• Sun. Aug 7th, 2022

Enterprise Hotel democratizes real estate investments for ordinary Africans

ByWillie M. Evans

Dec 10, 2021

Long before tech startups democratized stock market investing, anyone looking to invest in the stock market needed a significant amount of money. But that changed with the arrival of startups like Risevest, Bamboo, and Chaka.

For the first time, Nigerians could buy stocks with as little as $10 (₦5,000). Although most of the stocks available are from foreign companies, this innovation has provided Nigerians with a way to invest small amounts of money.

Similarly, Airbnb has disrupted the hospitality industry by allowing individuals to rent out their homes. In the process, it allowed people to get a slice of the pie that is the hospitality industry.

Helping Africans to own commercial real estate

In some ways, owning a property is the Nigerian dream. However, the lack of suitable mortgage or financing options means that it would take a considerable initial investment to live out your dream. With only 2% of Nigerians said to have up to ₦500,000 ($870) in bank deposits, owning property is out of reach for most people.

Fractional investment startup Enterprise Hotel hopes to change that by offering Africans the chance to invest in commercial property with as little as ₦30,000 ($52).

Like the model used by investment tech startups, individuals can now own properties with minimal investment. The startup offers three product classes, the first being room sales. Under this arrangement, individuals can purchase a room outright.

Block sale is the second level, and for this, Enterprise Hotel divides a room into ten blocks, allowing people to buy each block. So, if the price of a room was set at ₦30 million, for example, a block would cost ₦3 million.

The unit sale is the last unit, and with this, Enterprise Hotel divides the room into a thousand parts. Therefore, it becomes easy for more people to buy real estate regardless of their income level.

How Enterprise Hotel makes money

Enterprise Hotel makes money in two ways. The first is through the sale of rooms and the second through a management commission paid by investors. Along with the management fees, Enterprise Hotel covers management costs, including recruitment on behalf of investors.

So why real estate? Uche Ajaere is the co-founder and CEO of Enterprise Hotel. You may recognize the last name, and that’s because he’s an admin of GIG Group.

While the GIG Group is popularly known for the transportation company GIGM, it also has investments in other industries, including real estate. For more than eight years, Uche has been involved in the operations of the real estate division. At the same time, he kept an eye on developments in the Nigerian tech ecosystem.

His time working in real estate showed him that only a handful of people could afford to buy or own real estate. In Lekki, Lagos State, a four-bedroom duplex costs around 100 million naira ($173,913). This is beyond the reach of most Nigerians who earn less than ₦150,000 ($300) per year.

As a result, he settled on a startup that gives people the ability to own real estate, no matter how much money they have.

Challenges and competition

Most of Nigeria’s startup space growth has been in fintech, with a handful of other industries represented. The property sector has seen very little innovation, with startups like Spleet and Muster trying to solve the rent problem for Nigerians.

One of the reasons for this is that technology does not entirely solve real estate problems. At best, it only helps processes. Unlike other sectors, the barrier to entry into real estate is high. Additionally, it could take up to 15 years for investors to see a return on their investments. Therefore, it is not surprising that there is less investment in real estate compared to other industries.

“People in the tech space will always think, ‘How affordable is it to get this product? And how fast will I make my profit?

“With the promise of higher returns in other industries, why would anyone want to invest in real estate,” asks Uche.

This high barrier to entry is what Enterprise Hotel strives to eliminate. If, for example, a room in an Enterprise Hotel costs ₦30 million ($52,173), when divided into 1,000 units, that equals around ₦30,000 ($60), which is much more affordable for most Nigerians.

In addition to being affordable, Enterprise Hotel says it offers investors the opportunity to see a return on investment within two to four years. That’s impressive, because it takes about 15 to 20 years for most real estate acquisitions to earn the initial outlay.

Enterprise Hotel offers its investors several ways to earn. The main route is through hotel reservations. However, that is not all, as investors can earn money on every activity that takes place in the rooms they own as well as other services offered in the hotel.

So, for example, if a customer eats, drinks, or pays for in-room dry cleaning services, investors also earn a share of the revenue.

But that’s not all. One of the reasons many Nigerians buy land is that it often goes up in value. Uche reveals that investments made through Enterprise Hotel would be assessed with the value reflected on the app. Investors can also sell their properties, although Enterprise Hotel would require that they be granted the right of first refusal on any property.

Already, Enterprise Hotel has properties in Lagos, Abuja, Benin and Port Harcourt, with plans to add more across Nigeria. Uche reveals that the goal is to have an Enterprise Hotel in every major city in the world.

For Enterprise Hotel, building in an industry with few or no examples to follow can be difficult. Although there are currently startups offering fractional investing services in Nigeria, the majority are in the financial services space. Yet, much can be learned from their success.

Although the Enterprise Hotel model can see them offering property investment for as low as ₦30,000 ($60), it is still a significant investment for most Nigerians. Although the possibility of investing small sums is attractive, the reality is that the returns obtained on such investments would be low, which could discourage potential users. Therefore, the key to Enterprise Hotel’s success may lie in serving a market with higher disposable income.

Attract investment

Building a startup like Enterprise Hotel requires huge investments. So far, Enterprise Hotel has operated without institutional investment. Uche reveals that while they are open to receiving investment, at the moment the focus is on creating significant traction before approaching investors.

“We don’t just sell an app like other startups. We want to make sure that over the next few months when we talk to investors, we are talking about value. We want to show them the first group of hotels we built and the investors who bought into them and are already making money. Then we can start talking to investors.

In addition to helping more people access real estate investments, Enterprise Hotel indirectly solves another problem. Uche reveals that users can use it as collateral when applying for a loan since they own the properties in their own right.

In Nigeria, where Enterprise Hotel operates, traditional banks have generally been reluctant to offer loans to individuals outside of their preferred high net worth group. And in cases where they are ready to do so, they require guarantees. Enterprise Hotel offers users a way out. They can now invest in real estate while using the assets as collateral.

Building a business of any kind is a challenge. For Enterprise Hotel, operating in the real estate industry with its high financial requirements poses a significant hurdle. However, the success of startups like Bamboo and Risevest suggests that Enterprise Hotel might be onto something.