What is a Real Estate Investment?

Written by Ruth Njiri

Real Estate can be defined as a property comprised of land or buildings. In this context, we shall look at real estate from the perspective of these three broad categories according to their:

  • Residential use such as undeveloped land, houses, apartment buildings
  • Commercial use such as warehouses, office buildings, retail store buildings
  • Industrial use such as factories, mines and farms

Real estate is different from your personal property. Your personal property includes everything from intangible property such as stocks, bonds and other investment instruments. Real Estate is a special type of personal property that enables you through ownership, to manage, improve, perhaps rent and sell off the property for profit.

Home and land ownership is the most common type of real estate investment in Kenya. Most people who undertake this investment often need to borrow money from a financial institution in the form of a mortgage. Mortgages can come with heavy costs including high interest rates, transaction fees and taxes.

Commercial real estate ownership returns are based on the returns of the profitability per square foot, unlike a residential real estate property. These investments require larger capital injections and therefore financial institutions would require a higher down payment.

Industrial real estate can be classified within the commercial real estate group because it is a property that is used for the manufacture of goods and services for sale. The benefit of an industrial real estate investment is that you can get higher yields due to higher profits charged on longer leases.

A real estate residential investment is less expensive and usually most suitable for first time investors. Commercial real estate is often more valuable per square foot but due to the high capital injections required, it is best suitable for seasoned investors. On the other hand, there are usually heavy regulations by the local government authorities for commercial properties that can be quite cumbersome for investors.

The saying of “Location, Location, Location” is particularly related to real estate investments because the investment is affected directly by its surrounding area. The value of the real estate is affected by conditions such as crime rates, schools, slum areas, urban developments like shopping malls, good infrastructure such as having an advanced road and technological network around it.

Real estate investments almost always appreciate in value over time. The appreciation comes from the developments and improvements you make to the property you own as well as the surrounding urban developments around it. This is why a real estate property investment is almost always guaranteed to give you a profitable return on investment. However, this does not mean that you cannot make a loss. One still needs to apply wisdom and get a professional to assist you with the investment decision.


About the author

Ruth Njiri