The New Year means a lot of things to different people. To some, it is a year filled with surprises, while to others, it is filled with fear of the unknown, as economic experts had warned that the recession will bite harder in 2017.
Contrary to the economists’ projection, Nigerians, especially discerning investors, should sharpen their investment skills and take a look at many sectors to invest in, and one of them is the real estate, where something tangible can be made from to be financially independent.
Over the years, people have invested in real estate, but with the dwindling fortunes of the economy and forex scarcity, which has made the cost of raw materials to soar, many investors are scared awayscaring many investors. To make money from the investment requires that you understand the positives and negatives sides of the sector.
Experts’ advice
Chief Executive Officer, Gilgal Homes and Property, Mrs. Lola Amos-Oluwole, said that the real estate sector is something that you can physically touch and feel, as it is a tangible good and, therefore, for many investors, feels more real, adding that investing in this sector over the years has partially accounted for high returns on the investment.
To her, real estate has been giving high returns, adding that investing in real estate has generated consistent wealth and long term appreciation for millions of people. You can either invest in commercial real estate, such as shopping malls, residential buildings and warehouses for factories, among others; or possibly look into residential real estate, such as family homes.
She revealed that making money in real estate is not cut and dry, adding that while some people take the option of searching for distressed properties, refurbish them and sell them for a profit at a higher market value, others look for properties that can be rented, in order to generate consistent income.
Depending on your investment approach, you can make a down payment of up to 20 per cent of the purchase price, and the rest can be financed by developers. This gives you leverage, meaning that you can invest in different types of properties with less money, thereby helping you to build your income that you could make off the properties.
Since lands appreciate, build ings too appreciate, which makes the sector worth investing in, although it has its illiquidity feature, such that when you invest in a property, you usually cannot sell it right away.
In many cases, you may have to hold the property for several years to realise its true profit potential.
Although, real estate prices have a tendency to fluctuate, while long-term prices generally increase, there are times when prices could go down or stay flat. If you have borrowed too much against the property, you may have trouble making the payment, with a property that is worth less value than the amount borrowed on it.
If you want to diversify in real estate, it is advisable that you do not concentrate on the same community and have a variety of different types of property.
That being said, there is an additional way that you can diversify in real estate , through real estate investment trusts, under which you can purchase a trust that is invested in a large portfolio of real estate, and will offer you dividend as a shareholder.
On the other hand, an asset manager, Mr Shina Olubu, said, investing in stocks offer more diversification, because you can own many different industries and areas across the entire economy.
Over time too, investing in the capital market has delivered a high return to so many shareholders, although they can be more volatile than real estate sector, but over the long run they have provided a much better return than real estates.
He added that investing in stocks, it means that you receive ownership in a company, such that when times are good, you will profit.
During times of economic challenges like we are experiencing at the moment, you may see diminishing funds as the earnings of many companies drop, so it is advisable to adopt a long-term approach, because being balanced in many areas can help build your net worth at a much greater rate.
As with real estate, financing in stocks allows you to use margin as leverage to increase the overall amount of shares that you own. The downside is that, if the stock position falls, you could have what is known as margin call. This is where the equity, in relation to amount borrowed, has fallen below a certain level and money must be added to your account to bring that amount back up.
He said that the good thing about investing in stocks is that stocks are very liquid, quick and easy to sell. They are also flexible, and can even be reallocated into a retirement account.
Most times, many stocks do considerably better than real estate in one year. Due to the volatility of some stocks, in an economy that is booming, it is not unusual to see companies that are averaging 20 or 50 per cent growth in one year.
At the same time, when the economy or the company is facing challenges, it may plunge due to its volatile nature. In conclusion, investing in these two sectors, has many advantages by building your net worth, however, real estate seems to be better, when it comes to stability and tax advantages.
While each area has its own benefits and drawbacks, to decide which one would work well for you depends on your overall financial situation and level of comfort.
