If you have lived through the recent real estate and economic recessions, the very headline of this article might cause some stares. Decades ago, the country was swept with an economic crisis the likes of which our generation had never experienced. Stock markets around the world reacted, with major indices experiencing drops that were even more severe than those of the Global Financial Crisis of 2007/2008.
Today, 90 per cent of millionaires got their wealth by investing in real estate, which explains why there is a big difference between the wealthy and non-wealthy, where the former shoot for the stars with the thought of at least hitting the moon, but the latter don’t even shoot for the ceiling in the house but wonder why they’re not wealthy.
Two years ago, I remember driving through the ibeju lekki express and seeing lands and property for sale sign advertised by some real estate firm, and I said to myself, whoever invest in property in this area will only tie his funds down in investment that will take forever to appreciate, today the same area that used to be filled with trees and bushes is now regarded as the next new Lagos, especially with the recent ongoing development.
Here are some secrets to creating wealth in the real estate sector.
Cash Flow
With real estate investing, cash flow is the outcome or the proceed from rent payment, one of the biggest advantages of cash flow is the additional income stream you create from the rent owners collect after expenses such as a mortgage, property taxes, insurance, maintenance, and property management fees have been paid. When you buy a property that pulls in more rent each month than the expenses you carry to own it, your cash flow will remain positive.
In the majority of investments such as stocks, crypto, gold you invest with the hope that your investment becomes valuable, then sell it later for a profit. But for buying and holding real estate investors, cash flow is the primary level used to increase income.
Investors buying properties simply because of their rising prices have one aim which is the exit strategy, meaning to sell later. They are optimistic and hopeful that their investment will continue to appreciate. They buy properties on a sound judgment that the property will generate more income than its actual price, these investors know that their cash flow will remain positive and are not bothered about trends in the market if prices drop, they are safe. If prices rise, they have more options.
Appreciation
Price appreciation in real estate is referred to as the increase in the value of real estate property over a period of time. One of the goals of investing in real estate is to get a positive return on the investment when the investor decides to sell the property in the future. The rising of properties over a period of time is how most of the wealth is built in real estate. This is the home run you hear of when people make a large windfall of money. While prices fluctuate, over the long run, real estate values have always gone up, and there is no reason to think that is going to change.
Buying is smarter than renting
Most people who have turned out to be multi-billionaires know that owning real estate is smarter than any other investment. Real estate consistently increases in value over a period and outperforms other investments. Real estate is a tangible, usable asset whether you are renting out an apartment or commercial building for income or buying a home. In fact, real wealth is made by buying when everyone else is selling and vice versa.
Real estate offers unlimited options
Real estate is always a great investment because you have more options than with other types of investments. You can amass wealth when you invest in real estate rather than in stocks, crypto which is completely dependent on factors outside of your control. For real estate, an investor has the option to hold or sell which comes with unlimited options. You can buy a house with the intent of flipping it, then rent it out if the market declines. If you buy a rental that appreciates in value significantly, you can sell it. These are several options just to name a few. The flexibility of real estate is one of the reasons it has created more millionaires than any other asset class.
Inflation
With the rise in prices on foodstuff and goods and services over the last few months, one cannot say for certain how long it will last. For the average Nigerian, the increased prices could mean limiting any splurge spending to avoid a big hit to the wallet. But for those who invest in real estate, most smart investors know that the return on investment is usually higher during periods of inflation. This explains why during inflation, as the money supply becomes worthless with each passing year, so much wealth is created, as the value of the property increases exponentially.
The key to using inflation to build wealth in real estate lies in the fact the majority of your big expenses (mortgage, property taxes) stay fixed for the majority of the time you own the property. When you combine this with rising rents and home values (due to inflation), you start to see big results. If you have a glimpse that inflation will continue, why not invest in an asset that will benefit you in the future.
Many people understand that real estate can create wealth, but not everyone understands how. I hope this shines a light on the reasons investing in real estate can grow your wealth so effectively. Although there are many ways to build wealth in Nigeria, real estate has proven to be the safest, steadiest and easiest way to build wealth.
