Real estate remains one of the best ways to invest
your hard-earned money. Some people are of a different view and see stocks as a
better option. Below, we provide reasons why real estate could be a better
investment option. This blog will help you determine which is the best option
for you.
Let's dive
in!
1. Returns from shares are
unpredictable.
Share prices are usually volatile and prices can
fluctuate by a big margin even in a short time. It can be very frustrating as
you need to keep track of the stock market. You could sleep a millionaire and
not be one the next day. You may watch being profitable today and making losses
tomorrow. This can be frustrating. I purchased Mumias sugar Shares in 2007 at
Ksh 13. I watched in pain as the shares fell under a shilling, wiping my full
investment to zero.
In
contrast, real estate provides a stable investment avenue. Rent from real
estate provides a reliable cash flow on a month-to-month basis.
Prices of land remain stable and on an upward
trend. In case you invest in rental properties in Kenya, it guarantees a stable
amount of income every month. Most cash from shares comes in the long term when
you receive dividends. The amount of dividends is never guaranteed.
2. It's Easy to Become a Real Estate Expert.
Buying and selling of shares need a high amount of
expert knowledge. The average person does not know how the Nairobi stock
exchange works. You have to understand which company is splitting shares or
making losses. You need to understand which industry is making money and also
the economic movement. As this is not easy, you then rely on stock brokers and
financial advisors to help them make decisions. This makes the stock market
favor people with particular expertise.
For real estate, it's easy to become an expert if
you choose a niche and specialize in it. If you specialize in an area like
apartments for sale in Kilimani you can be an expert in this area. For land,
areas like land for sale in Ruiru allow you to make a comfortable living. You
also do not need to be an accountant or have a degree to become an expert in
real estate. There is no financial software is necessary to be successful in
real estate. You could make a profitable income by becoming a local expert. If
you track the history of land transactions and prices in a specific market, you
can spot a good bargain.
3. It's easy to value real estate.
It's easy
to arrive at and compare property values. Even if you are not an expert, there
are so many people you can ask or do your research. You can compare the prices
of similar homes in an area and determine properties with a fair price. For
rentals, you can ask around to determine how much rent you can charge.
If you need to know the average prices of
houses listed for sale in an area, you can check out a few properties. From
these, you will have a good idea of property prices and you can tell the average
rental income you can expect.
For
shares, you need to understand terms like earning per share and nominal share
values. If you do not get a good understanding, then it's hard to understand
the value of shares. Throw in terms like issued and paid-up capital in a
company and you get completely lost.
4. You Can Inspect Real Estate.
When
buying or selling a house, you can do your due diligence before you buy. You
can follow resources on the process of buying and selling property in Kenya.
This way, you will be sure you are buying a property with clean documents.
Doing this ensures you do not lose your money.
It's hard
to do the same due diligence before you buy shares in a company. When you buy
shares, you have to trust that other buyers have done the research. You will be
unable to walk to Safaricom and ask to inspect their books because you want to
buy shares. You have to trust the audited records.
5. You can add value to Real Estate.
Once you
buy shares, you cannot influence the price unless you are very senior in a
public company. For shares to rise in value, you have to trust the company
management to make this happen. You only buy shares, go home and hope for the
best. You will have no control over the shares you purchased. In real estate,
you have ample opportunity to add value to your property. You could buy land,
build on it and sell it for a profit. You can also buy a house, renovate it and
sell it for a profit as well. For rental properties, you can renovate houses
and then charge extra rent.
6. Availability of financing.
When investing in real estate, it is easy to get
financing. Banks like Housing Finance have been offering up to 105% financing
when you seek to buy a property. You can also get financing to build a house in
case you are looking to set up rental properties. Without the need to put up
the full cost, it becomes easy to start. This is because you bypass the usual
large capital outlay needed in real estate.
Better still, you get to use the returns from real
estate to pay off the bank. In case you use a bank mortgage to buy a house, you
can use the monthly rent received to pay the loan.
7. You can use a real estate title as
security.
If the property you have bought has a title deed,
financial institutions will assist you to pay. They will keep the title as
security. The security remains with the institution until you complete payment.
Once payment is complete, the property is transferred to you. This allows you
to start becoming a real estate investor even if you have not saved a lot of
money.
The above
advantages point to real estate financing as being superior. It is not
guaranteed that real estate is the best option when looking to invest. You need
a careful analysis when investing in real estate in Kenya. Real estate
investing has several disadvantages when compared to investment in stocks.
The disadvantages of real estate over the stock
market include:
1. Real estate requires more time and effort
Real estate needs a lot of hands-on work compared
to stocks. This is true when it comes to rental properties. As a landlord, you
will be dealing with water leakages and finding tenants. Regularly, you will be reconciling
payments and making repairs to your property. Even if you hire a caretaker to
take care of your property, it will still need some of your time to manage the
property.
When you buy shares, you own part of a
company. owning part of a business through shares doesn’t need any work on your
part. The company management handles the day-to-day management of the company.
You will get benefits when the company makes a profit without having to work.
2. Shares provide more liquidity
It is easier to sell your shares than it
would otherwise be to sell real estate. It may take you a few days to weeks to
get your money once you sell your shares.
When you own a piece of real estate and need
to sell it for cash, it can take a while. While several real estate listing
websites exist, your property may stay in the market for a while before finding
a buyer. After you find a buyer, the process of sale takes a while. This is to
help processes like title searches and signing of documents. Financing
processes also need to take place before the property changes hands.
3. Shares allow you to diversify
You can diversify much more with shares than
with real estate. You can buy shares in different companies using limited
funds. This way, if one company does not make a profit, you could still make
money from the other companies.
In real estate, you will have fewer
properties. Well, unless you've got unlimited funds. This makes real estate
unattractive when compared to owning shares. For real estate, you can still
diversify by choosing the locations and types of properties you buy.
4. Capital Needed.
Investing in shares does not need you to have
huge sums of cash. With some mutual funds or individual shares, you can invest
as little as Ksh10,000. You only need to buy shares in multiples of 100. This
way, if a share costs 10 shillings, then Ksh 1,000 is enough to get started.
Real estate requires more money in your initial investment.
5. Management costs
If you invest in property rentals, it will
cost you money even if the property is not occupied. Costs of utilities,
maintenance, and caretaker costs will still be due. In case you took up a
mortgage to build, you could end up losing money every month. This is because
you are paying interest on the mortgage.
For investment in shares, you do not incur
month-by-month charges. You may pay brokerage fees for the management of your
stock investments. This cost is lower than the cost of running an apartment building.
6. Due diligence for land
When buying land, you still need to conduct
due diligence. The market has more news of people losing their investment when
buying land than when buying shares. There is a long history of failed real
estate companies than in the stock market.
Summary:
Real estate returns could prove to be
profitable over time for investors willing to put the work in. Before you
invest, consider your risk tolerance when debating whether to invest in real
estate or stocks. Investments in the stock market often experience short-term
volatility. This can lead to emotional decisions to buy or sell at unwise
times.
