Not every property someone owns, is necessarily an investment! A person may own a house, a plot of land or a family property and reasonably consider themselves a property owner. But ownership alone does not tell us whether the property is actually functioning as an investment.
An asset is something of value that a person or organisation owns or controls. A house, plot of land, commercial building or apartment can all be assets because they possess economic value. An investment, however, involves committing money or resources with the expectation of receiving some form of future benefit or return. This means that a property can be an asset to one person but an investment to another, depending on why it was acquired and how it is used.
Let’s say Person A purchases a house in Abuja as its permanent residence, that house is certainly an asset. It may appreciate in value over time and provide financial security. But its primary purpose is shelter and family use, rather than generating an investment return. Now consider another Person B who purchases an identical house, rents it to tenants and expects rental income and long-term appreciation. For party B, the property is functioning clearly as an investment asset.
And now, with land.
A family may inherit a parcel of ancestral land and hold it for generations. It is an asset with cultural, social and potentially economic value. But if someone deliberately purchases land because they have researched an area’s growth prospects and expect to sell it at a higher value in ten years, that purchase is being approached as an investment.
This distinction matters because an investor who is intentional and strategic about ROI should be able to answer questions such as:
- What return am I expecting?
- Over what period?
- Where will the return come from?
- What could cause the property to lose value?
- What costs will I incur while holding it?
- Who will buy or rent it from me?
- What is my exit strategy?
The two major ways property can create investment value
The first is income generation: A property can generate rental income from tenants. Commercial properties can generate rent from businesses, while residential properties can provide recurring rental income from occupants.
The second is capital appreciation: This occurs when the value of a property increases over time. For example, an investor who acquires land in an area before major development takes place may benefit if population growth, infrastructure and economic activity subsequently increase demand for property in that location.
But appreciation should never be treated as automatic. A property can take much longer than expected to appreciate. That is why owning property and investing in property require different mindsets.
The property owner may simply ask: “Do I own something valuable?”
The investor should ask: “What will make this asset more valuable or profitable in the future?”
Property ownership can provide security, shelter, status and inheritance.
Investment, however, requires more: an economic objective and an understanding of how value will be created.
So, before buying that next plot of land or house, don’t only ask:
“Can I afford to buy it?”
Rather Ask:
“What role will this property play in my financial Journey?”Because owning property and making a property as an asset and as an investment are distinctly separate.
Next week: The Four Major Types of Real Estate Every Nigerian Should Know.
Calista Ijeoma Njoku is a real estate investment adviser and development communication professional. Through Real Estate Lens, she explores property, investment, market trends and the forces shaping Nigeria’s built environment.