Many Real Estate investors are busy people, with little or no time to run other full-time businesses for that extra cash they need to secure their future better. Whereas Real Estate is one of the best passive income opportunities that exist today, there are other passive income opportunities for those who do not have the passion for real estate, or those who want to diversify, and are looking elsewhere.
Here are some passive income alternatives to Real Estate.
1. Unit Trust
Unit Trust is like a chama (pooled investments). It collects money from different investors into a single fund and invests that money in different securities such as bonds and shares depending on the objectives of the fund.
CIC unit trust scheme has the largest portfolio (27.5 billion) followed by Britam unit trust scheme (8.72billion), ICEA unit trust (8.01 billion), CBA unit trust (6.95 billion) Old mutual unit trust (6.28 billion), and Africa Alliance (2.01billion).
Others include Sanlam with assets worth (2 billion), Madison asset unit trust (1.59 billion) Dry associates(1.62billion), and Zimele (1.06 billion)
Others with assets below 1million include Cynton equity investments, Apollo and Co-op trust.
The funds are managed by a fund manager who is expected to report to the Capital Markets Authority where they intend to invest the money and how they arrived at that decision. This is to protect the investors from losing their money. Some fund managers collude with third parties to swindle investors or make poor investment decisions.
There’s also a custodian who holds and safeguards the assets. It’s usually a bank or a financial institution given the mandate by the Capital Markets Authority to carry out this role. They receive instructions from the fund manager on where to invest the money.
The Trustee has the best interest of the investors. They act on behalf of the investor and makes sure the fund manager sticks to the objectives and goals of the fund. If they are not comfortable with how the fund manager is running the fund, they report to the CMA.
There is a management fee that usually ranges 1-3% of the fund balance annually.
There are four types of unit trusts you can invest in:
Money market fund – this is a short-term investment usually for periods less than a year. Its primary objective is to earn interest for the shareholder.
Balanced fund – It combines a stock component, bond component and sometimes money market component in one portfolio.
Equity fund – Only invests in stocks and can be actively or passively managed.
Bond fund – Primarily invest in bonds and other debt instruments. The kind of debt a fund invests in depends on it’s objective.
There are regulations that have been put in place to protect the investors, but it’s important that the investors do their due diligence and evaluate the viability of an investment.
According to the classic book “The Richest Man In Babylon, by George S. Clason” 10% of all you earn should be invested in a well evaluated, researched low-risk investment vehicle. Invest and reinvest the proceeds and only eat the great-grandchildren of the initial investment. Unit Trusts are usually sure (safe) investment options, particularly the Money Market fund.
Try bismart.co.ke, where you will get advice on which fund to invest in, and answers to every question you may have on investment in Unit Trusts.
If you start early, you will reap the benefits of capital gains. Start now and reap tomorrow.
2. Venture Capitalism
This is where a group of investors pool funds and place them in a venture capital fund. The fund usually has a committee that carries out in-depth analysis of companies with great potential before investing the pooled funds into these firms in exchange for a sizeable stake in the company.
They offer financing at different stages. For a startup company with a high growth potential they provide seed for growth and if it’s a growing company they fund the growth. They give strategic advice, technical expertise, and monitor the businesses. They have significant control over the business.
They sell their shares back to the founders for a substantial return on investment after the projected period or when the business is going through a merger or acquisition.The amount of money they make when they cash out is determined by the overall performance of the business. Sometimes they also lose on an investment.
Venture capital firms are behind great innovations such as Apple, Facebook, Twitter, and Google. Kenya, South Africa and Nigeria have attracted the highest numbers in Africa in venture capital investments between 2014 and 2019.
Top Venture Capital Firms in Kenya include;
Novastar venture Ltd – Specialises in start-up investment and primarily invest in agribusiness, healthcare, education, food, and water sector.
Fanisi Capital Ltd – Prefers small and medium enterprises and invests in all sectors, tourism, logistics, agribusiness, and many others. They specialize in buy-outs, growth capital, and expansion capital investments.
