People who are trying to decide where toinvest their money often ask me whether real estate ventures are more
profitable than other business opportunities.
I always respond that investing in realproperty can yield significant profits but it also often provides long-term
benefits.
Below are five benefits I will discuss:
1. You can refurbish (toincrease the value of) real estate
You can hold a stock for a time before you sell it. Thecompany management and corporate success are key factors in the success of the
stock.
Contrary to other traditional investmentinstruments like stocks, which depend on third parties (e.g., stock
management), real estate investments are directly under your control. Realestate investments can be managed directly by you, unlike other conventional
investment instruments like stocks, whose rates of return depend on third
parties (e.g.
You cannot control the changes indemographics and economic aspects or the impact of natural induced changes.
However, you can control many other aspects to increase your return on your
investment.
Examples include aspects relating to addingrepairs, or improvements/enhancements to the physical property and tenants you
allow to live in it.
You will see a rise in your wealth if youdo it correctly.
2. Real estate investing,when done right, can be profitable even during a recession (like the one that
we are currently in)
It has been used on multiple occasions to bail outfinancial problems such as the ones that many people have suffered during the
current economic downturn in Nigeria.
Many of my clients confide in me that theydon't know where to invest their money because of the current economic climate. Manyclients are tired of investing in bonds and treasury bill but need a new
investment.
After extensive discussions, I suggestedthat landed property investments be considered as an alternative investment
channel.
Because even though all businesses fail,land will always appreciate. To prove my point, I shared the followingquote from a former American president.
"Real property cannot be lost or taken away. It canonly be managed with reasonable care. It's about the best investment in the
world." - Franklin Roosevelt.
It was no surprise that the client took myadvice and signed up. It was common sense, obvious, and logical!
3. Real Estate Investmentsare immune to inflation
In other words, if you invest your money in real estatethat is viable, it can help protect you against the negative effects of
inflation on other investments.
Because inflationary pressures tend tocause a positive correlation between real estate's value and their price, this
is why it is so common for property values to increase in tandem with rising
prices. Inflationis a major factor in the rise of rental rates and property values.
Real estate owners have the uniqueadvantage of being in a position to adjust their rates to keep up with
inflation.
For example, monthly rents can be increasedto offset inflation. This provides a cushion effect that protects against other
monetary investments from inflation-induced losses.
4. Real estate is uniquebecause it can be used as collateral to secure funding from banks.
Real estate can be in the form of land or buildings, andwith proper titles (i.e. Themost widely accepted and recognized form of collateral in Nigeria, and other
parts of the globe, is the Certificate of Occupancy (aka "Cof O")
It is unique in that it can protect boththe interest of the borrower as well as the bank (that's lending the money), so
funds can be released. Afterdue verification, terms and conditions have been agreed.
A private C of O is able to offer a greateradvantage than the global C of O. The former (i.e. Inthe event of future financial transactions with banks in Nigeria, private C of
O is what the intended borrower will need.
5. Real Estate Investingallows you to use the money of other people
Also, even if you don't have enough money, you can stilldo it. Allyou need is the ability to do it.
Real estate can be described as a physicalasset or hard asset. Thisis a characteristic that makes real estate attractive to financiers, i.e. Peoplewith the capital to invest.
This is why real estate products are oftenbought with debt, unlike other investment products such as stocks which are not
tangible and are therefore more risky to buy in.
Real estate investments can be made withcash or mortgage financing. You or a third party can arrange paymentsto enable payment of lower initial amounts.
These payments will be made on landedproperty, which will continue to increase in value for the entire term of the
payments. Thisgives the financiers of the acquisition confidence that their investment is
secure.
