score, you can take small loans and pay them on time. That will place you in an excellent place to get a higher loan when you need it.

Remember that you can still get long-term bad credit loans, but the interest rates will be very high. Therefore, strive for a higher credit score to pay lower interest rates.

2. Stabilize your income 

Every lender would like to work with you if you have multiple stable income sources. Of course, no one would risk lending money to someone with an unstable income.

So, work on your primary income sources and make them as stable as possible.

In addition, always ensure you have multiple income sources that can supplement you during loan repayment. 

3. Do thorough research 

Before taking out a loan to invest in real estate, you should thoroughly research the suitable locations for your investment.

You should consider a suitable location for the type of real estate you need to invest in. 

For instance, if you need residential real estate, you can search for land in areas like Ruiru, Thika, Kitengela, Mlolongo, etc. 

City metropolitan areas do better in residential houses than in the CBDs.

In addition, you should also research the best deals you can afford to buy. That way, you will have a figure in mind when applying for a loan. However, remember that if you are after undeveloped real estate, you may have a long way to go before earning some returns. Therefore, ensure you have stable income sources to repay the loan and maybe fund the house building.

Your research should also include searching for title deeds via the eCitizen portal. If you get a suitable place to buy and the budget is within your reach, don’t hesitate to request a title deed copy to verify. At least you will be sure about the investment decision you are about to make.

4. Take a loan 

After you settle for the right place to buy, you can now head to borrow a loan that’s enough for the purchase. 

5. Close the deal 

This stage is the final in owning property, but don’t be too excited to make haste decisions. You should make electronic transfers and avoid carrying cash anyhow. That will reduce the risk of theft.

In addition, ensure you have some people to witness (both you and the seller) while doing the transfers.

6. Develop your property 

Property development is the stage that will see you start earning sooner from your investment. You will need to build the type of real estate you need. 

But what happens if you do not have enough funds and have a loan to repay? Well, this scenario is most likely to occur if you had taken a loan to buy the raw land.

And that’s why you should strive to have more income sources. However, don’t give up if you’ve no money. You can always top up your loan after some years of repayment. That will help you get some cash to develop your property.

7. Market your property 

Now, you are about to reap the fruits of your hard labor. But it may take time before you reap.

However, you can make a difference by bringing your property to the ears and eyes of potential clients.

To market your property, you can choose the most popular advertising means like TV, radio, or social media. The more frequent you are in people’s spaces, the more likely you will get clients.

Conclusion 

Real estate investment is a good idea if you follow the correct procedure. That’s why you should go back and reread this post if you want to see positive investment results.

Frequently Asked Questions 

1. How much do you need to invest in real estate in Kenya?

The amount you need depends on the location you choose. In remote areas, you can buy land starting from Ksh.150,000. But in urban centers, you need at least 1M to purchase raw land.

2. What is an excellent rental yield in Kenya?

In Nairobi and its environments, you can get a return on investment ranging from 6% to 7%. 

3. Is real estate investment profitable in Kenya?

Yes. Real estate is a business that grows directly proportional to population. So, it’s profitable if you manage your investments wisely. Construction and real estate are the fastest-growing industries in Kenya.

The real estate investors you see around started from a point, and it was much tougher in their days than it is currently. As a first-time real estate investor, you should be glad because a lot of free information is available with just a few clicks. 

A good real estate investor should also be an excellent researcher and a reader. This blog explains ten tips you should have before investing in real estate. Remember that you need adequate knowledge to invest in real estate.

People who follow the tips here have all it takes to succeed in property investment in Kenya. Here is a breakdown:

The 10 Tips for Real Estate Investment 

It’s time to be attentive since you need these tips to help you succeed in property investment. 

1. Be a good researcher.

Researching is the most basic skill you can rely on when starting a real estate investment. You should learn almost everything about property investment before starting. 

Google and YouTube are currently very good leverage in searching for anything you need about real estate investment.

You should also learn to search title deeds lest you fall prey to conmen.

2. Ensure you can endure all challenges.

Real estate investment is not for the faint-hearted. For instance, don’t expect to start gaining profits as soon as you buy your property. Actually, it can take years before realizing your returns on investment. 

In addition, a property needs closer management to ensure all repairs are made on time to avoid greater damages.

Can you avail yourself on the property premises regularly? If you have invested in real estate in Kenya while in the diaspora, you can hire a property manager to help you manage the property. 

3.Can you sacrifice your lifestyle for a better future?

Real estate investment requires a lot of money at first. Therefore, you may have to dig deeper into your pockets to cater to maintenance costs and all repairs. 

And this calls for a strained budget and cutting off unnecessary expenses. Can you manage that?

Top Factors to Consider before Investing in Commercial Real Estate in Kenya

4.Location is the main determinant of your success. 

When thinking of real estate investment, you should know that a good location results in better yields in the future. For example, locations near schools, big towns, and the industrial sector have a high demand for residential real estate. 

Therefore, investing in residential or mixed-use real estate can be a great idea that will profit you. In addition, choose a location that has all social amenities since no one likes staying in areas with scarce social amenities.

5.Go in with the right mindset.

Research shows that you will win or lose from your mind before actualizing your plan.

