9th Sep 2021
Real estate investing, even on a very small scale remains a tried and true means of building an individual’s cash flow and wealth, There are several ways through which individuals and businesses can invest in real estate. The traditional methods have been buying property for resale or for leasing out.
There are new innovative ways of property investment that are increasingly becoming common.
One of the innovative ways of property investment is the concept of licensing. A licence allows third parties access to your property at a fee.
A licence is attractive for short term stays such as holiday rentals and events such as photo shoots.
Airbnb is an attractive form of licence whereby the homeowner allows users to access his house for a number of days at a fee. While bed and breakfast in a website has its own terms and conditions, in reality it is a licence.
While it is not mandatory for 'BnB' users to sign licences I would recommend the same to safeguard the rights of the homeowner.
Some of the risks for the home owner include breakages and damages, illegal use of the property, pilferage and theft.
A licence agreement would give the licensor some legal remedy against the users of the facility. There have been cases of crime being committed on bnb facilities.
A second innovative way of property investment is what is known as multifamily homes. This is where the home owner invests in a facility that can accommodate more than one family, such as a double unit.
The owner occupies and lives in one unit while renting out the other. The same can happen where the owner rents out a portion of his house, for example one floor of the house or half the house.
The attraction with this is that it enables the owner not only to live for free in his own house, but also earn an income. It is attractive where the home owner takes a mortgage to purchase the unit. The rentals paid by the co-occupant will service the mortgage.
A third creative way is real estate investment trusts. These are regulated and enable the investor own large tracts of property as a unit or share in such an investment scheme. Despite the regulations in Kenya enabling real estate investment trusts, the same have not quite taken off.
The traditional methods of real estate investment are usually long term. They include purchase and sale of property and leases. There are four main types of leases - residential, commercial, industrial and hybrid.
The distinction is important as the legal documentation and provisions are different. There are common provisions that cover tenant obligations and landlord responsibilities.
The tenant has an obligation to pay rent, service charge, not to causes breakages or damages and to inform the landlord of any damages.
The landlord has an obligation to allow the tenant repair external parts and pay land rates. In the event there are any disputes then either of the parties can recover.
The property investor’s rights include charging interest, attaching assets, eviction and suing to recover from the tenant.
Property rights in Kenya are strong. The Constitution protects the investor from arbitrary deprivation of his property under Article 40’s right to property. Real estate investment is fairly safe.