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This article is part of our Money254 Partner Series produced in partnership with Vuka, an investment club that allows Kenyans to invest in the Acorn Student Accommodation I-REIT.

Real estate has long been revered as one of the most stable and lucrative investments in Kenya, providing investors with consistent returns. As a tangible asset that tends to appreciate while generating rental income, its appeal is undeniable. However, the high initial capital required excludes many ordinary Kenyans from making this lucrative investment. 

In many developed countries, Income Real Estate Investment Trusts (I-REITs) have been noted to eliminate the financial hurdle that delays and prevents many individuals from reaping the benefits of real estate investments. 

Kenya has followed suit in adopting this innovative collective investment. Today, ordinary Kenyans can dip their toes into the real estate market through I-REITs with as little as Ksh5,000 per month, earn rental income in the form of dividends, and benefit from capital appreciation as the properties under the I-REITs management increase in value

Easiest Way to Earn Rental Income

I-REITs are investment vehicles regulated by the Capital Markets Authority (CMA) that allow ordinary Kenyans to invest in real estate without stretching their capacities.

I-REITs operate on the principle of collective investment which has also led to the popularity of SACCOs and Money Market Funds (MMFs) in Kenya. For example, investors with Ksh100,000 each can pull their contributions to buy into properties worth, say Ksh100 million, by turning their contribution into a percentage of the whole. 

These properties can range from rental apartments and student hostels to offices and shopping malls, providing investors with a diverse portfolio. 

I-REITs generate income through rental payments from tenants occupying the properties within the trust. These rental incomes are distributed among the investors as dividends, providing them with a steady stream of passive income. 

Additionally, as the value of the underlying properties appreciates over time, the investor also benefits from capital appreciation, further enhancing their investment returns.

Brian’s Example

Saving to buy or develop a property and real estate portfolio that will generate rental income is daunting. When you consider the high initial investment required for purchasing land and constructing a house, the dream of real estate ownership can seem distant.

For example, consider Brian, a mid-level manager in Nairobi who earns a monthly net salary of Ksh100,000. Brian dreams of buying a 50*100 plot on the city's outskirts and constructing rental properties consisting of three one-bedroom houses. 

If Brian were to save 20% of his income towards his dream, he would accumulate Ksh20,000 per month. To reach a target of Ksh5 million - comprising Ksh1.5 million for land and Ksh3.5 million for construction - he would need to save for almost 21 years, while still facing the challenges of inflation and rising property prices along the way.

If Brian were to save his money in a traditional bank savings account, the interest he earns might soften the blow of inflation. Still, given the nature of real estate appreciation, it won't keep up with rising property prices. 

Here's where I-REITs come in. 

With I-REITs, Brian can start earning rental income in the form of dividends and benefit from the appreciation of real estate assets immediately. Instead of saving his Ksh20,000 monthly in a bank account, Brian could direct part of his savings towards buying I-REITs shares through platforms like Vuka Investment Club. By investing regularly, Brian can gradually build his portfolio of I-REITs shares, increasing his dividends over time.

Furthermore, Brian can benefit from the compounding effect by reinvesting his dividends into buying more I-REIT shares, accelerating the growth of his investment portfolio. This strategy allows Brian to leverage the power of compounded returns, helping him achieve his real estate goals faster than the traditional saving methods.

The dividends he earns will hedge him against inflation, and they can increase over time if the rental properties of the underlying real estate assets rise. Additionally, his I-REIT shares will appreciate as the underlying properties rise in value, enhancing Brian's overall investment returns. 

What is more? Because of the flexibility in the capital required, Brian can still diversify his investment while still building your real estate portfolio with REITs. While Brian would need to put his entire savings towards buying land and building, with an I-REIT, he can still earn rental income from as low as Ksh5,000 per month and still have Ksh15,000 to save in a SACCO, buy MMFs, buy NSE stocks, have an insurance policy for his kids, etc. 

Investing in I-REITs in Kenya (Vuka Case Study)

You can invest in I-REITs by purchasing units through the Vuka Investment Club

Also Read: Vuka Investment: I-REIT Helping Kenyans Own Real Estate in Nairobi With as Low as Ksh5,000

Vuka is an innovative platform that allows Kenyans to invest in the Acorn Student Accommodation Income Real Estate Investment Trust (ASA I-REIT), which is asset-backed and CMA-approved. 

Vuka was launched in 2021 and serves as a gateway to investing in ASA I-REITs, initially through the Purpose Built Student Accommodation (PBSA) brands Qwetu and Qejani; two major student accommodation brands in Kenya, with nearly a dozen properties near Nairobi's major university campuses.

One unit of the ASA I-REIT is currently retailing at Ksh21.65 on the Vuka platform. If you've been thinking of being a landlord without high start-up capital, you can start investing in I-REITs with as little as Ksh5,000 per month. This will allow you to accumulate approximately 231 units of ASA I-REIT monthly or 2,771 units annually. 

The Returns You Get Through Vuka

Vuka provides investors with two forms of returns - capital appreciation and dividends. The average annual returns from the dividends stand at 5-7%, while the yearly capital appreciation rate is 4%. This increases the targeted total average returns on Vuka to 11% annually. 

The value of ASA I-REITs is updated twice a year during the announcement of the full-year results and the interim results. If the annual appreciation rate were to be maintained at 4% for the next three years, each unit would be approximately worth Ksh24.35 in 2027. The value of the 2,771 units you bought today for Ksh60,000 would be approximately Ksh67,483. This is without factoring in the dividends paid from the rental income and which stand at between 5 and 7%.

To invest with Vuka, the first step is to create an account on the platform, complete the KYC and account verification procedure, choose your desired member category based on the amount you intend to invest annually, pay a once-off joining fee, and voila, you are ready to start buying and selling ASA I-REITs.

Wrapping Up

Apart from offering potential capital appreciation and earning you dividends, I-REITs can provide liquidity and flexibility. Unlike traditional real estate investments, which require significant time and effort to buy and sell properties, you can easily buy and sell I-REIT shares through online platforms like Vuka. 

This flexibility allows you to adjust your investment strategy according to market conditions, further optimizing your returns. 

Investing in I-REITs not only allows you to tap into the lucrative real estate market with low initial capital but also allows you to diversify beyond traditional asset classes, reducing overall investment risk. To start your I-REIT investment journey with the Vuka Investment Club, start your journey here