Looking for ways to put money to work is on the top of the mind for a lot of people, and this seems to particularly be on the rise recently. Regardless of geographic or demographic considerations, a well-accepted notion is that investment plays a critical role in raising living standards.
There’s a greater push investment now more than ever before. The days of just the very wealthy having access to multiple revenue possibilities are coming to an end, and anyone may begin investing and earning substantial profits.
With innovative mindsets and technological solutions, the possibilities of compounding revenue through investment are becoming much easier. Brilliant minds are developing systems that make a whole range of investing activities seamlessly.
However, one sector that still faces a significant hurdle is the real estate industry. Unlike other investments like stocks, ownership of a real estate asset means outright payment of the full consideration.
An alternative investment path would be to have the property financed at extremely high-interest rates; essentially losing out on the investment opportunity. According to a report, mortgage interest rates in the country remain high, at 20 -27%.
Real estate investment for a little less
Investing in real estate is taking an innovative turn as investment startup, Enterprise Hotel is offering Africans the opportunity to invest in commercial real estate with as little as ₦30,000 ($52).
The company was founded in 2019 by Uche Ajaere and Richard Halliday. Its aim is to diversify real estate investing to the tiniest form, thus, creating a new approach to property ownership.
Enterprise Hotel Co-founder and CEO, Uche Ajaere, is popular for his role as director of the GIG Group. He has also been involved in the operations of real estate divisions and kept an eye on developments in Nigeria’s tech ecosystem.
Enterprise Hotel has locations in Lagos, Abuja, Benin, and Port Harcourt, with aspirations to expand throughout the country. According to the company, the objective is to establish an Enterprise Hotel in every major city on the planet.
The startup is breaking from the real estate norm and is offering its users an opportunity to own properties, even at a minimal cost.
The company achieves this goal by offering its customers three product classes each to suit their varying needs.
How it works
Enterprise Hotels works by offering different classes of investments to users. The first class of investment is the room sale. Individuals who subscribe to this arrangement have the opportunity to make an outright purchase of a room.
The second investment class is the block sale. Under this arrangement, Enterprise Hotel divides a room into ten blocks, allowing people to purchase each block. That way, if the original asking price for the room was set at N20 million, each block would cost N2 million each.
The last investment class is the unit sale, wherein Enterprise Hotel divides the room into a thousand varying units. Under this category, it becomes easier for more people to purchase real estate regardless of their varying income levels.
Challenges faced in the sector
Creating an affordable real estate investment plan doesn’t come without its peculiar problems, and Enterprise Hotel has a fair share of them to deal with.
Building in a sector with few or no precedents might be difficult for Enterprise Hotel. While there are a few businesses in Nigeria that provide fractional investing services, most of them are in the financial services industry.
Enterprise hotel is established at a time when fintech is seen as more lucrative and is amassing major growth in the technology space with little attention paid to other industries represented.
In the past, startups have sought to alleviate the problem of rent for Nigerians. Nonetheless, the real estate market has witnessed relatively little innovation.
One reason for this is that technology does not completely solve real estate challenges. At best, it facilitates processes. Unlike other industries, real estate has a high barrier to entry.
Furthermore, investors do not get instant gratification for their investments. They may have to wait up to 15 years to get a return on their investment. As a result, it comes as no surprise that real estate receives less investment than other businesses.
The real estate sector particularly raises a lot of questions, such as people thinking, ‘how affordable is it to get this product? And how fast am I going to make my profit?’
With the promise of higher returns in other industries, why would anyone want to invest in real estate? Enterprise Hotel is aiming to change this narrative with its low entry costs, which will make it a lot more affordable for Nigerians.
Timely return on investments
In addition to affordability, Enterprise Hotel claims to provide investors with a two- to four-year return on their investment. That’s impressive because most real estate investments take 15 to 20 years to pay off the initial investment.
The company also offers a variety of options for investors to profit from. The most common approach is through hotel reservations. But that’s not all as investors may profit from both the activities that take place in the rooms they own as well as the hotel’s other services.
Investors also earn a cut if, for example, a guest eats, drinks, or pays for dry cleaning services while staying in the room. When ready to let go, investors can also sell their properties, although Enterprise Hotel would want a right of first refusal on any property they purchase.
The startup currently generates revenue in two ways. The first is from the sales of the room, and the second is through the investors’ payment of a management fee.
Enterprise Hotel requires that all its investors pay a management fee, which is used for recurring management expenditures, including recruiting employees on behalf of the investors.
The company’s current business plan allows it to provide real estate investments for as little as 30,000 Naira ($60). This is still a substantial sum for many Nigerians.
While the possibility of investing tiny sums is appealing, the fact is that the profits on such investments will be modest, which may deter potential investors. Supplying a market with more disposable money might be the path to the company’s success.
Attracting other investors
So far, Enterprise Hotel has been able to operate without the help of institutional investors. Although the company says it is willing to accept funding, it is primarily focused on gaining significant traction before approaching investors.
“We’re not just selling an app like other startups. We want to make sure that in the next few months when we’re talking to investors, we’ll be talking based on value. We want to show them the first set of hotels that we have built and the investors who’ve bought into them and are already making money. Then we can start talking to investors. “
The company continues to make its investment attractive and says investors can use it as collateral when applying for loans since they own the properties. This indirectly solves the problem of loan collection.
Lending institutions in Nigeria have refrained from offering loans to individuals outside their preferred high net worth group, and only do that with collateral. Thus, Enterprise Hotel is providing a way out of such a situation.