Is real estate for me or not? It is a question that many individuals struggle with. If you are considering investing in real estate, you will undoubtedly have found a lot of inspiring and encouraging information in books, on the internet, in magazines, in newspapers, podcasts, on the radio, and so on.
Indeed, real estate investment is a very promising project. But… It is essential to approach investment from various angles. That is before you make a decision, you should not only look at its potential benefits but also assess the challenges and problems associated with it.
Just like other types of investment, real estate also has its pros and cons. Hence, as a way of helping you know if investing in real estate is for you or not, I will be taking you through these pros and cons. Have fun reading below!
Real estate investment: The pros
The following advantages show what makes this form of investment so special.
Protection against inflation
Investing in real estate is less sensitive to inflation. Historically, real estate has had a much stronger correlation with inflation than stocks or bonds.
This basically means that the moment inflation picks up, the income from real estate will also increase, and in this way you are always protected against inflation. After all, real estate hardly loses value.
Real estate is tangible. This gives them an advantage over other investments like cryptocurrency and the stock market. If you invest money in stock, for instance, there is always the possibility that the market will break and you will lose the money you invested.
But if there is a crisis in the real estate market, there is a possibility that the value of the assets in which you have invested will decrease, but the assets will still be yours.
Real estate investments achieve a fairly high return because they generate money in two ways. Firstly, the rental income, which yields a fixed amount (each month or yearly) that can be used to pay the mortgage. Or of course to make new investments.
When you have earned enough from rental income, you can possibly buy a second property. Here you earn rent again and so you can build up this slowly.
Secondly, the added value of your property provides a return in the long term. Real estate often increases in value over the years. Especially in places where real estate is scarce, the value continues to increase because the demand exceeds the supply.
A low threshold to start in real estate investments
Getting started as a real estate investor is not as difficult as it sounds. You don’t need to have millions and billions of Naira on hand to make your first investment. There are many financing options available and taking advantage of them is the secret of many real estate investors.
To get started with real estate investing, you may only have to deposit 20% less on a home and finance the rest with a low-interest mortgage. If you can’t get a mortgage, there are other options like joint venture partnerships. Understanding financing options is essential to getting the most out of your real estate investments.
100% control over your investment
If you invest in shares, for example, you depend on many factors and you cannot influence your share 100%. But this is the case when investing in real estate. You are in charge of your property. Provided you adhere to the town-planning rules and you pay off your mortgage, you are free to do what you want.
And that’s a very powerful thing because it means you can directly influence both the asset value (by adding value) and the cash flow (for example, by increasing rent). This is almost impossible with stock in a company.
You don’t have to do the dirty work
If the idea of real estate hunting, renovating, developing, dealing with tenants, or any of the associated tasks that come with real estate investing doesn’t appeal to you, then don’t do them.
The real estate industry is well established, with the ability to outsource virtually any task to an enthusiastic – and competent – service provider. Think for example, of buyers’ agents, builders, property managers, and so on. Of course, this can cost you a lot, but the best providers also offer a competitive advantage.
If your property has been nicely refurbished and is in good condition, you can increase the rent. Win-win!
On the other hand, you can do the dirty work yourself. If you do want to follow the process – whether it’s painting the wall, being an active landlord, or renovating – then nothing can stop you. Because you are in control of your investment, you can be as involved as you want or as practical for your lifestyle.
Not difficult to analyze the market
Unlike shares in a company or cryptocurrency, it is not very difficult to analyze the real estate market. Effective market timing (buy low/sell high) is a critical part of successful investing here. The timing of real estate markets is not an exact science, but there are several key indicators you can use to determine where a market is in its life cycle.
A number of factors, including seller motivation, supply and demand, interest rates, employment trends, and population growth, can all have significant effects on the timing of the market. Developing an understanding of the real estate cycle, conducting substantial market research and the determination to enter the market can lead to the right investment.
Real estate investment: The cons
Investing in real estate is very attractive considering the advantages mentioned above. However, there are also some constraints to consider before you decide to invest in real estate.
Despite being considered a safe investment and with very little risk of loss; you always run the risk of a bad choice, in a bad neighborhood, without many possibilities to sell or rent it, and even that this property generates more expenses in remodeling and repair than what was expected to be spent. Thus ending as an unsatisfactory investment and creating discouragement in the investor.
Difficult to maintain your property
If you have five shares in a company, you can view and monitor them with the click of a button. But if you have one or more buildings, it is a lot more difficult to check whether they are still in good condition. So think of something for this or make time for it.
It is very difficult to inspect your properties on a daily basis, but you remain responsible for it. If something turns out to be wrong, this can have major financial consequences.
Real estate is not the fastest-growing investment. So if you want to opt for a fast-generating investment, you may not want to invest in real estate. Real estate can only grow with significant capital investment – or if you have a lot of patience.
Sometimes you need to use your income streams to invest in other real estate activities to keep generating cash. In a nutshell, it’s going to take time to get to where you intend to get and to make the income you want.
Documents in order
It has become very common for many sellers in Nigeria to not have the necessary documents for the sale, but they proceed to sell the properties anyway.
You as an investor, not having the papers in order and totally legal is a very serious inconvenience and can generate many difficulties when reselling the property; since it is considered counterproductive and illogical to buy a property that does not have legal documentation.
So, back to the question: Is real estate investment for you? Considering the pros and cons stated above, it’s easy to say that investing in real estate is a lucrative and safe one, even though it’s slow. Hence, if you are not looking for a get-rich-quick scheme, you can consider investing in real estate.