Real estate or stock market; take your pick

It is not everyday that the economy gets positive coverage in the media. From poor performance in the housing sector to lousy stock market returns, the average person is left with many questions on where to invest in order to make that extra income.

However, despite what you might hear about how bad things are, you should know that even in a massive economic crunch, there is money to be made so long as you know where, when, and what to look for.

Essentially, there are three places where you can stack up your hard-earned money; the stock market, real estate, and under your mattress. Forget the banks; they rarely give any meaningful returns on your money if you are a depositor.

It will earn no interest

If you decide to put your money under your mattress, it will earn no interest, hence it won’t grow over time. Most people choose to put their money in either the stock market or real estate.

Competition between these two as the top sources of investment returns has been going on for many years. Typically, the stock market was seen as the place to invest and real estate as the place… well, to live in.

But this dated school of thought is changing every year, and today the question of investment is an entirely different kettle of fish.

Given the choice between the purchase of a piece of paper representing shares in a far-away company over which the investor has no control, and the purchase of four walls and a ceiling that the buyer can see, touch and paint, a vast majority of consumers are not going to hesitate; they will take the latter.

Most business-minded people like to choose those investments that would not only provide them with an income, but also give them security. They want to invest money for a longer period of time. That is why most investors now put their cash into physical assets — real estate.

The purchase, holding, renting, and reselling of real estate assets — especially residential — is now the investment of choice for many. Money is pouring in as a direct and proximate consequence of low interest rates. This favours mortgaging over deposits and low-risk asset holdings over high-risk speculative stocks.

Demand for residential real estate throughout all our urban areas has gone through the roof. In Kenya, real estate is the psychological equivalent of gold, historically considered a tangible and safe store of value.

According to economists, when recession became a real problem to the economy in the past two years, the real estate market was the hardest hit. The value of homes and other property types plummeted.

But the market, while still unstable, is starting to recover. And although any investment can take a turn for the worse, learning the best techniques when it comes to real estate, according to experts, can net large profit margins.

However, investors need to be careful not to go about it the wrong way or with too much risk involved. They could lose their investment.

Real estate professionals say that when investing in property besides your primary residence and building your real estate empire (regardless of the size), the most important rule is to practice basic business principles.

“Your goal is to sell something for more than it cost you to buy and fix it up. When renting, you are relying on rental income to subsidise a fair amount of your mortgage, but not the entire thing. Greed and dreams of quick money will likely lead you into trouble, but making sane, business-focused decisions should allow you to extend your real estate holdings outside of your home,” says Mr Mwenda Thuranira, a real estate investor and manager of Myspace Properties.

Some investors also believe that understanding the local trends should be the first step to safe real estate undertaking. “It is essential to know what the target area is doing and the sales trends, as well as what other investors are getting from the same market,” says Mr Joseph Mwangi, a Nairobi-based real estate investor and businessman.

However, real estate has several unique characteristics that affect its value. According to Mr John Muthuro, the manager of Beverly Technologies Ltd, a construction company, and who is also a real estate consultant, there are economic and physical characteristics that influence investment in this sector.