“If you’re failing to plan, you’re planning to fail.” This well-known quote, often attributed to Benjamin Franklin, prompts an important question: Why is it essential to plan your real estate investments carefully?
Real estate investment planning is one of the most secure ways to guard your financial future, offering high returns and portfolio diversification. From understanding your current financial situation to identifying your future goals, you can develop a plan to achieve your financial goals through real estate.
Before checking off your investment plan to-do list, you need to ask: What benefits and risks are associated with investments of such scale? This would help determine multiple ways in which to invest smarter and secure your financial future.
1. Financial Independence Post-Retirement
First, planning for any type of investment, including real estate, readies you for financial independence long after your hair turns white and grey. During post-retirement, you will enjoy sufficient funds for your personal needs, emergencies, health expenses, and even a cushion against inflation.
Whether it’s ticking travel destinations off your bucket list, launching your new business, or building your retirement home, early planning sets the stage for achieving your post-retirement goals.
2. A Future-Proof Investment Against Inflation
According to the Kenya National Bureau of Statistics (KNBS), the inflation rate is defined as a percentage change of the Consumer Price Index (CPI) between two periods. In Kenya, the CPI tracks the average change over time in the prices paid by all consumers for a market basket of goods and services.
Statista has also noted a gradual increase in the Consumer Price Index since 2020, shifting from 118.6 points in January 2022 to 140.13 points in September 2024.
Investing in real estate cushions you against similar potential risks as the value of assets grows in tandem or higher. To achieve remarkable success, you can invest smart by identifying prime locations that offer higher rental returns or capital appreciation.
3. Highly Secure Returns Compared to Traditional Investments
According to the Kenya National Bureau of Statistics, the GDP of Kenya’s real estate market grew by 5.3% in 2024. This is in comparison to the cumulative GDP, which grew by 4.7% in the same period.
In a report by Madison Investment Managers, they noted that equities turnover declined marginally by 1.54% in October 2024. This is due to foreign investors that turned net sellers with a net selling position of KES 569.9 Mn compared to a net buying of 28.7 Mn recorded in September 2024.
Real estate investments offer a stable source of income, free from short-term market sentiment and foreign investor influence. They provide consistent returns, unlike traditional investments, which tend to fluctuate with market performance.
4. Tax Benefits and Reliefs of Investing in Real Estate
In 1789, Benjamin Franklin also wrote a letter referencing the newly established US Constitution, saying, “In this world, nothing is certain except death and taxes.” However, investments in real estate have poetically defied the odds in the inevitability of taxation.
With a growing population and rapid urbanization globally, there has always been a constant demand for housing. This has led to changes in policies driven through public-private partnerships to protect investors from potential pitfalls.
This has led to high rewards for such investments in real estate, but depending on the type of investment. For example, rental property owners can deduct expenses such as maintenance, security, mortgage interest, and management fees before calculating taxable income.
It has also become easier for property owners to transfer their tangible assets through capital gains tax exemptions. This can be applied to inheritance, gifts between spouses, and gifts or donations to charitable organizations.
These tax benefits or reliefs are also extended to the transfer of properties to a REIT, attracting stamp duty exemptions as per Section 96A (1) (b) of the Stamp Duty Act in Kenya.
A REIT (Real Estate Investment Trust) is a company that owns various types of income-generating assets in real estate. Whether commercial spaces, residential buildings, or hospitality properties, they allow investors to pool funds to invest in without directly owning the property.
The Finance Bill 2019 saw the inclusion of REITs’ investee companies in the income tax exemption bracket, officially allowing the amendment of Section 20 of the Income Tax Act.
This has led to REITs and REIT investee companies maintaining an income tax exemption status with a corporate tax exemption of 25% per annum. Unit-holders investing in REITs are subject to 5% withholding tax for residents and 10% for non-resident investors.
This move has allowed REITs to invest more in companies that develop real estate than going through the process of transferring properties (to the REIT).
Conclusion
The diverse nature of real estate has its unique challenges that offer strong returns for prospective investors. To effectively plan your investment strategy, you can consult property experts or financial advisors who can help you streamline the process. This will help you identify the ideal investment route, whether you’re operating through net income, equity build-up, or capital appreciation.
References
KNBS: Understanding Kenya’s Consumer Price Index (CPI): A Crucial Economic Indicator
KNBS: 2025 Economic Survey
Statista: Consumer Price Index (CPI) in Kenya from January 2022 to September 2024
Madison Investment Managers: Monthly Economic Report – October 2024