15 Reasons Why You Should Invest In Real Estate
Why invest in real estate?
“90% of all millionaires become so through owning real estate” is a quote by Andrew Carnegie that we are familiar with. But the question “why should you invest in real estate?” is something that should be expressed beyond that line of quote.
Real estate is a great investment for many reasons. You can enjoy an excellent rate of returns, amazing tax advantages and leverage real estate to build your wealth.
According to Peter koulizoz – investor, university lecturer and author, “When you factor in the return and risk associated with buying property and shares, property wins hands down.” “Shares have [marginally] higher capital growth, but the difference in risk is huge. The risk is measured in variation in returns and capital growth (or loss) on shares can range from +40% in a year to -40% in a week! You don’t get that sort of variation in property; hence it is considered a safer investment.”
Here are the top fifteen reasons why real estate is a great investment.
1. Easier To Get Started! Easier Than Stocks And Shares
Beginning your journey in real estate investment, you need basic knowledge of what the markets entails. Also, you will need to know the kind of properties you want to focus on and a network of people who play your cards in the best way. These are your team of advisors. This is unlike the shares or the stock market that demands a lot of technical knowledge of some factors.
Playing the stock market requires a lot of education. You have to understand how the system works, understand the complex world of trading (not least the different kinds of financial instruments used), as well as research brokers and fund managers. Once you’ve done this, you’ve then got to get to grips with the companies on the market – which involves trawling the financial press, annual reports, other company releases and so on.
2. It’s Relatively Easy To Get Finance
It may not feel like it when you’re applying for a mortgage, but lenders like property. Home loans are a major part of any bank’s business model, and lenders are more likely to lend on residential property than any other asset class – as evidenced by the fact that they will lend a higher proportion of the value (up to 95%) and at lower interest rates than any other asset class – including commercial property. This makes it a lot easier to borrow to invest in property than in any other asset class.
3. You Get Full Control. 100%!
For property investments, once you’re done paying for the property and settling legal requirements, you directly own the asset and have virtually complete control over it. You can directly influence the asset worth (by adding value to it) and cash flow (e.g. by raising rent).
4. You Can Use The Power Of Leverage
Borrowing to invest in property also means you get greater access to one of the oldest and most powerful tricks in the financial book: leverage. According to Peter Koulizos , “you can borrow more when using property as security as compared to using a share portfolio.”
Lenders will lend up to 95% of the value of the property, whereas they may only lend up to 50 or 60% of the value of a share portfolio. This greater borrowing power allows you to benefit from the capital growth of a larger asset.
“Imagine two people in the same job, on the same income, same assets and considered to be a similar risk by the bank, the person wishing to buy a house may be able to borrow more based on their financial position compared their colleague who may only be able to borrow fewer to buy a portfolio of shares.”
5. Demand Is Outstripping Supply
Linked to this is that there is an ongoing demand for property – both rental property and property to buy. Nigeria’s population is growing – perhaps not as quickly as it was between 2003 and 2006, but still at a solid pace – and housing supply remains tight in many areas (particularly capital and growing cities). This provides another floor under the market which makes it less likely that prices will crash. Do your research carefully, though, as some areas of the market do experience oversupply!
6. Technology Has Made Things Much Easier
Today, technology has made real estate investments a lot easier. For example, advertising your property is as simple as tweeting about it, sharing a post about it on Facebook or posting an ad on a property and real estate listing website like Jumia House, Nigeria Property Center etc. There’s so much technology readily available to real estate investors, that you can easily manage a portfolio of properties without really needing to leave your home all the time.
7. Real Estate Values Will Always Increase Over Time
History continues to prove that the longer you hold onto your real estate, the more money you will make. The housing market has always recovered from past bubbles that caused home appreciation to slip, and for those who held on to their investments during those uncertain times, prices have returned to normal, and appreciation is back on track. Now, real estate investors in the top performing markets are enjoying a windfall.
