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.