Question of the day: How real, is real estate investment?

——  February 13, 2020

“Owning a home is a keystone to wealth, both financial affluence and emotional security” – Suze Orman

Is Real Estate investment the “Real” deal? Why not invest in stocks, shares and bonds? Many people question whether investing in Real Estate is a good option, especially in Nigeria. We have come across clients who have asked us this question often times, and our answer remains a resounding Yes. Stocks and bonds are good but Real Estate investment is the “Real” deal. In the words of Armstrong Williams, an American media/business mogul, “Now, one thing I tell everyone is learn about Real Estate. Repeat after me: Real Estate provides the highest returns, the greatest value and the least risk”.

According to Maslow’s hierarchy of needs, a theory in the world of psychology, Shelter is ranked among the top three basic needs of man. Therefore, there no gainsaying the fact that owning Real Estate, known in industry parlance as “Brick and Mortar”, is a top desire for many people and for good reasons too. Real Estate which is defined in this article to mean “Land”, with or without a structure on it, has been a popular investment vehicle for many centuries, and continues to be. 

So, what makes Real Estate investment the “Real” deal?

Simplicity – As the name suggests, this type of investment is “Real”. Investing in Brick and Mortar means you can get in a car or send a proxy if your investment is outside your country of residence, just to physically check on your investment. It is that simple! Most of the stories we have read about companies that declared bankruptcy, leaving shareholders in debt or in some cases leading to death, have something in common, that is, the shareholders more often than not, have to solely rely on the figures declared by the company whether falsified or true. Whereas, with Real Estate, you can easily monitor the progress of your investment by simply driving down to the location to check the condition of your asset and doing a quick market analysis of your own to be sure you are receiving a good yield from your asset.

Yield and Worth – Investing in Real Estate is can be a fantastic retirement plan, though no plan can be perfect, as the yield and worth of a Real Estate keeps improving year-on-year, all things being equal. “Yield” relates to the annual returns receivable from a Real Estate investment while “Worth” simply is the Investment’s equivalent in value. What we have come to realize in our varied experience with clients, is that many prospective Real Estate investors only focus on the probably yield from Real Estate.

They judge the profitability or otherwise based on yearly returns, often forgetting that the worth of the Real Estate can increase by between 20% -25% within the first year of completion. This in essence means that the whilst annual returns received from a property is say between 5% – 7%, the worth of the property grows simultaneously. As a Real Estate investor, you are worth more every year and you necessarily do not need to possess the ability to read the stock market or the performance of a company, as in the case of stocks and shares. Even when you go into retirement, your Real Estate investment continues the work for you. Therefore, it is always important to look long-term with Real Estate investment. 

Stability – Real Estate investment provides a lot of stability for investors. The volatility in the real estate market is much less than that in the equities and bonds markets because the real estate market may not be such an interesting market for short-term speculators to operate in. Also, in the words of Cherie Barber, a professional property renovator who has made a fortune from real estate, “Properties in well located area’s, underpinned by good supply and demand, rarely crash overnight or even over extended periods of time. They hold their own or at least level off and rarely experience major falls”. A wise investment in Real Estate will most often than not provide the expected yield without fail, with very little risk of it crashing overnight. For smart investors who can see beyond immediate returns, Real Estate is generally a very safe investment.   

I will conclude with a true-life story of someone I know very well. A man was offered an opportunity to invest in Real Estate in highbrow Ikoyi in the 70’s when land in this locate was still relatively cheap, but did not seize the opportunity. Now, in 2017, 1000sqm of land in Ikoyi can be in the region of N300 – N400 million, or even higher, depending on the location, zoning etc. The man regretted not making the move then.

Mark Twain said, “Buy Land, they’re not making it anymore”. Therefore, remember to do something every day that will take you closer to been a Real Estate investor. The time to invest is now!

For more on Real Estate investment, ensure you follow this space as it promises to get more exciting in our upcoming articles.

Written by Babajide Aloba