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
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.
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.
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.
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.
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
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.
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.
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.
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.