You need a growth mindset to succeed in real estate investment.

You will not make it if you focus more on failures than progress. Yes, as a first-time real estate investor, you can make mistakes, but what you do after realizing your mistake makes the difference. Always ensure you arise again after failing. However, strategize to ensure you won’t make the same mistakes again. 

6. Take baby steps till you are a pro. 

Don’t plan to buy hundreds of buy-to-let apartments at once. Instead, focus on starting with little apartments you can comfortably manage. 

After succeeding in a few properties, you can now take big strides in the industry. In addition, do your homework on which type of real estate you should expand. 

7. Have some basic maths skills. 

Basic maths skill is essential when doing any type of business. You don’t have to be a super genius about complex maths, but ensure you can calculate your monthly rental income, all expenses, and the cash flow. 

Building a Real Estate Portfolio: Mistakes To Avoid

You can pass the other complicated maths involving some accounting knowledge to your accountant. But it will be a good idea to know how to balance your maths, even without help. This idea can help you salvage your property investment if you get a bad accountant. 

8. Be a good manager.

To succeed as a first-time real estate investor, you should have basic management skills. You can take free courses to learn management in Course Hero, Hubspot, or Udemy.

Being a good manager means you do the right thing at the right time. In addition, you will treat your real estate as a business. 

9. Learn from your mistakes. 

Everyone makes mistakes, but the difference comes after what you do about your mistake. You can make a mistake and still change the tactic and succeed later. 

However, if you spend so much energy focusing on the mistake, you might miss the opportunity to grow your real estate. 

Top Factors to Consider before Investing in Commercial Real Estate in Kenya

10. Don’t procrastinate. 

There is a saying, ‘procrastination is the thief of time. But again, let’s add that procrastination is the thief of your future. Once you postpone what you were to do today, you’ll spend some other time made for something else trying to catch up.

So, plan accordingly before investing in real estate and ensure you do what you should do at the right time. 

The Bottom Line 

As a first-time real estate investor, you should possess the above-mentioned tips before starting. Remember, these tips greatly impact your success in the property business sector.

Always ensure you do your homework before starting with anything, whatever it is.

Frequently Asked Questions

What are the steps for starting a real estate investment in Kenya?

You should have excellent research skills before starting the investment.

Keep your credit history good because you’ll need it to get better mortgage rates.

Get excellent property agents in Kenya to help you get good locations.

Get a real estate attorney to help you with all legal proceedings.

Cose the real estate deal with the help of your attorney, bank representative, and witnesses.

Which is the best type of real estate to start as a beginner?

As a real estate beginner, start small. You can start with a mixed-use property in a more populated area. Start with a few apartments, and you can gain profits and later expand to a big estate. In addition, you can start investing in REITs, which will help you gain more investor knowledge.

How does the 50% rule work in real estate, and should I focus on it as a first-time investor?

Most investor gurus believe that the 50% rule is a good way to know your actual cash flow in real estate. That is why you should know how the rule works. 50% goes to expenses, with the remaining half, you pay the mortgage, and the balance is the cash flow. Actually, this rule defines your real estate profits, which determine whether you should leave or go on with the investment.

Are you worried about how you can be the new home/property owner in town today? Well, mortgage loans are a good way to help you achieve your property ownership dreams. You can access a 15-year or 30-year mortgage loan in most Kenyan banks.

Indeed, it’s fast and more convenient to own property through a mortgage than saving enough money to buy your desired property. Mortgages have helped millions of people to own homes and income properties in Kenya.

And the fascinating thing is that you can be the next property owner with the help of a 15-year or 30-year mortgage in Kenya.

Keep reading the blog to learn about these two types of mortgage repayment terms in Kenya.

What is a Mortgage Loan in Kenya?

A mortgage is a loan that funds property ownership. If you want to own a home, land,  or commercial property, you can take this loan to help you purchase it. Some banks in Kenya help you acquire land and build property on it, whether a home or commercial property. 

One thing you should know about mortgages is that the property you purchase is collateral against the loan. Once you skip multiple loan payments, the bank can repossess the property, and you stand to lose. Therefore, you should have a stable income to repay your mortgage loan on time if you don’t want to lose your property and money.

7 Proven Tips to Save for Your House in Kenya

You can apply for a 15-year or a 30-year mortgage loan to finance your property ownership.

15 vs. 30-year Mortgage Loan: What’s the Difference?

15-year mortgages are a good option for people who can afford the higher monthly payments and who want to pay off their mortgage as quickly as possible. On the other hand, 30-year mortgages are a good option for people who want lower monthly payments and who are comfortable with a longer timeline to pay off their mortgage.

10 Essential Tips For First-time Real Estate Investors

15-year mortgage loans have lower interest rates, and the repayment is short. On the other hand, a 30-year mortgage has higher interest due to the extended repayment period.

Similarities of 15-year and 30-year Mortgage Loans in Kenya

• They both help one to own a home/property in Kenya.
• Both loans can build your credit score if you make timely payments.
• You build equity as you pay the loan. In addition, you can take another loan against the accrued property equity.

The Pros and Cons of a 15-Year and 30-year Mortgage Loan

There are pros and cons of both 15 and 30-year mortgages in Kenya. Before filling out the mortgage application form, make sure you study the loan repayment term you prefer.