8. You Benefit From Other People’s Spending
Specifically, government and company investment. Spending on infrastructure like roads and rail and airports can boost values in a suburb or regional town which may have previously had accessibility issues; meanwhile, investment in new premises or projects – universities, hospital factories, resources projects, shopping centres and so on – can provide employment opportunities and increase housing demand.
New amenities can also see house prices increase, purely down to an area becoming a nicer place to live. And that all happens without you having to spend a cent.
9. An Investment In Real Estate Can Also Diversify Your Portfolio
If you’ve ever spoken to a financial planner about investing, then you are very aware of the importance of diversification. When you diversify your portfolio, you spread out the risk. Real estate will always serve as a safe tangible asset to mitigate the risk in your portfolio. Many have amassed wealth by solely investing in real estate.
10. It Improves Your Financial Know-how
Perhaps a left-field advantage, but investing in property improves your financial know-how. The simple act of saving for a deposit teaches financial discipline; working the numbers in terms of affordability prior to purchase is essential, and once an investment has been acquired, the juggling act of dealing with holding costs, rental income and tax benefits not only requires some monetary dexterity, but also makes you more capable of managing your money – and making the most of every cent.
11. It’s A Remarkable Flexible Investment
With property, regardless of your financial aims you are mostly able to find an investment strategy that works for you. There’s the long-term capital growth strategy where in the long-term the property purchased delivers capital gain (provided the right area with correct supply/demand ratio and demographics is selected).
Then, there’s the positive cash flow strategy where you can rent out the property for cash flow. There’s also the adding value strategy where you can renovate, subdivide or even alter the use of an existing property to develop, create or increase the value of the property.
12. It’s A More Stable Investment
The property market is usually much less volatile than the share market, at least partly due to the effort required in order to purchase a property – in terms of due diligence, legal checks, inspections, length of settlement periods and so on. This means that property is less prone to short-term speculators than paper asset classes. This – along with the relatively long amount of time it takes to liquidate a property asset – also reduces market volatility significantly.
“Properties in well located area’s, underpinned by good supply and demand, rarely crash overnight or even over extended periods of time,” says an investor. “They hold their own or at least level off and rarely experience major falls. Investors can avoid high risk areas simply by researching suburbs and properties well before they buy.”
13. There’s an Investment for Every Budget
If you do some research you’ll see various offers from realtors and real estate firms offering affordable entry points for real estate investment. The only thing required is for your income flow to be stable enough to support payments in installments till you fully own the property. If you buy smartly, you can even expect equivalent or better growth on these affordable assets than more expensive assets.
14. Bricks And Mortar
Another factor which is comforting to many investors is that they’ve invested in something tangible – something they can ‘look at and touch’.
“[Property is one of the few investments which you can actually see and feel, and this often makes it feel more real,” says Troy Harris. “You can’t take your friends for a drive on a sunny day past your share portfolio.”
While much of this may be a psychological comfort, there’s also a monetary benefit. After all, even if the worst happens, the fabric of the property and the land underneath will still have some tangible value – unlike shares in a company that’s gone under.
15. A Few Years from Now You’ll Wish You Did
Investments typically take time before they yield large returns. This is why if you start today and invest smartly, you’ll be patting yourself on the back a couple of years from now for a job well done. To be honest, we are at a point where real estate investments just make sense. But, like any other investment, please be sure to understand what you are doing and be diligent enough to do your work and research to find the 1-in-100 deals that make sense.
There may be some short-term wobbles, but Nigeria’s economic future is well and truly solid. The country’s population is projected to reach at least 250m people by 2030 – and these people will all need housing, most likely in the growing cities and suburbs.
The resources boom – responsible for significant property price growth in parts of Nigeria in particular – is also expected to continue well into the next few decades, with knock-on effects on supporting industries. This is all set to fuel solid property growth in the coming years – although savvy investors would do well to carry out extensive research into which areas will benefit most.