Have you ever taken a moment to ponder about how your life would be in retirement? Would you maintain your current standard of living or even raise it a notch higher? These are the tough questions that young professionals need to reflect on as they work through to the apex of their careers. Confidence in retirement, a study done by Enwealth, a pension scheme company, Strathmore University and Institute of Human Resource Management (IHRM) revealed that 86% of Kenya's working population are uncertain of their financial security in retirement. The report revealed that the majority of employees today will not be able to meet their monthly expenses with their retirement income. The contributing factors to this finding are current income, health, number of dependents and literacy levels.
Is retirement an advent of a gloomy life?
However, the picture of your life in retirement need not be a gloomy one. As a matter of fact, you can have an awesome retreat in the sunset days with a concrete retirement plan. The same study, confidence in retirement survey, also established that real estate is the most preferred investment for sustenance in retirement across all age groups that took part in the research. 41% of the sampled 515 respondents from age 21 to 61 preferred real estate investment to secure their retirement life. Wealth creation is a lifelong journey largely dependent on the need to keep on investing towards a target benefit.
What investment options are there in real estate?
Real estate investment in Kenya has become increasingly popular over the last 20 years and is now a common investment choice. The sector has plenty of opportunities for making big gains thus, buying and investing in real estate can help you plan for your retirement.
1. Basic Rental Property
This is perhaps the most common investment strategy. In this tactic, you buy a property that has high regular rental returns like holiday homes at the beachfront. Every month you receive rental income that you can channel to your pension scheme for the old age and will last until your golden years.
2. Real Estate Investment Group
Real estate investment groups are sort of like small mutual funds for rental properties. If you want to own a rental property but don't want the hassle of being a landlord, a real estate investment group may be the solution for you. A company will buy or build a set of apartments, then allow investors to buy them through the company (thus joining the group). A single investor can own one or multiple units, but the company operating the investment group collectively manages all the units, taking care of maintenance, advertising vacant units and interviewing tenants. In exchange for this property management, the company takes a percentage of the monthly rent.
3. Real Estate Trading
This is the wild side of real estate investment. Like the day traders who are leagues away from a buy-and-hold investor, the real estate traders are an entirely different breed from the buy-and-rent landlords. In this tactic, you buy properties with the intention of holding them for a short period of time (often no more than three or four months) and selling them for a profit. This technique is also called flipping properties and is based on buying properties that are either significantly undervalued or in a very hot market.
4. Real Estate Investment Trust
Investments in real estate ordinarily require a high capital outlay. However, through a real estate investment trust (REIT) you can be able to invest in real estate. A REIT is a regulated investment vehicle that enables the issuer to pool investors’ funds for the purpose of investing in real estate. In exchange, the investors receive units in the trust, and as beneficiaries of the trust, share in the profits or income from the real estate assets owned by the trust. In Kenya currently, we have Stanlib Fahari I-REIT. We have looked at four types of real estate investments that you can pursue. The sector is considered to be the best performing asset class at the moment and has proved so for a number of years now. As you work out your retirement plan, you can consider real estate investment to be your underlying pillar of steady income as you live through during your retirement. As with any investment, there is much potential with real estate, but this does not mean it is an assured gain. Nonetheless, make careful choices and weigh out the costs and benefits of your actions before diving in.
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