Pros of a 15-year mortgage

-Shorter repayment term

-Low interests.

-You’ll pay your 15-year mortgage half the time you could have paid a 30-year loan.

-The overall payment is lower compared to that of a 30-year mortgage.

-You build your home equity faster.

Cons of a 15-year mortgage

-You will pay higher monthly installments.

-You may fail to save money due to a strained monthly budget.

-If anything happens to your main income source, you will struggle to pay off the loan.

-You should have a very high monthly income to manage the monthly payments of a 15-year loan.

Pros of a 30-year mortgage

-It has lower monthly repayments than the 15-year mortgage.

-You have the freedom to save money since your budget will not be too squeezed.

-You can invest in other ventures because you’ll have some spare cash.

-You can pay an extra installment per year if you wish, but it’s not compulsory.

Cons of a 30-year mortgage

-Very long repayment period.

-You pay higher interest for the entire loan.

-The interest rate is also higher since you will spend more time with the bank’s money 

Which Mortgage is Right for You: 15-year or 30-year?

There are many factors to consider when choosing the right mortgage for you. In Kenya, the two most popular options are 15-year and 30-year mortgages.

15-year mortgages offer several benefits, one being repaying the loan faster. They typically have lower interest rates than 30-year mortgages, so you’ll save money on interest over the life of the loan. They also have shorter terms, so you’ll build equity in your home more quickly.

30-year mortgages have their advantages. They tend to have lower monthly payments than 15-year mortgages, making them more affordable in the short term. They also offer more flexibility since you can choose to make extra payments and pay off the loan early without penalty.

Ultimately, the best mortgage for you depends on your unique financial situation. If you have a good flow of income for about the next 20 years, it’s good to go for the 15-year mortgage. But if your income level is little but more stable and long-term, you can consider a 30-year mortgage.

Consider the following:

• Income level
• Debts that you have
• Your current financial goals
• Ability to repay the loan on time. Are you more disciplined in managing your finances?

Summary

Both 15-year and 30-year mortgage loans help you get your dream property. However, ensure you can comfortably repay your loan over the agreed period. Remember that you can build equity as you repay your mortgage loan, which helps build your overall net worth.

Frequently Asked Questions

15-year vs. 30-year mortgage, which do I take?

The mortgage you take depends on your ability to repay the loan. The stability of your income flow determines your ability to repay a mortgage and the suitable loan term. If you take a 15-year mortgage with a low income, you’ll struggle to repay the loan since you still have other expenses.

Is a 15-year mortgage loan cheap than a 30-year?

Yes. The overall interest repayment of a 15-year loan is lower than that of a 30-year mortgage. This is because the bank charges interest half the time t would have charged for 30 years.

Can I take a 30-year mortgage and repay it in 15 years?

You can restructure the loan with our bank if you trust your income flow. That will help you save more money in interest you could have paid.

Having a retirement plan can save you from old age frustrations. Indeed, nothing hurts, like being old and weak and unable to work to make money. Remember that the older you get, the more you’ll be weak to work, and for some, diseases begin to trickle in, making the demand for money more intense.

That’s why you need to plan your retirement as early as your 20s when you are strong enough to work and invest. There are just a few investments you can make to enable you to retire by 40, and one of them is real estate.

Real estate investment is good if you make the right investment decisions. But how will it help you retire early? Well, that’s why we are here. You will learn how to invest in real estate and gain financial freedom as early as 40. 

If you can invest in the right way to earn passive income by forty, why would you work till 60 to retire? Of course, you need an actionable plan to enable you to retire by forty through real estate investment.

Actionable Steps to Help You Retire at 40 With Real Estate

1. Start With the Right Mindset

Your mindset plays a significant role in achieving your goals. If you have a negative mindset, you need to change it right away to be able to actualize plans to retire early. Remember that retirement comes after you’ve gained enough money and passive income assets that could last for generations if well maintained.

In this internet era, you will get hundreds of books explaining positive mindsets and how you can gain financial freedom in the shortest time possible. That’s why you should use that to feed your mind with the correct information about money. 

Robert Kiyosaki, in his book Rich Dad Poor Dad, explains how a rich dad and a poor dad taught their children about money. You have a positive mindset if you believe you can change the money pattern to gain more money.

Doing things with the right mindset sets you apart from naysayers, and you will eventually get what you need. When actualizing this step, you need to make an effort to stay out of bad debts and try to build your credit score.

Easy Steps to start Your Career as a Property Manager in Kenya

2. Determine Your Monthly Income Level

If you’ve been working smart, you probably have an income flow, maybe more. Now, you have to make a budget that allows you to save a good percentage of your income. 

You need to derive an achievable saving plan. For instance, consider the 50:30:20 budgeting rule, which means:

• 50% of your income after tax should go to needs.
• 30% goes to wants.
• And 20% goes to savings.

You can as well derive another plan that works well with your priorities. But for now, your priority is to retire by 40 with real estate, so make your savings bigger.

No matter how small or big your income is, you can’t do much without an achievable budget. At this point, you should cut off necessary spending and always look for ways to save money while shopping.

