Buy a finished house or build your own? An investment decision you should make before you leap.

Introduction

Investing is regarded as the most effective way to preserve and grow wealth. Investment is putting money to work that makes money back in the form of profit, interest, or an increase in the value of your wealth. Ironically, someone beautifully said that “the safest way to invest on earth is on earth.”

Going with this, I believe there are two ways you can do this. You can buy a plot of land and construct your desired property. Others may buy a developed structure such as a commercial or residential property that requires renovation, redecoration, remodelling, or redesign and bear the fit-out cost. Some may go for industrial or luxury facilities that are finished or unfinished.

Whichever option you choose, your choice will depend on your objectives, such as targeted customers, acceptable risk level, expected returns, and asset yield.

This article will share three major factors you need to consider in any real estate investment to refine your investment goals.

No matter how big or small your project might be, it would be terrible to go without considering these three things, or you are heading for many surprises.

Cash Availability

The primary investment factor, around which the other factors revolve, is knowing the readily available investment capital, which must aid you in making informed choices. You must establish the amount of cash you wish to invest and make arrangements for an alternate financing pool or additional source of finance. The failure or abandonment of many real estate projects results from underbudgeting the projects. On average, it takes about 3- 5 years to complete a three-floor building on 7,500 square feet or two town plots in Sierra Leone by an informal contractor. An expert says it will cost about SLL 140,000,0000 (One Hundred Forty Million Leones) or about USD 10,500 to construct a low-cost three-bedroom using informal contractors. The actual duration hinges wholly on the cash strength of the project and the landscape of the land.

Building a new multi-storey structure from the ground up requires an uninterrupted budget, whereas purchasing a completed property necessitates a much larger lump sum payment. On the other hand, the money needed to buy a building that needs upgrading or remodeling depends on its current status, intended uses, and location.

Development and Cash availability

Given your targeted goal, you would carefully assess your objectives and which investment, as mentioned above, is suitable for you.

Depending on its location, empty land may be affordable to buy. Nonetheless, the length of time required to construct it is critically important. Time, inflation, misuse of materials and labour, natural obstacles or conditions such as natural disasters, and government policy changes could seriously affect your investment. In short, there may be delays along the line, which will affect the amount of money spent on the project.

On the one hand, it may have a few advantages if you buy a property and refurbish it, but it will not be devoid of difficulties. You may have the opportunity to acquire a property in an appealingly attractive location suited for commercial and residential use. This option will require the least development duration and a reasonable purchase price. On the other hand, you can shorten the payback period by choosing an attractive location with high demand or, in some cases, providing alternative uses such as offices, residential, or commercial.

Suppose you intend to acquire an entirely newly finished structure in a residential or commercial setting. In that case, you should be prepared to spend a substantial lump sum in one go. This option may be accompanied by a shorter payback period. It may save you from the frustration and stress associated with construction.

Location and Return

Location is unquestionably the No. 1 component in real estate investment decision-making. The property’s location has an immense effect on the first two factors and how long it will take for them to pay off ( look out for my article on locations).

Commercial structures offer a quick return on investment and shorten the lifecycle of a property. Office property has a moderate rate of return and a longer property lifespan. In comparison, residential property has a low rate of return and a considerably longer life.

The decision on which use property is put to is directly influenced by its location. Properties in the Central Business District (CBD) and the major road from Waterloo through the CBD to Number 2 River are used mainly for shops and stores on the ground and first floors, with residential on the upper floors or a mixture of shops and offices. In contrast, those in the west are used mainly for residential and office purposes, attracting international offices and establishments. Those in the extreme west serve primarily as residences. However, homes near recreational areas (beaches) attract a specific clientele (diplomats and foreign individuals).

The location alone will not decide how the property will be utilised or who it will attract as a customer. Yet, it will remain a critical deciding factor for your investment property.  

CONCLUSION

To make an educated investment choice in real estate, you need to consider these factors and other areas of significance. The amount of money you intend to invest, the nature of the transaction, and the property’s location are the three most important decisions you must make before signing that cheque.

This article’s information serves as a comprehensive primer on the topic. Regarding your situation, you should seek the opinion of a specialist.

 Let us know what other critical decisions you also think about.

Ismail Sheku Umarr Kebe

BSc (Hon) Applied Accounting, IPAM, USL.

I am a trained real estate asset manager, valuer, and broker.

Head of Operation, Global Salone Property and Investment Company Limited, with eight years progressive experience in real estate brokerage and property investment analysis in Sierra Leone.
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