How to Create Wealth Through Real Estate Investment
By: Daniella Nyakuraya, Safaricom Investment Co-operative Housing Unit Manager
Real estate investment is one of the myriad of ways that you can use to create wealth. Wealth grows through compounding, which means putting money into something with the expectation of making a profit on both your original investment as well as the accrued interest over time. According to the Global Real Estate Market report, the real estate market is expected to keep on growing at a compound annual growth rate (CAGR) of 4.9 percent from 2022 to 2028 which provides investors with the opportunity to keep on creating more wealth as the sector keeps on growing. Real estate has been a consistent compounder for a simple reason: there will always be land to build on and houses to rent out!
Real estate investment is more than having a home to live in or land to build on, it is also a means to wealth creation. Real estate properties’ potential for consistent appreciation and income generation makes the sector an excellent wealth-building tool.
Below are a few ways that investing in real estate can help you create wealth.
Buying and holding land
Land is a commodity that will always be in demand and is one of the most effective investment options that can be used to help bring in generational wealth. Investing in land in an area with potential for growth, allows you to build wealth since you can hold onto the land until it increases significantly in value, which will yield high returns when you sell it. Holding land also allows you to give your future generations an investment that will grow in value and help with cushioning against inflation. Land investment will also help you in building equity which can eventually lead to wealth creation. You can also use your land investment to bring in a stream of income through renting it out.
Buying and renting homes
Having a reliable source of income to augment your regular income is one approach to building wealth. You can generate an alternate source of income by investing in a residential property that you can rent out or by providing short-term housing rental services, like Air BnB services. Buying a property in a sought-after location will attract tenants, and the consistent flow of rental income will ultimately allow you to recover your investment and amass wealth.
Portfolio diversification
Real estate investment is one of the various investment options available to help in building one’s wealth. In a bid to gain wealth, it is advisable to diversify your investment portfolio across different asset classes which in turn helps in minimizing risks and increasing your returns. When you invest in various asset classes, you are able to have different avenues bringing in returns. Diversification into asset classes that perform differently is beneficial since if one asset class is experiencing some risks, then the others can help keep you afloat and ensure you keep on having returns streaming in. Real estate investment enables you to expand your portfolio beyond equities, bonds, and fixed income.
Investing in commercial real estate
Commercial real estate properties such as malls, shopping centres, and office spaces are investments that can offer you an avenue for building wealth. The renting or leasing of the spaces might result in a consistent flow of income. Commercial real estate properties that are in prime areas, have the potential for exponential growth through valuing the property rent in a manner that will bring you great returns over the years.
The journey towards wealth creation is not just for you, but also for your future generations. Choosing the right investment and working with real estate investment experts will bring you closer to sustainable wealth, one property at a time.
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