buyer-guides

Pros and cons of real estate investment in Kenya

By: Peris Gachago
December 07, 2022

Real estate is generally a great investment option. If you do it right, it can be one of the best investments you make with your money. It can offer passive income and long-term wealth and even become a full-time career if you're really dedicated to your craft. Below are pros and cons real estate investment in Kenya

Pros

1. Real estate appreciates

Real estate is not a short term investment but if done in the way it will have big returns .One benefit is that capital assets appreciate over time. This means your property's value increases over time.

If you decide to buy a house and sell it after some time, you could sell it at a much higher price than what you bought it for. You can make more off selling the property. You can also buy properties and rent them out to short term rentals, long-term tenants or as vacation homes. If demand is strong in your market, you should command a higher sales price and thus take home more in profits.

2. Offers hedge against inflation

Unlike most other types of investments, real estate can offer a hedge against inflation. When the prices of goods and services are rising, home values and rents typically increase, too If home prices rise in your market, for example, rents naturally do, too meaning you're basically keeping pace with inflation. This is to mean that with high inflation, your rental income and property value increase significantly. That's the reason as to why real estate investors welcome inflation with open arms.

3. Tax advantage

When you invest in real estate, you open yourself up to countless tax benefits. You can deduct several expenses associated with owning an investment property. One , your property taxes, you can write off mortgage interest, property management fees, property insurance, the costs of ongoing maintenance, the cost of repairs and the money you pay to market your property to potential renters. Your profit will not be taxed as income but as capital gain. Capital gain comes with lower tax rates.

4. Regular income

Investing in real estate increases your income. If chosen wisely, you can secure a steady flow of income for a long time and even save for retirement. This can come in in form of rental income both commercial and residential. If the property in demand is in an area that is in demand, you are likely to generate a good amount of cash flow from the property. Another way is by house flipping. As an investor, you can purchase a home fix it up and put back on the market. Another great way of generating a lot of income in a short period of time is by turning your houses to vocational properties .Tenants will only stay for a matter of days while paying a much larger sum than someone would for rent. Learn more on how to make regular income in real estate.

5. Long term financial security

The benefits of investing in real estate provide investors with long term financial security. When you have a steady flow of cash in succession, the rewards of this investment bring on financial rewards for a long time. Owning a rental property can afford investors a sense of security because of the property's appreciation in value over time. This means that your property's value is most likely going to increase because land and buildings are appreciating assets. With that said, however, there is no guarantee the value will increase indefinitely. That is why it is always recommended to thoroughly research the location before closing the deal on the house of choice.

Cons

1. Requires Money

You need money to make money. Unlike other types of investments, real estate transaction costs are considerably higher. It can significantly affect the value of the investment and make it more difficult to turn a profit. To get started, you'll need a down payment plus closing costs and money to repair and update the property to maximize the income.

However, there is another option that requires the least amount of initial capital, is to invest in real estate through the stock market. A real estate investment trust, or REIT, is a special type of company designed to allow investors to put their money to work in commercial real estate. Learn more on Real estate investment Trust

2. Takes a lot of time

Investing in real estate requires a significant amount of time .You need to spend time learning how to successfully manage your real estate investments, learning about the neighborhoods in which you want to invest, identifying problems with prospective investment opportunities, dealing with maintenance issues and dealing with the property manager.

3. It requires management and maintenance

There may be times when unexpected maintenance issues arise. Some will require repair others replacement and this means that the cash you had reserved will be wiped out. There might be leaky roof, failed water heater etc. Others are financing payment like real estate taxes and insurance which rises when a property sits empty for long periods of time.

4. Real estate market is unpredictable

While real estate values do tend to rise over time, the real estate market is unpredictable and your investment could depreciate. Supply and demand, the economy, demographics, interest rates, government policies, and unforeseen events all play a role in real estate trends, including prices and rental rates. You can lower the risk of getting caught on the wrong side of a trend through careful research, due diligence, and monitoring of your real estate holdings.

5. Real Estate Transaction Costs are High

Most buyers turn blind eye when venturing into real estate industry which lead to total blackout on transactional fee. In addition to the price of the land or property on offer there are other costs that you should research extensively on. The transaction costs associated with buying and selling properties can be quite steep. These costs include commissions, title insurance, loan origination fees, and a variety of closing costs. These costs can easily wipe out the appreciation in market value of a property. it is essential you have as much information as possible beforehand so that you can make informed decisions.

Summary

Real estate is generally a great investment option if you are able to apply these rules for making a successful real estate investment. It can generate ongoing passive income and can be a good long-term investment if the value increases over time. You may even use it as a part of your overall strategy to begin building wealth.