3. Always have Insurance and Emergency Funds in place 

We are in times where health, car, and business insurance should not be taken for granted. Insurance will help you cover a risk you don’t know when it will occur. 

10 Essential Tips For First-time Real Estate Investors

As a result, you will save more money, and you won’t have to stress about emergencies.

You should also ensure that you have an emergency kit to help you cater to little emergencies instead of opting for mobile loans.

If you have discipline and manage your income wisely, it’s possible to walk your way to retire at 40 with real estate.

4. Research About Rental Income 

If you put lots of effort while in your 20s, you can have your first rental property in your early 30s. After you’ve kept your financial health in order, it’s time to start thinking of investing in real estate.

The best thing to make sound decisions is by researching all you need to know about real estate.

You should answer the following questions:

• What amount of income can you get from a rental property?
• Is the income more than your current salary?
• Can the rental income maintain your living standard?
• How much rental income will you have after taxes?
• Which is the best location to earn more rental income?
• What type of real estate brings in more income?

If you get appealing answers to those questions, you can move to the next step.

5. Invest in Real Estate 

Here is the catch, you will invest in property that brings in more money faster. After researching, you can settle for residential or commercial real estate investment.

In addition, you can either buy a developed or undeveloped property. However, a developed property will be an excellent choice because you are a beginner investor in real estate.

It’s now time to head to your savings account to get the money for buying your property. However, if you don’t have enough cash, you can opt to take a loan to finance your rental property. 

Note: Before you take the loan, ensure you can repay it with the rental income and still cater to your lifestyle.

A loan will do well if you buy an already developed real estate. That’s because you’ll only need to renovate the property to make it look appealing to your clients.

6. Market your property 

Don’t invest and sit down and wait for miracle clients. Go out there and show people why your property will meet their needs.

You can advertise your property on social media platforms like Facebook and other traditional means, like on the radio or TV.

Once you get the right clients into your property, you start climbing the financial freedom ladder step by step.

7. Always maintain your property 

Never let your property grow old. You should ensure you renovate your buildings more frequently. Remember that your houses should always look appealing since they will be your source of income after you retire.

In addition, make sure your rental property is updated to current housing trends. That way, you will keep getting clients, hence more income.

8. Grow your property ownership 

Of course, you don’t want to have a single property and stop there. If you really want to retire at 40 with real estate, reinvest your profits.

Diversifying your property investment puts you in an excellent place to gain financial freedom. Explore all opportunities in the real estate industry to be able to broaden your income flow.

The Bottom Line 

If you follow the right guide and have a positive mindset, you will be a property owner in your early 30s. So, what reason do you have to continue working after 40?

Frequently Asked Questions 

1. What networth do you need to retire at 40?

Your average life expectancy after forty is around 46 years. So if you plan to spend Ksh. 4 million per year, you will need a networth of around Ksh. 184 million.

2. Where should I be financially at 35?

According to experts, you should have saved three times your salary yearly since you started working.

3. How much should your savings be at 40?

According to financial experts, you should have saved cash to keep you between 3 to six months in case of job loss.

4. Can a 40-year-old retire?

Yes. You can retire at 40 with investments like real estate or cryptocurrency. However, you’ll need a lot of dedication towards your investment plan, lest you make losses instead of profits.

You researched and got your preferred real estate property. Now, how do you close a real estate deal? This part of buying real estate is the most important since you will be a property owner after closing the deal successfully.

It may seem easy to close a real estate deal, but don’t rush first. You still need to learn a lot before signing that sales agreement form. 

This guide will teach you how to own property successfully without facing future obstacles.

Let’s get to the important steps you should take, without skipping any, to close a real estate deal without trouble.

Steps to Close a Real Estate Deal

Step 1: Have Your Funds Ready

After researching the type of real estate you should invest in, it’s time to talk to your lender. At this point, you should know the amount of money you need to purchase your property. Therefore, you will only apply for a loan that is enough for the purchase and other related costs.

They could help boost your property purchase if you’ve had some savings. In addition, getting a huge loan will highly depend on your credit score and income level. A good credit score and a high-income level could help you get a reasonable loan.

Step 2: Get an Escrow Account

An escrow account is the best way to transact without losing your funds. Using Escrow protects your money from possible theft. You can get your funds back if you sense any signs of malicious activity during the property transfer. 

How to Do an Online Title Deed Search In Kenya

After activating your escrow, you can deposit your funds there as you await the signing of the property transfer documents. Once everything goes well, you can release the funds to the seller. 

Escrow services also protect the seller’s property since there is an assurance of payment. So, it’s a win-win situation when you both agree to use Escrow services. 

Step 3: Do a Title Deed Search

This step is crucial since you will confirm the current property owners. Once you conduct a title search, you will also know the property ownership history, revealing all details.

This step will save you from potential conmanship since you will get to know the authenticity of the property you are about to buy.

In addition, this step will familiarize you with the documents you need to own property successfully.

Step 4: Hire a Real Estate Attorney

If you are a first-time real estate buyer, you don’t know the legal part of property transfer. That’s why you need to hire an attorney who can represent you in court once anything happens in the future.

An attorney will also ensure that the property ownership documents you sign are authentic. Therefore, you might not have to worry once you have a good attorney.

