By: Solomon Ezekiel Diri.
CEO, SED Properties.
Often times in life, humans are driven with a strong phycological need to live a comfortable life. This very desire often leads to certain human decisions and actions that yield the needed result of comfort through financial Independence. Put in a lighter note, this is usually the sole reason for daily hustle. Hence, one of the critical lines of action by those who actually strive and succeed in achieving a certain level of success in life through investment. Investment here involves making a sacrifice in the present with the hope of deriving future benefits.
The two most important features of investment are the current sacrifice and future benefit. However, amidst the many forms of investment available for investors, there exists one that has stood out over time to become a major source of comfort and financial Independence which many seek. That very renowned investment is the Real Estate Business.
Wikipedia defined Real Estate as a property consisting of land and the buildings on it, along with its natural resources such as crops, minerals or water; immovable property of this nature; an interest vested in this (also) an item of real property, (more generally) buildings or housing in general while the Miriam Webster Dictionary simply posit it to imply a property in buildings and land. Real Estate involves the acquisition of landed properties through buying and selling which brings financial gain, permanence and comfort.
It is said to be one of the oldest forms of investment in the world with an English origin which dates back to the early 17th century (1660), coined from a Latin word Reel Estate said to connote existing, actual and genuine.
Real Estate is one of the most successful investment packages in the world over time. In Nigeria alone, statistics which emerged at the globally recognized Real Estate-focused West African Property Investment (WAPI) Summit, which took place between the 28th and 29th of November 2017 in Nigeria put the net worth of Real Estate in Nigeria at a market capitalization of $151million, or 0.36 ratio of the local stock market as of 2017. This statics certainty has doubled since then as the sector continues to lead the charge of the economic activities, growth, and development of the Nigeria State through investors who thronged in daily to take hold of the glaring opportunities the sector provides.
Investing in in Real estate business yields lots of financial profits and advantages that simply cannot be over emphasized. At this point, It is important for us to note some of the basic characteristics of real estate which include scarcity, improvements to the land, permanence, area preference, nonhomogeneity, indestructibility and immobility. Land investing (that’s right, buying and selling vacant land) is a massive opportunity that most investors aren’t paying attention to. For the few land investors who know how to pursue this business with the right acquisition strategy, it’s an extremely lucrative and low-risk way to build serious wealth from real estate.
For easy comprehension, below are some advantages of investing in a Real Estate Business;
- Steady cash flow. There is a constant flow of incomes which usually comes through sales, renting and brokerage. It then means that every investment has a high propensity to bring a return at all times.
- Control and Access: There are direct access and control over the returns from an investment. Assets are managed by the owner, rather than a large corporation or fund manager. Although, the said property can also be managed by a property manager or Real Estate agent with strong monitoring and influence by the property owner.
- Leverage: Banks lend up to 80% of the value of the property, enabling them to use other people’s money to buy larger amounts of investment. This helps to solve the problems of start-up capital which most persons often claim is the impediment of investing.
- Insurance for many of the risks is available: Investors can take out buildings and landlords insurance to protect their interests. This certainty goes a long way to enhance the security of investment.
- Durability: Landed property comes with lots of durability and sustainability of the investment. This is because land in most cases (Apart from situations of Natural Coincidence or factors) only appreciates in value, land does not depreciate. This implies that any single investment in Real Estate can yield multiple returns both in the immediate and future.
- Real Estate promotes General Development: Aside from the many financial gains accruable to Real Estate investment, a major positive factor to note is its ability to drive large scale development of an area. This is very important since all humans strive to have a more organized society with Comfortable living.
The above is nothing but a tip of the eyes bag of the many goodies of Real Estate Investment. This of course does not in any way invalidate the claims of possible risk associated with this very business such as Cases of High entry Cost, Unique risk such as changing exchange rate, government policies, unexpected repairs among others.
I can however posit here that the said risk involved in Real Estate like any other business is incomparable to the numerous benefits there-in. More so, the said risk involved can be mitigated through proper Risk Evaluations and Management Strategies some of which is highlighted below;
Some Risk Mitigation Strategies in Real Estate:
- Fraudulent sales: Verify ownership and Title before purchase.
- Adverse possession: Obtain a boundary survey from a licensed surveyor.
- Environmental contamination: Obtain environmental survey, test for contaminants (lead paint, asbestos, soil contaminants, etc.)
- A building component or system failure: Complete full inspection prior to purchase, perform regular maintenance.
- Cash shortfall: Maintain sufficient liquid or cash reserves to cover costs and debt service for a period of time,
- Economic downturn: Purchase properties with distinctive features in desirable locations to stand out from the competition, control cost structure, have tenants sign long term leases.
- Tenant destruction of property: Screen potential tenants carefully, hire experienced property managers.
- Underestimation of risk: Carefully analyze financial performance using conservative assumptions, ensure that the property can generate enough cash flow to support itself.
- Market Decline: Purchase properties based on a conservative approach that the market might decline and rental income may also decrease.
Fire, flood, personal injury: Insurance policy on the property.
Tax Planning: Plan purchases and sales around an exit strategy to save taxes.
Conclusively, as I have earlier stated, that we all desire to live a life of comfort driven by financial independence, made possible by investment, however, this Financial independence is only attainable by very few people. We all have relatively same opportunities, what we do individually with this opportunities is what makes the difference.
The most important thing in preparing and working towards financial independence is to actually do something about it. Often times, the vast majority of people just wait for things to happen, and when they realise that they needed to act, it will most probably be too late.This is why it is imperative for one to make haste why the sun shines. The Real Estate Industry all over the world, Nigeria inclusive is one sector were anyone willing to take the first step can invest and establish a sustainable financial freedom and security.
So, you take a leap today of a secured future.