An Introduction to Real Estate

Dear Intelligent Investor,?

Welcome to RealTake with openhouse

This weekly series is aimed at helping intending real estate investors in Africa understand what they are putting their hard-earned resources into.

We understand that for many, an investment in real estate is the single largest investment they would make.

We hope that with this series, we demystify Real Estate as an investment vehicle, helping more Africans make informed investment decisions.

We would:?

1. provide literacy and credible real estate education/awareness?
2. explain some real estate terms?
3. answer frequently asked questions?
4. review the latest developments in the African real estate market?
5. highlight opportunities and risks in real estate investments?
6. analyse technology, urbanisation, demographics, globalisation and macroeconomic trends?
7. Give tips and guides for those seeking to invest in real estate; and many more

To begin, here are some things you should know about real estate.?

Facts About Real Estate

• Real estate makes up around 50% of the world's assets and it is crucial to the success of global economies and societies.
• It is the world's most popular store of wealth.
• Two-thirds of global net worth is stored in real estate according to a McKinsey report.
• Some of the most successful entrepreneurs in the world have built their wealth through real estate. “90% of all millionaires become so through owning real estate” said Andrew Carnegie, one of the wealthiest entrepreneurs of all time.?

And he is not alone. Notable professionals have also alluded to this fact. Here are quotes from some of them:?

Impressive right??

Surely, these experts cannot be mistaken. An intelligent investor should include real estate in his or her asset portfolio.?

But what really is real estate?

Real Estate Defined

The term “real estate” is first recorded in the 1660s, with origins in Early Modern English. It comprises 2 words:

“real” - derived from Latin, meaning existing, actual, or genuine.

“estate” - an English translation of the Old French word estat, meaning status. Estate is used to describe owned property consisting of houses and lands.

Real estate is therefore real property with all fixed components on it.?

Broadly speaking, real estate includes the physical surface of the land, what lies above and below it, what is permanently attached to it, plus all the rights of ownership — including the right to possess, sell, lease, and enjoy the land.

Real estate is the land along with any permanent features and improvements attached to the land, whether natural or man-made — including water, trees, minerals, buildings, homes, fences, gardens, driveways, sheds, garages and bridges.

What Real Estate is not

What parts of a property aren’t considered real estate?

Real estate is not portable and personal property, which are things not permanently attached to the land. These include things like vehicles, boats, jewellery, furniture, and farm equipment.

Even if these can be on real estate, they are not considered a part of it.

Now that you know what real estate is and isn't, you might wonder, "Why Invest in Real Estate?"

Benefits of Real Estate Investment

Here is a poem by Lou Scott that highlights the numerous benefits of real estate investment.?

Who am I?

I am the basis of wealth,?

the heritage of the wise,?

the thrifty and prudent.

I am the poor man's joy and comfort,?

the rich man's prize, the right hand of capital,?

the silent partner of many thousands of successful men.

I am the solace of the widow,?

the comfort of old age,?

the cornerstone of security against misfortune and want.

I am handed down to children,?

through generations,?

as a thing of greatest worth.?

I am the choicest fruit of toil,?

credits respect me,?

Yet I am humble.?

I stand before every man, bidding him:?

"know me for what I am, possess me"

I grow and increase in value?

through countless days.

Though I seem dormant,?

my worth increases, never falling, never ceasing.?

Time is my aid and population heaps up my gain.??

Fire and the elements I defy,?

for they cannot destroy me.

My possessors learn to believe in me;?

invariably they become envied.??

While all things wither and decay, I survive.

The centuries find me younger, increasing in strength.

The thriftless speak ill of me,?

the charlatans of finance attack me,?

I am trustworthy. I am sound.??

Unfailing, I triumph,?

and detractors are disproved.

Minerals and oil come from me,?

I am a producer of food,?

and the basis for ships and factories,

the foundation of banks.

Yet, I am so common that thousands,

unthinkingly and unknowingly,

pass me by.

I am Real Estate?

With these creatively scripted words, Lou Scott aptly describes some inherent merits real estate provides to its owner.?

Let's look at some.?

• "the basis of wealth…? the right hand of capital… the silent partner of many thousands of successful men''?

As earlier established, real estate has proven to be a tested and trusted way of building wealth globally. Yes, 9 out of 10 successful people include real estate in their portfolio.?

• "the heritage of the wise, the thrifty and prudent… the poor man's joy and comfort, the rich man's prize"

Real estate enables investors to take care of one of man's basic needs - shelter. The properties can later be a source of investment due to relocation or retirement - by which time, they may have appreciated.

• "the comfort of old age…? the choicest fruit of toil"

Real estate builds passive income streams for its owners by compounding returns due to the increase in property value over time. It can also provide a steady and consistent flow of income in the form of rentals.?

• ?"the solace of the widow… handed down to children through generations"

An investor in real estate builds generational wealth that can be inherited by descendants and dependants.?

• "the cornerstone of security against misfortune and want… credits respect me"

Real estate provides leverage as it is the most widely used collateral instrument used as security by financial institutions to grant loans.?

Thus, one can use other people's money to increase personal wealth position, depending on his or her borrowing qualification with the financial institution.

Lenders would allow borrowers to access high loan-to-value ratios in their property holdings. This is good debt.?

• "grow and increase in value… worth increases, never falling, never ceasing. Time is my aid and population heaps up my gain."

Capital appreciation is assured with real estate investments as property value increases over time. This may be due to inflation or changes in the supply and demand forces in the real estate market.

• "Fire and the elements I defy, for they cannot destroy me… While all things wither and decay, I survive. The centuries find me younger, increasing in strength… I am trustworthy. I am sound. Unfailing, I triumph"

Some properties of real estate that differentiates it from other assets in the economy are its distinctive nature, immobility and permanence.

• "Minerals and oil come from me, I am a producer of food, and the basis for ships and factories, the foundation of banks"

Real Estate is multi-faceted as it can be used for commercial, industrial and agricultural purposes.?

Lou Scott further cautions:?

"the thriftless speak ill of me, the charlatans of finance attack me"

Indeed, some would discourage real estate investments probably because of bad investments in the past.?

An untold majority have had their fingers burned due to unskilled guidance from many who claim to be professionals.?

Also, "I am so common that thousands, unthinkingly and unknowingly, pass me by".?

Many today are indifferent, passing the investment opportunities that exist in real estate by. Some choose to be just spectators, watching the market trends and hoping to board the vehicle soon, which most times spill into many years.

Do you fall into any of these categories??

We got you covered!?

With this article series, we at openhouse lend our voice to Real Estate as it "stands before every man, bidding him: 'know me for what I am, possess me' "

In our next article, we would be breaking down the different types of real estate one can invest in.

Subscribe to this newsletter to be notified when it drops.?

Warm regards,?

RealTake with openhouse .?