Beginner’s Guide to Real Estate Investment in Kenya

An attorney will handle all legal proceedings related to property transfer. That’s why you need to hire who has previous experience in property ownership and transfers.

You might also require some eyewitnesses when signing the property transfer documents. That will help in ensuring that you can handle any case related to your property that can arise in the future.

Step 5: Inspect the Property 

Before signing the property transfer documents, you need to go through the property once more. Ensure that you like everything about the property you are purchasing.

Check for possible roof leaks, if all shingles are in place, paintings, floor, doors, and windows. 

If there is any need for repairs, let the owner do it before you buy the property. 

You should only pay for property that is ready for use. However, if the seller is not able to fix it, that takes us to the next step.

For the inspection process to go forward, you need to include an inspection contingency clause that protects you from accepting damaged property. If the seller isn’t willing to fix it, you can walk out of the contract without paying penalties.

Step 6: Ask For Negotiations 

If you’ve some issues with the property quality, you can talk with the seller to reduce the price since you’ll do some repairs before using the property. 

But that doesn’t mean you shouldn’t ask for negotiations if the property is in good condition. You can ask the seller to remove some costs involved in the transfer. Remember that sellers can take advantage if you are starting in real estate investment.

Step 7: Remove All Contingencies 

Contingencies protect you if anything is wrong with the contract. You won’t pay any form of penalty if you leave the contract when the seller fails to meet some or all requirements in the contingency.

In addition, if you have a mortgage loan contingency, you cannot pay the penalty if you leave the contract in case you don’t get funds on time.

So, if everything is smooth during the contract signing, you can remove all contingencies involved.

Step 8: Do Final Touches 

Do not assume everything is good, and continue with the signing. That may cost you in the future. 

Ensure you crosscheck the property again to see whether the owner did repairs and if there was anything to fix. Again, check whether there are any new damages caused before signing.

Step 9: Sign The Sale Agreement Documents 

This is the final step before you become the legal owner of the property. Ensure your attorney and witnesses are present during the signing. 

Step 10: Store Your Ownership Documents Securely 

After you’ve become the new property owner, keep all documents in a safe place. 

This will help you in the future if there are any disputes with your property. Furthermore, you will still need the documents to resell the property later.

Don’t navigate the market alone! Visit our website to connect with a network of pre-vetted real estate agents. Search by location and expertise to find your perfect partner on Property254. Start your journey today!

The Bottom Line 

Now, you have the right procedure to follow when closing a real estate deal. Why don’t you go ahead and become the next property owner?

Frequently Asked Questions 

1. Why is closing a real estate deal so important?

Closing a real estate deal is critical in real estate investment since it’s the final step to making profits( for the seller) and owning the property(for the buyer).

2. How long does a real estate deal take to close?

If everything goes as planned, it will take approximately 50 days to close a real estate deal.

A proof of funds letter is a letter from the buyer’s bank to the property seller, showing that the buyer has enough liquid cash to pay a downpayment and other expenses related to closing the deal.

A property seller will feel more secure if you prove you have enough funds to buy their property. 

A proof of funds letter can help you close a real estate deal and outshine other property bidders without a POF letter.

By the end of this post, you’ll learn:

• Benefits of POF letter 
• Difference between mortgage preapproval and POF letter 
• How to get a POF letter
• A POF letter template

Benefits of a Proof of Funds Letter?

1. You stand a chance to own the property. Once a seller trusts you from day one, they’ll definitely like to sign property transfer documents together. Let’s say you bid for a property with Ksh. 1M plus a POF letter and someone else bids with only Ksh. 1.2M. The seller might consider you since you have proof you can afford to pay.
2. If you are using cash to buy a property, you don’t need to provide a mortgage pre-approval letter to the seller.
3. If you are using a mortgage to buy property, you’ll need a POF to prove to the seller that you have enough funds to foot a down payment of at least 20% of the selling price. In addition, you’ll also need to provide a mortgage pre-approval letter.

10 Key Steps to Close a Real Estate Deal

Mortgage Pre-approval vs. Proof of Funds Letter: What’s the Difference?

A mortgage pre-approval serves as proof that the lender is willing to give you the loan you applied for after a specific period. In most cases, you must make a cash down payment on the property while waiting for the mortgage funds.

On the other hand, you will need a POF letter when you want to buy the property with cash. The bank states the liquid cash that is available in your account. 

Ultimate Guide to Land Allotment Letters In Kenya

Note that mutual funds, stocks, and bonds don’t count as liquid cash available.

How to Get a POF Letter 

You should visit your bank with your national ID to get a POF letter. If you have other accounts, transfer the money to one account before requesting a POF letter.

Having the money in one account saves you the time moving from one banking institution to another requesting POFs.

After the funds are in one account, request a POF letter from the bank manager. It won’t take more than 24 hours before you have the letter with you.

A Proof of Funds Letter Template 

Here is a template of what to expect inside that envelop: 

Date 

Bank Name 

Address 

Contact 

Dear (Property Seller),

RE: Proof of Funds for (Buyer Name)

We hereby certify that (Buyer Name) has been our esteemed customer for the last (no. of years).  

