Becoming a Landlord in Nairobi Without Owning Land: Joint Venture

For many Kenyans, investing in real estate is the ultimate way to build wealth, but the high cost of land and construction often puts this dream out of reach. 

However, there are alternative models that allow you to become a landlord without owning land. Last week, we explored the lease-to-build model. In this article, we highlight the joint venture model, another practical route for aspiring landlords to enter the property market.

Read Also: 9 Ways for Owning a Home In Kenya

What Is a Real Estate Joint Venture?

A joint venture in real estate is a partnership where two or more parties combine resources to develop a property. Typically, one party provides the land, while the other contributes capital, expertise, or project management skills. Profits, and sometimes losses, are shared according to a pre-agreed ratio.

Joint ventures are common in Nairobi’s upmarket estates where the cost of land is significantly higher for many developers to buy and build at the same time. 

The Joint Venture will typically be executed through a Special Purpose Vehicle (SPV) a company that is jointly owned by both the buyer and developer and shares allocated based on their contribution. 

For instance, if you own a piece of land worth Ksh100 million, the developer will match the Ksh100 million for developing it. The land is then transferred to a new company where the land owner and the developer each hold a 50% share. 

How the Joint Venture Model Works

1. Identifying a Partner and Agreeing on Terms

The first step is finding a landowner who is interested in a JV arrangement. The next step is to legally define ownership percentages, profit-sharing, responsibilities, and exit options. For instance, a landowner may retain 40% of net rental income, while the developer takes 60% depending on the land value and the cost of construction. 

2. Financing and Construction

Once terms are agreed upon, the joint venture partners secure approvals, permits, and financing for construction. Usually, as the investors, you will manage construction to ensure quality and timelines are met, while keeping costs within budget.

3. Rental and Income Distribution

After completion, units are rented out, and income is collected. The profits are distributed according to the agreement. In some cases, the investor may have the option to buy out the landowner’s share later, gaining full ownership of the property and future income streams.

Read Also: Homeownership Option 1: Buying a Ready House

Example: Bedsitters in Kitengela

Let’s take a practical example. Suppose a landowner in Kitengela has 1/4 acre of land valued at Ksh3.6 million. You, as an investor, enter a joint venture and agree to construct 10 bedsitter units for rental purposes.

• Development Costs
  
  • Construction (modest finish) per bedsitter: Ksh500,000 - Total construction: Ksh5 million
  • Water & electricity connection: Ksh250,000
  • Approvals & contingencies: Ksh250,000
  • Total development cost: Ksh5.5 million
    
• Rental Income Projection
  
  • Monthly rent per bedsitter: Ksh10,000
  • Total monthly rent: Ksh100,000
  • Annual rental income: Ksh1,200,000
    
• Profit Sharing
  
  • Maintenance & vacancy buffer: Ksh200,000
  • Net income: Ksh1,000,000
  • Assume the landowner gets 40% and the developer 60% of the net rental income. Landowner share: Ksh400,000 per year, and the developer share will be Ksh600,000 per year
    
• Breakeven Period
  
  • Ksh5.5 million ÷ Ksh600,000 = 9 years

Also Read: Homeownership Option 5: Joint Venture - All you Need to Know

Why Choose a Joint Venture? 

1. You develop property without buying land outright. This is especially beneficial where the cost of land or the cost of building is beyond the reach of either the land owners or the developer.
   
   
2. You share the financial, operational, and market risks as two parties. 
3. Unlike the Lease model discussed here, both the land owner and the developer get to own the developed property in perpetuity. 

Important Considerations Before Entering a JV

1. Legal Clarity
   Ensure the JV structure is detailed and signed by a lawyer. Include clear terms on profit-sharing, construction responsibilities, dispute resolution, and exit strategies.
   
   
2. Financial Projections
   Always model expected income, costs, and payback period. Include buffers for maintenance, vacancies, and unexpected expenses.

Wrapping Up

The joint venture model demonstrates that with careful planning, legal clarity, and market insight, real estate investment in Nairobi doesn’t always require buying land outright, you can become a landlord and earn a steady passive income by turning partnerships into profit.