Personal Finance

Why you ought to choose real estate

real estate

Real estate investment knows no inflation. FILE PHOTO | NMG

Summary

  • Land is always a limited resource, unless you reclaim the oceans.

Generally, people can agree on few things, be it politics, religion, or even climate change. However, when it comes to investing, we are all on the same page: it is a good idea.

If you have the ability to invest, do it!

It is the most effective way to make your wealth work for you. Depending on what your investment goals are, you can explore different options. If you are interested in sustainable and high returns, look no further than real estate investments.

Real estate is anything that involves property: land and buildings, for example. How exactly is this a good investment?

IT IS INFLATION-PROOF

It is a little known fact that real estate is protected against both long and short-term inflation. As the cost of living increases, so does the rental yield and the value of the land or the building.

This means if you already own a property, you are protected from the adverse effects of inflation. In fact, you may end up benefiting from it since you are earning more. If you want to maximise your investment, buy when prices are low and be patient. They will go up.

A LIMITED RESOURCE

There is a finite amount of land, and unless you decide to reclaim plots from the ocean like the United Arab Emirates (UAE) Prime Minister, Mohammed bin Rashid Al Maktoum did, eventually, each piece of property will be claimed by some entity or other. This makes it infinitely valuable.

As such, property will never stop having value, unlike traditional investment options such as stocks and bonds. In case of an economic crash, you will still have a tangible source of wealth to fall back on.

YOU HAVE MANY OPTIONS

Contrary to popular belief, there is no end to the number of ways you can invest in real estate.

The most popular in Kenya right now is to develop a residential complex and sell it to end users. However, you could also rent or lease it out and enjoy a regular income. This also applies to office and storage space.

People make millions of shillings annually just from setting up and letting out godowns.

There are also those who have grown wealthy from property flipping. If this is not your cup of tea, there is also the hospitality industry, which always seems to do well. Hotels and serviced apartments can be a lucrative source of income, especially during the high season.

Have you considered buying land for agriculture? Or how about buying land, servicing and then reselling? What about joint ventures? Or, just buying it and letting it appreciate? Whatever you choose will depend on a few things, like how much capital you have, time and your investment goals.

HIGH RETURNS

Real estate consistently offers high returns even durng market slumps. In fact, it consistently outperforms traditional investments like stocks and bonds, because it is anchored in a tangible asset. When you consider other aspects such as capital appreciation, rental yield and inflation hedging, then you really have no excuse to eschew this type of investment.

A PASSIVE SOURCE OF INCOME

As with most investments, real estate is also a passive source of income because your money grows without needing too much labour, capital or time. Obviously, this may not be true during the initial phases, for example during construction, but once it has been set up, it will not require much from you aside from maintenance and the occasional upgrade.

IT IS ALTRUISTIC

Investing in real estate does not have to be purely selfish, it could also be altruistic. This can be twofold. On the one hand, when you buy a property and start to develop it, you are creating income for others — contractors, builders and the like. On the other, as you develop property in a certain region, you are making it more attractive to other investors.

Moreover, it also prompts the government and private players to improve infrastructure and other social services in the area.

The construction of the Western Bypass to service Ruaka in Nairobi is a great example. In this way, the entire community grows.

But you cannot skip pertinent steps. For one, due dilligence and research is a must. As with anything else, you must dive in armed with information so that you are more likely to succeed. Not only will this help you pick the right investment partner, you will also choose the option that will get you closest to achieving your investment goals.

Lastly, diversify your portfolio to cut risk. Think about what else you could invest in, on top of real estate. Having done so, sit back and watch your money work for you.\

The writer is Head of sales and Marketing, Centum Real Estate.