(Buyer Name) has total liquid cash of (Ksh….) in their account in our institution.

Kindly find the attached documents of their bank statements for each account. 

If you need more information concerning (Buyer Name), feel free to contact us via (email/phone number). 

Regards,

Signature 

Branch Managers Name 

Conclusion 

Always aim to provide a POF letter whenever you are not the only one bidding for a property. Sellers will not waste time going for bidders with no POF letters. Instead, they’ll just come to you directly.

Frequently Asked Questions 

1. Can I submit several POF letters if I have multiple bank accounts?

This idea will be tiresome since you will spend more time waiting for those letters. Furthermore, moving all the money to one account from one banking institution will be convenient.

2. When do you need a POF letter?

You’ll need a POF letter when buying a property for cash. The seller will trust you more once you prove your legitimacy through your available funds.

Unlock the secrets of the Kenyan real estate market. join our upcoming webinar and gain valuable insights from industry experts.

Are you thinking of investing in real estate? Well, it’s important to note that different real estate types have different Returns on Investment (ROI). In addition, different locations accommodate different types of real estate. For instance, you cannot invest in residential property in industrial areas. 

If you invest in an ideal property type in the right location, you could earn lots of profit, enabling you to invest in multiple rental properties in Kenya. Real estate is a good retirement plan, which is more secure than stocks. However, you should have an excellent plan to succeed in real estate investment in Kenya.

This post will break down the best types of real estate you can try out in Kenya and succeed.

What is Real Estate Investment?

Briefly, real estate investment involves buying and selling raw, commercial, and residential land. There is also another type of real estate that you don’t necessarily need to own property to be a real estate investor.

Anything natural or manmade on land is considered to be real estate. For instance, crops, forests, boreholes, or minerals are all real estate. However, the commonly known and traded real estate is commercial and residential property.

4 Best Types of Real Estate

1. Commercial Real Estate

Commercial real estate is one of the best real estate investments in Kenya that can make you the next tycoon. This real estate model comprises industrial warehouses, offices, retail stores, and hospitality buildings like hotels and hospitals.

With everyone thinking of having a side hustle in Kenya, there is a guarantee that commercial buildings in the right locations will always have tenants. That’s why commercial property brings more rental yield than any other type of real estate. 

The growth of commercial real estate depends on the location you choose. For instance, if you set up retail stores near colleges and universities, you will have tenants faster since there is a ready market, the students.

Industrial warehouses will grow well in big towns like Nairobi, Mombasa, Kisumu, and Eldoret. In addition, offices and hospitality buildings will do well in those big towns.

2. Residential Real Estate

Residential real estate is the second-best type of property investment in Kenya. This type of property consists of single-family houses and apartments. You can rent or sell your residential property. 

If you plan to build apartments for sale, you’ll need a lot of money since you’ll need a bigger piece of land. These big investments suit people with experience in real estate investment. 

However, if you are a beginner in real estate investment, you can start with simple rental properties to help you gain experience.

Building a Real Estate Portfolio: Mistakes To Avoid

You may start gaining profits sooner if you build your residential property in more populated towns like Nairobi and its metropolitan areas. Success in residential real estate depends on the average number of tenants you have per month. The higher the number of tenants, the sooner you’ll get your ROI.

3. Raw Land Real Estate

Raw land means that there is nothing on the ground. If you want to start investing in raw land, you may have to consider a lot of factors, such as:

• Which is the closest town/city?
• What is ROI in that area?
• How is the security around that area?
• Are there social amenities such as water, electricity, schools, roads, etc.?

These factors will highly contribute to the success of a raw land investment. But before buying raw land, ensure you run a title deed search to avoid losing your money to fraudsters. 

The raw land investment is a long-term investment plan since you don’t have to develop it right away. In addition, you can resell it after some years at a higher price since land is an appreciating asset.

One shortcoming of investing in raw land is you don’t know what your neighbors are planning to build on their land, and you have no control over that.

4. Real Estate Investment Trusts (REITs)

Do you want to invest in real estate but fear the risks involved, plus the high amount of cash needed? Well, publicly traded REITs can help you with that. 

REITs are companies that own various types of commercial real estate, such as retail stores, warehouses, offices, and hospitality buildings. These companies allow you to buy shares and receive dividends annually. As long as the companies make profits, you will always get your share each year with fewer risks.

REITs should return 90% of their taxable income to their shareholders annually. So that sounds like a good investment plan. However, you should be careful not to fall for Ponzi schemes parading themselves as REITs because you will lose money in the end.

The Bottom Line

The best real estate investment depends on your interest and goals. While it may be expensive to dive into real estate, some still require an affordable amount of money. For instance, if you are a beginner in real estate investment, you can start by buying REIT shares, which will help you gain some experience. In addition, you can try out rental properties, which also don’t require much money compared to commercial real estate.

Frequently Asked Questions

1. What are the main types of property?

The main types of property you could invest in are residential property, commercial property, and raw land. The success of each property investment depends on location.

2. Between commercial and residential property, which is better?

Commercial property tends to do better than residential property. In most cases, tenants pay more rent for commercial property than residential property. As a result, it’s easy to break even with commercial property.

