• Tue. Jun 21st, 2022

Enterprise Hotel democratizes real estate investments for ordinary Africans

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 entry of startups like Risevest, Bamboo, and Chaka.

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

Likewise, Airbnb has revolutionized the hotel industry by allowing individuals to rent their homes. In the process, it got people a piece of the hospitality industry pie.

Help Africans own commercial real estate

In some ways, owning 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 your dream. With only 2% of Nigerians would have with up to 500,000 ($ 870) in bank deposits, owning a property is out of reach for most people.

Start-up of fractional investment, Company hotel, hopes to change that by offering Africans the opportunity to invest in commercial real estate with as little as 30,000 ($ 52).

Similar to the model used by investment tech startups, individuals can now own properties with minimal investment. The startup offers three classes of products, the first being indoor sales. Under this arrangement, individuals can buy a room outright.

Bulk selling is the second level, and for that, 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 yen, for example, a block would cost 3 million yen.

The unit sale is the last unit, and with that, Enterprise Hotel divides the room into a thousand parts. Therefore, it becomes easier 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 via the sale of rooms and the second via a management commission paid by the investors. Along with the management fees, Enterprise Hotel covers the management costs, including recruiting on behalf of investors.

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

Although the GIG group is known for the transport company GIGM, it has also invested in other sectors, notably real estate. For more than eight years, Uche has participated in the operations of the real estate division. Simultaneously, he kept an eye on the evolution of Nigeria’s tech ecosystem.

His work in real estate has shown him that only a handful of people can afford to buy or own real estate. In Lekki, Lagos state, a four-bedroom duplex costs around 100 million yen ($ 173,913). This is beyond the reach of most Nigerians who earn less than 150,000 ($ 300) annually.

As a result, he decided to create a startup that gives people the opportunity to own real estate, regardless of the amount.

Challenges and competition

Most of the growth in Nigeria’s startup space has been in fintech, with a handful of other industries represented. The real estate industry 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 doesn’t fully solve real estate problems. At best, this only helps the processes. Unlike other industries, 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 sectors, why would anyone want to invest in real estate,” Uche asks.

This high barrier to entry is what Enterprise Hotel strives to eliminate. If, for example, a room in a corporate hotel costs 30 million yen ($ 52,173), when divided into 1,000 units, that comes down to about 30,000 yen ($ 60), which is a lot. more affordable for most Nigerians.

In addition to affordability, Enterprise Hotel says it offers investors the opportunity to get a return on their investment within two to four years. This is impressive because it takes around 15 to 20 years for most real estate acquisitions to return the initial down payment.

Enterprise Hotel offers its investors several ways to make money. The main route goes through hotel reservations. However, that’s 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 guest eats, drinks, or pays for in-room dry cleaning services, investors also get a share of the revenue.

But that’s not all. One of the reasons many Nigerians buy land is that its value often increases. Uche reveals that investments made through Enterprise Hotel would be valued with the value reflected on the app. Investors can also sell their properties, although Enterprise Hotel would require them to have 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 area with few or no examples to follow can be difficult. Although there are currently startups offering fractional investment services in Nigeria, the majority are in the financial services field. Still, a lot can be learned from their success.

Although the Enterprise Hotel model may see them offering a real estate investment for as little as 30,000 ($ 60), it remains a significant investment for most Nigerians. While the possibility of investing small amounts is attractive, the reality is that the returns generated by 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 building 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 talk by value. We want to show them the first set of hotels we built and the investors who bought them and are already making money. Then we can start talking to investors.

Besides 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 because they own the properties in full.

In Nigeria, where Enterprise Hotel operates, traditional banks have generally avoided offering loans to people outside their preferred wealth group. And in cases where they are willing to do so, they demand guarantees. Enterprise Hotel offers users a way out. They can now invest in real estate while using the assets as collateral.

Building a business, whatever it is, is a challenge. For Enterprise Hotel, operating in the real estate sector with its high financial demands is a significant obstacle. However, the success of startups like Bamboo and Risevest suggests that Enterprise Hotel could be on to something.

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