REAL ESTATE INVESTMENT AND WHY YOU SHOULD INVEST IN IT

Real Estate is more often than not a topic of discussion in our day. One major reason is the general knowledge that it is a means of generating wealth for those who invest in it. There is a misconception as to what real estate means. This is because most people think about real estate and imagine “housing”, but real estate is more than just a shelter for individuals to sleep in at night.

In this article, we shall explore what real estate is and why you should consider real estate investments.

What is Real Estate?

According to Investopedia, “Real estate is property consisting of land and any permanent structures or improvements on the land, whether natural or man-made”. Simply put, real estate includes land and any structure whether natural or man-made built on it.

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Types of Real Estate

Real estate can be categorised into five:

• Commercial real estate – This is any property used for business, e.g. gas stations, hotels, etc.
• Industrial real estate – This is any property that individuals use for purposes such as manufacturing, production, etc. 
• Residential real estate – This refers to any property used for residential purposes such as condominiums, apartments, etc.
• Land – This refers to land in its raw form, vacant and undeveloped. Land can be used for agricultural purposes, e.g. ranches, farms, orchards, etc. 
• Special use – This is any property used to build structures for public use such as cemeteries, libraries, parks, schools, etc.

What is Real Estate Investment?

Now that you know what real estate means, you can consider what real estate investment is. Real estate investment deals with any investment involving the purchase or rental of land or property for profit making. 

In Nigeria, my homeland, it is a common misconception that real estate investments require large amounts of capital, but this is not often the case. There are different ways we can invest in real estate without going bankrupt.

Investing in real estate may involve any of these: 

• purchasing land or property,
• house flipping (buying a property to renovate it and resell it to make a profit),
• renting out properties,
• real estate investment trusts (REITs) (refer to investing with companies that own and operate or finance income-producing real estate),
• online real estate investment platforms (e.g. Xylus group international). 

Now that you know the different ways you can invest in real estate, the next thing to know is the benefit of investing in real estate in Nigeria. 

Why Should You Invest in Real Estate in Nigeria?

It is time to answer the question of why you should invest in real estate. When thinking about investing, especially in real estate, you ask questions like, “Is investing in real estate worth it?” or “Is investing in real estate profitable?” It is normal to ask these questions as it is paramount to research anything you want to invest in, even more so, with pyramid schemes and other fraudulent investment structures on the rise.

Real estate investment can be profitable if you are willing and able to make the sacrifice of paying the initial cost. Once that is done, you will soon start enjoying the profits of your investment. There are several reasons for investing in real estate aside from the obvious benefit of building wealth. Today, you will learn some of the reasons.

1. Cash Flow is stable – Cash flow refers to the total income generated from investing in real estate after paying for a mortgage. Once operational costs and mortgage payments have been made, cash flow for any real estate investment would be its remaining net income. Cash flow generation is one benefit of investing in real estate. It can be generated by buying buildings and renting them out or by renovating old buildings and selling them off at a higher price. 

2. It guarantees financial safety – Investing in real estate is financially safe, unlike some other investments where you have to consider your risk appetite. The value is unaffected by external factors such as economic downfall, calamities, etc. It is not volatile, and you do not have to be bothered about waking up to a loss as in other investments such as FOREX. 

3. Real Estate Appreciates – I know sometimes you ask yourself, “Is investing in real estate worth it? And the answer remains yes. It is a known fact that the value of real estate appreciates over time. Real estate investment such as purchasing land or renting out your apartments, can generate profits for you over time. Depending on the location and the level of development that takes place, a piece of land worth #500,000 today could increase to over #5,000,000 in the next couple of years, a profit margin of at least 900%.

4. You do not have to worry about inflation – Inflation is the increase in prices of goods and services and the decline in the purchasing power of a country’s currency. Talking about the benefits of investing in real estate is not complete without mentioning that you are unaffected by inflation. Inflation does not affect real estate in any way because mortgage rates stay the same but increase over time as there is a rise in the demand for rental housing.

5. Little to no technical knowledge is needed – Investments require a certain level of understanding, but with real estate, you do not need to have all the knowledge. If you are interested in investing in real estate, all you have to do is basic research on the internet and then get in touch with real estate agents. When you have these done, you can be certain of a steady inflow of cash.   

6. Real estate is multipurpose – One good thing about real estate is you can use it for any purpose. If you buy or rent a piece of land or property, you get to use it in various ways to generate your steady cash flow. You can use it for agricultural purposes (farming, poultry, fishery, etc.), commercial purposes, industrial purposes, etc. This is a major reason why investing in real estate is a good idea, and I like it.

7. It can serve as collateral – You can use real estate to secure loans to execute projects or start up a business.  Let’s say you want to start a business, you have land, but you have no capital to begin the business. Now if you go to the bank to ask for a loan, you can always put up your land as collateral.

8. It is an asset – My number one reason, ironically mentioned last, you should invest in real estate is that it is an asset. If you purchase land or property of your own, the value increases, making it an asset and not a liability. Real estate assets can also be inherited, therefore, providing income to the heir.   

Take Home

Finally, we have explored the benefits of investing in real estate in Nigeria, and I hope I have answered the question of why you should invest in real estate. The reasons for investing in real estate are numerous and beneficial. Understanding this will help you as a young adult learn to generate cash flow now and in the future.