3. How do I choose the best location for rental real estate?

The best location to set up your residential real estate should have a high population growth. Locations near schools and in urban centres have high chances of success.

4. What is the 1% rule in real estate?

A 1% rule means that monthly rental income should be 1% of the purchase price. For instance, if you bought your rental property with Ksh.10M, the monthly rental should be 0.01×10,000,000 = Ksh. 100,000.

Making money in real estate is not as complicated as it seems. That’s why you find thousands of investors coming to property investment. 

You can be the next tycoon once you learn the tricks you can use to succeed in real estate investment. 

In this guide, you’ll know what you should do to create a profitable real estate investment, whether it involves property or not. 

Key Takeaways 

• Understand real estate 
• How to make money in property investment 
• Risks involved 

What is real estate investment?

Real estate investment ranges from buying and selling raw land, residential, and commercial property. 

The main aim of property investment is to gain high returns on investment. And that’s why you should be keen to know how to make that happen.

4 Big Ways You Can Earn Money in Real Estate Investment

1. Property Appreciation 

Suppose you buy raw land at Ksh. 200,000 and let it appreciate. You can sell the land some years to come at Ksh. 300,000, and you’ll earn a cool Ksh. 100,000 without breaking a sweat.

If you find out that your land has valuable natural resources such as water and minerals, the price of it will automatically skyrocket. 

You can also buy a home and sell it later at a higher price. 

If you buy a rental property, it will appreciate if you maintain it well. Don’t expect it to appreciate if you don’t do simple things like renewing the painting. 

Once property equity increases, you can use it as collateral against a bigger loan to buy more property. 

Alternatively, you can always sell your property at a higher price than the buying price and make profits. 

Again, you will make profits if you increase your rental income gradually. However, you should improve the property’s appearance before you increase rental income. For example, you can change iron sheets, repaint, or add tiles to your houses.

Top Factors to Consider before Investing in Commercial Real Estate in Kenya

However, property appreciation depends on location growth and inflation. For instance, big towns will have a higher growth potential than smaller towns. Rental property near universities and colleges will grow faster as the student population grows.

Inflation will also be a big factor in contributing to property appreciation. The USD was only worth less than 100 Kenyan shillings some years back. Now, in 2022, the price of a dollar is 120 shillings. That means that if that trend continues, land and property prices will keep appreciating. 

However, you must learn to be patient with your property, don’t expect it to pay your bills after a few months of investing.

2. Creating Regular Income 

If you plan to retire early with real estate, you’ll need a continuous income flow to help you with your daily expenses. 

The most reliable way to create an ongoing income from the property is by renting it to tenants. Remember that the tenant will pay you monthly, so you’ll have income. However, don’t use your rental income before implementing the 50% rule.

If you buy a rental property, you can start getting your ROI as soon as you get tenants. The income level of rental property depends on location and the average tenant number.

Beginner’s Guide to Real Estate Investment in Kenya

Buying commercial property can leave you with more money since rental income from commercial houses, line offices, retail stores, and warehouses are higher than a rental property. 

Regular rental income is the best way to keep you afloat in real estate investment. However, to continuously make profits, ensure you get a good property manager to help you make sober decisions.

3. Real Estate Investment Trusts (REITs) 

REITs are among the best types of real estate that can help you make money without owning property. REITs represent a group of companies dealing with commercial and rental properties that allow members of the public to buy shares. 

Once you buy REIT shares, you’ll get at least 90% of the company’s annual income. That’s what the law supports.

If you plan to start in real estate investment, starting in REITs will be a good idea to help you learn industry terms.

However, you should ensure you don’t fall prey to fake REITs that will siphon your hard-earned cash.

4. Buy and Hold Real Estate Property 

Suppose you buy a single-family and rent them out. You will gain profits in terms of ROI. If you purchase many apartments, you can live in one and rent the rest. At least, you will save your house bills and still pay your mortgage using income from other apartments.

You can also profit by buying old houses, renovate and resell them. However, you should first learn about renovating costs before purchasing the property. Alternatively, you can get more profits if you know or learn how to renovate.

After renovation, you’ll sell the property at a profit. Isn’t that an excellent way to make money with real estate investment?

Another way to make money with your houses is when you live outside the country. So if you own a home/ house in Nairobi or its metropolitan areas, you can rent out your house as AirBNB to tourists for a short term. That will boost your mortgage repayment. However, you will only make good profits if the area is close to a tourist destination like Maasai Mara or the coastal region.

Factors to Consider to Succeed in Real Estate Investment 

If you want to gain profits, you should understand what’s at stake in real estate investment. 

• How much money do you need?

You should know how much you need to buy real estate. This will help you search for the correct mortgage value.

• Liquidity 

How fast can you get a buyer if you decide to sell your property? You should invest in a property that’s easy to liquefy.

• What do you know about real estate?

Before investing in real estate, you should have all the information you need to succeed. You can also hire a lawyer to help you with the legal terms.

• How prepared are you for risks?

Every business has risks, but the degree varies from one industry to another. Like in real estate, the most considerable risk is fire. So, can you compose yourself if you lose everything?

Conclusion 

As you’ve read above, you can make money with real estate investment. All you need is to make calculated moves to help you make the right choices. 

