If you are fed up with paying your landlord’s mortgage and want to buy your own home, but simply cannot afford it, then co-ownership may be the answer.
Investment property can be held through a variety of titles – owned in your name, a company, trust, shared ownership or joint ownership
Investing as a sole (private) purchaser
Here the property is registered in one name only – usually yours. Under this arrangement, rental income is received by you only, and expenses relating to the property can only be offset against your income.
Ownership of the property is split equally between two or more people, who could either be friends, a spouse or your family with income and expenses divided the same way. The arrangement usually works best if all owners expect to receive similar annual taxable incomes for the foreseeable future.
This is when you buy a percentage amount of a property’s value from a housing association or housing developer. This way you can get on the property ladder at a fraction of the price.
For example, if one of the parties is on a higher income, ownership of the property can be divided in the proportion 75/25. This way, three quarters of the income or losses generated can be allocated to the higher income earner and a quarter to the lower income earner.
Investing through a company
There can be advantages to using a company structure, especially if there are a large number of co-owners. It’s easy to sell shares if one owner wants to exit the arrangement and the company tax rate is lower than the top personal tax rate.
However, companies can be costly to set up and maintain, and they must be run in accordance with strict legal requirements.
Investing through a trust
A trust may be a suitable ownership structure for a positively geared property as trusts can be useful for distributing income in a tax effective manner as well as offering asset protection.
The introduction of REITs in Kenya has given every Kenyan an opportunity to invest
The biggest advantage of REITs is that they are exempt from Double Taxation: no corporation tax, no VAT on rental income or on professional services, no capital gains tax, no stamp duty on purchase/sale/transfer of properties and no income tax. The only tax burden will be withholding tax on interest income and dividends.
Another is REITs will enable mobilizaton of savings from individuals and groups, i.e. you as an individual can invest sums as low as Kshs. 5000 depending on the structure of the REIT of course and your chama can invest even larger than that.
Developers will be able to go to the CMA for funding which means lower interest rates for developments i.e. lower mortgage rates for you as a buyer after banks follow suit and review their rates downwards.
Liquidity; unlike actual real estate property, these shares can be quickly and easily sold.
Diversity; because you’re investing in a portfolio of properties rather than a single building, you face less financial risk.