Real Estate Investment vs Real Estate Business

Real Estate: Good or Bad Business?

“The purpose of an investment is to let you have a steady cashflow while your initial investment is maintained, Secured or appreciated over time.”

Understanding Real Estate as an Investment

First of all its very important to understand the difference between what a business and an investment mean. An investment takes very long to have a return on its initial value which is very evident for investments like stocks or shares, bonds, bank savings and other securities. The purpose of an investment is to let you have a steady cashflow while your initial investment is maintained, Secured or appreciated over time. Investments grow faster when you use the power of compounding, meaning you reinvest your return to grow your initial investment faster.

Lets say after that one year of saving your rental income of K36,000 you begin construction of another 2 X 1 flat (With 2 Bed rooms each) and complete it in year 3 then in year 4 you start renting it out at K3,000 each monthly (K6,000 in total), that will result in total monthly earnings of K9,000. This means that from year 4 to 10 you will earn a total of 7yrs X 12mths X K9,000/month = K756,000 over the same period of time. Imagine if you repeat the same model of reinvestment in another 2 in 1 block flat after year 6 then you would certainly double that amount after year 16 amounting to K1,512,000 + (Accounting for excess returns from the new flats in the 3 years of building the other two flats this could be more). This model demonstrate the power that has made todays billionaires the likes of Bill Gates and Warren Buffet to be rich and wealthy.

We shall talk about the business part in the next article to relate and compare with the scenario in this model above.

#letstalkfinancialmatters #realestate #askushow

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