If you are one of those investors trying to decide which is a better investment idea between real estate and stock market, then this article is for you. Because in this article, I will be showing you which is a better option in Nigeria and I will give you reasons to back my claims. So sit back relax and pay close attention till the end.
Both real estate and stock market has been the go to options for most investors in Nigeria to grow their wealth. Many Nigerians do a bit of both, But if you’re looking to double-down on either type of investment — or you’re new to investing and trying to pick between the two — it’s wise to know the advantages and disadvantages of each strategy.
Let’s take a look at both investments.
Real estate can be broken into two categories, (1) residential real estate — like your home, rental properties or flipping homes to buy, then resell for a profit and (2) commercial real estate – this type of real estate includes apartment complexes, office buildings and strip malls.
Investing in stocks
Stock investment is a type of investment where you by a fraction of the company. For example If a company has 10,000,000 shares outstanding and you own 100,000 shares, you own 10% of the company.
As the value of the company’s shares grows, the value of your stock also grows.
So you see they both require different strategies to run successfully.
Reasons why real estate is a better investment in Nigeria
The stock market is a good form of investment and no doubt it has made many wealthy – especially in countries with stable economy like the US, Canada etc. However in a country like Nigeria whose economy is not stable, Real estate is a better investment and here is why…
Real estate generally is not as volatile as the stock market. Stocks can plummet for any reason at any time, leaving investors at the mercy of things beyond their control. Global events, such as terrorist attacks, natural disasters and corporate bankruptcy can all negatively affect the value of stocks. The reality is that many things can determine the daily value of stocks, far beyond the fundamentals of a company’s financials.
Here are 3 reasons why real estate is a better investment than stock market in Nigeria:
1.) Real Estate is a Tangible Asset:
Real estate is a physical investment that you can see and touch while Shares in a company are nothing more than a piece of paper giving you an interest in the underlying company. Although a company’s shares can be valuable, because real estate is tangible it generally provides more value over time because people can use it in everyday life, and more importantly it is essential for human survival!
People must have homes to live in and businesses must have places to operate from. You can live in a house or an apartment, but you cannot live in a share of stock from a company.
2.) Real Estate allows for Leverage:
Now leverage can be a double-edged sword, and over-leveraging a property can cause your asset to become a “money pit” fast. And responsible leveraging can allow an investor to put up 20-30% of the purchase price of a property and borrow the remaining 70-80% of the purchase price. This leverage will generally allow the investor to realize gains much higher than that of the stock market. For example if you haveN50 Million Naira to invest in real estate, you can generally leverage that into a N250 Million Naira property. In addition, if the property was generating a positive income, then your returns would be greater.
Now just to be straight forward, this is the broad view of the investment. It doesn’t take into account closing costs, loan costs, illiquidity of the investment, etc. So there are more costs that would be associated with this investment that would take away from that 25% return and you would still have to sell or refinance the property to realize that 25% return, however, over the course of a few years with responsible leverage, real estate returns far outpace stock market returns.
Stocks can generally only be leverage at a 50% – 100% ratio if you are trading on margin. So if you have N50 Million Naira to invest, you can generally purchase N100 to N150 Million Naira -worth of stock.
3.) Real Estate allows for more Control:
When you invest in real estate, you generally have control in how that investment is to perform. You can implement strategies to operate the investment more efficiently in order to maximize returns. Unfortunately, with stocks you really don’t have any control in how the company operates in order to maximize your returns on your investment.
Real Estate also provides other advantages for the risk averse, and in terms of how gains are realized and in terms of the overall volatility and manipulation of the markets,.
With all these advantages that real estate have over stock, I can confidently tell you that real estate investment is the best investment in Nigeria and you can start your investment today by owing a well documented problem free plot of land with peace of mind from @Bethel realtors & management limited.
Call us today 081 3169 1155, 090 2455 4979 or visit our head office suites 201 & 202 Akord shopping mall bogije, Ibeju-lekki LGA, Lagos state.