Real estate investment can help you retire early if you put in the right efforts.

Frequently Asked Questions 

1. Can I become wealthy through real estate investment?

Yes. You can be super rich with real estate. All you need is to follow the correct blueprint to help you. It’s advisable to learn first before investing in real estate. You can start by buying REIT shares to gain real estate investment experience. 

2. What is the best way to make money in real estate as a beginner?

You can make money through property appreciation if you are a beginner. You can buy land, let it wait for five to ten years, and resell it. However, if you need quicker returns, you can buy a rental property. That will give you income as soon as you have tenants.

Don’t waste time searching. Contact Property254 today and let us connect you with a qualified real estate agent in your town. Get started on your real estate goals now.

As a real estate investor, you want to profit from your investment. You’ll also need to know how long it will take to realize your returns on investment (ROI).

Remember, it’s always advisable to determine your business progress, regardless of size. That’s why you can easily realize your property profits with the help of calculations like the 50% rule.

This guide will show you how the 50% rule works and how it can help you in your real estate investment.

What is The 50% Rule?

The 50% rule in real estate means you take half of your monthly rental income to cater to the property expenses.

However, we don’t include mortgages in these expenses. Instead, expenses like property taxes, insurance, maintenance costs, capital expenditures, utilities, and property management costs.

Therefore, if your monthly rental income is Ksh. 200,000, you should use Ksh. 100,000 for those expenses.

The 50% rule is an excellent way to dive into the real estate business. If you are new to property investment, this rule can help you avoid some beginner mistakes.

This rule ensures that you don’t exaggerate real estate profits. You can easily track your real income by keeping clear monthly expense records.

How Does the 50% Rule Work in Real Estate Investment?

The 50% rule will tell you whether you made the right choice investing in real estate. After you get tenants on your property, ensure you record the monthly income. 

Now, take half of the rental income and use it to cover expenses concerning the property. 

The remaining half of your rental income should go to mortgage loan repayments and personal expenses. However, covering personal expenses with your rental income should be the last thing to do. Instead, you should evaluate the actual profits after the 50% share of expenses and mortgage repayment.

The Ultimate Guide to Making Money in Real Estate

Benefits of The 50% Rule in Property Investment

• With this rule, you determine the growth potential of your rental business. You can save and eventually buy another property if you have a bigger share after the 50% rule.
• It helps you evaluate real property income. If you are buying a rental property, you’ll request the owner to give you income and expenses records. That way, you’ll know the potential of the property.
• With the 50% rule, you’ll know when to continue with the business and when to sell it.

Use of The 50% Rule to Determine Your Property’s Cash Flow 

If you want to know the real cash flow of your business, you will first know the gross rental income from your records. 

Now, take half of the gross income and set it aside for property-related expenses.

Afterward, take mortgage repayment from the other half. Now, whatever remains after paying the mortgage is the monthly cash flow of your rental business.

However, if you didn’t use a mortgage loan to buy your property, the other half is your average monthly cash flow.

Example:

A monthly gross rental income of Ksh. 200,000 means you will have Ksh. 100,000 for property expenses. 

Suppose you pay a mortgage of Ksh.80,000; you’ll have a monthly cash flow of 20,000.

What is a Proof of Funds Letter (POF)?

Accuracy of the 50% Rule 

The 50% rule can help you know your expectations when starting out in real estate investment.

This rule is just a guideline for whether or not to invest in real estate. For instance, if you get that the remaining half is far less than your monthly mortgage repayment, you should forego the property.

You should only go on with the investment if you get at least 20% cash flow from your rental property.

The 50% rule will give you a rough figure of potential earnings if you want to buy a rental property.

If you get a higher cash flow amount after 50% and a mortgage investment, you can go ahead with the investment. 

What is the 1% Rule in Real Estate?

The 1% rule tends to go hand in hand with the 50% rule. The rule will show you how much rental income you should expect from a profitable rental property.

The 1% rule insinuates that the monthly rental income should be at least 1% of the total property purchase price.

Example calculation:

If you bought rental property worth Ksh. 20 million, monthly rental income should be 1% of that, which is Ksh.200,000.

If you cannot get that 1%, investing in real estate might be a bad idea. Instead, go back and search for the best locations with high rental yield potential.

Conclusion

The 50% rule will be a better blueprint to determine the cash flow you will earn on specific rental property.

Although the figures you get are close estimates, they should help you make the right investment.  

Always ensure you scrutinize rental property before investing in it. Consider all aspects that will make you realise your ROI as early as possible. 

Frequently Asked Questions 

1. What is the 10% rule of real estate?

The 10% rule means that you should buy 10% less than the sticker price of the rental property. You should have excellent negotiation and bargaining skills to actualize this plan.

2. Is the 50% rule accurate?

Not exactly. But it gives the investor a rough figure to help determine the potential cash flow of the rental property.

3. What is the best profit margin for a rental property?

As an investor, at least 10% ROI will be a good rental yield. However, not all locations can offer such high ROI. For instance, local towns in Kenya will give an average of 6% ROI.

4. Is rental property a wise investment idea?

Well, if you want to retire early, you may consider real estate investment. Rental property brings income with little effort. So, it will be a nice investment that suits your retirement plan.