Safaricom’s Spark Fund – The Fund aims to support the successful development and growth of high potential mobile tech startups in Kenya.
Savannah Fund – Specialises in early-stage investment in high growth technology (web and mobile).
Afvest Invest – This firm presents to it’s investors a number of well-researched investment ideas with a long-term view and with no exit plan. They invest in companies with solid management and a clear growth plan. They not only focus on financial aspect but on the operations too.
3. Nairobi Stock Exchange
This involves buying and selling shares of a company or enterprise registered by the NSE. The money could be from an individual or more than two people in which case the money will be referred to as pooled funds managed by a fund manager. When you buy shares from a company, you are buying part of the company and are referred to as a shareholder. You own the company’s losses and profits. Your profits are equal to the number of shares you bought.
The company usually sells its shares so it can expand and make more profit and by buying these shares you are lending the company money for a profit. You are part of the decision making process.
Shares can be bought or sold through:
2) Financial advisor
3) Online broker
To start trading in stocks you need to have capital, (CDS) Central Deposit and Settlement account that you can open from a brokerage firm or use authorized dealers such as Investment banks, investment advisors, and commercial banks. This account is where your earnings are stored.
Unless you are dealing with vast cash amounts, this is not a fast and easy way to make a lot of money. Before choosing a company to buy shares from run a background check and don’t buy from a company because it has a big name.
If you have not started investing in shares, start early and determine to invest a percentage of your income in buying shares, the minimum amount you start with depends on the cost of shares you want to buy. With as little as 1,000/= you can own a part of a company. Start low and build your portfolio steadily.
A SACCO is a Savings and Credit Co-operative Organisation owned by people with common interests and goals.
There are different types of SACCOs;
1)Savings and credit co-operative societies- They give financial support to it’s members. They take deposits and give loans at reasonable rates.
2)Housing co-operative societies- They give loans to it’s members to build their own houses or buy land and construct houses for it’s members.
3)Consumer co-operative societies-They protect the interests of consumers. They buy goods directly from the manufacturers making the goods available to it’s members at reasonable prices.
4)Farmers co-operative societies – Formed by small farmers
5)Producer co-operative societies- Looks out for the interests of producers. Make sure they have raw materials and equipment that they need.
6)Marketing co-operative societies- Formed by producers and manufacturers to help sell their produce.
7)Investment co-operative societies- Formed to invest members money into ventures that will earn them good money.
Before you join a SACCO, get to know the reputation of that organization in terms of loan disbursements, dividends, transparency in financial matters, and ownership. Join a SACCO and take full advantage of the benefits to members.
Agribusiness is a lucrative venture and with the growing demand for healthier foods, the market is growing. Before getting into Agribusiness it is important that one knows their product. Carry out a market research on the demand and supply of the goods in the area to avoid a situation where there is a low demand for your product because there is constant supply. Find your own niche. For example fish farming in Lugari county where farmers majorly do maize farming. Find out if the climate is suitable for your product.
Once you have settled on a product, talk to other farmers who are doing the same to find out the minimum capital required. Most ideas don’t require a lot of capital for example dairy farming you need about 100,000 and poultry farming about 50,000.
Come up with a business plan. This will help you with the allocation of funds. It will give you a general idea of how your business is doing.
Register your business. This is vital if you are looking into working with big corporates such as supermarkets and Saccos.
Agribusiness like any other business has challenges. For instance pests and harsh weather conditions. These challenges can be overcome through thorough research on your niche product.
You don’t need professional training to get into this venture. A lot can be learnt on the ground you just need to be open to learning new things. Keep your eyes open and listen to your customers.
Other lucrative investment ideas are buying and improving businesses then sell them, and import/export of goods.
Investing is insurance for your future. You never know whether your job is going to last, and at the same time, there IS life after retirement. Ensure your investment will give you returns equivalent to your monthly income by the time you retire. The best time to start is now. If you start early, you shall benefit from compound interest gains, and you will not need to sacrifice on your comforts too much. Do not let retirement face you with loans and zero investments.