Why real estate is a better investment than the US dollar

Most people are very aware of the US dollar’s role as a way to protect savings but, it’s not the only way. There are actually three low hanging methods that one can use to protect their savings. These are:

1. Converting most of your savings into USD or some other perceived stable currency. This is what most people in Zimbabwe are doing. It’s easy and there is no limit to what you can “invest” this way. The main disadvantage is that sometimes you have to resort to illegal means to do this. Most Zimbabweans break the law by going to the black market. There is always the risk that you will be scammed or robbed during or even after the exchange process. There is also the fact that no currency is exactly stable-not even the US dollar. It might be low, but inflation would be eroding that money each year.

2. Buying shares/stocks in companies by investing on the Zimbabwe Stock Exchange. This is much more complex but the main advantage is that usually you actually earn rewards in the form of dividend payouts so you are not just putting money in a sack under your bed. You are actually making your money work for you. The main disadvantage of this method of shielding your savings is that it is complex. If you do not shrewdly stay on top of your portfolio you might wake up one day to find out that your entire savings have been wiped out due to bad investments. Coincidentally 2008 is the global year when world markets collapsed and showed people the fragility of the stock markets.

3. Investing in real estate. This will be the main discussion of this article.

Why is real estate better?

While you often have to break the law to buy USD or become a Finance Wizard to earn a living in the stock market world, in real estate all you need to do is just invest. It’s not exactly a thoughtless process but you will have to be really horrible at it to actually lose money, especially in environments like the one we have in Zimbabwe. The main drawback might be that you will need to invest something like US$1000 and above as it can be hard to invest small amounts. You can solve this problem by maybe saving your money as USD for a couple of months and then investing once you have reached a certain total. You can also invest through real estate companies that offer terms but be careful, do your due diligence before jumping in.

The easiest way to invest is to buy a stand. You can do this by buying in new development areas where stands tend to start selling at “cheaper” prices. It’s not uncommon for stands in very new suburbs to sell for around US$8000-$10000 for 300 square meters. You might not even have to build anything except maybe put up a cabin and maintain the lot for a couple of years to see your investment increase in net worth. Not only will you be protecting your investment but that piece of land actually passively grows your investment.

If you have a bit of money coming in you can actually carry out some development work that will actually boost the value of your investment. While the US dollar is the de facto currency in the real estate world, most suppliers are willing to supply building material if you pay in RTGS at the prevailing rate of the day. This means that instead of you running to the black market you can buy bricks, tiles, cement, pay builders in RTGS as they build your house/investment. All that money will be shielded as part of the overall investment as you can always sell your house at prevailing market rates in the future. Once your house is complete you can either rent it out and earn passive income or sell it for profit.

If you are flush with cash you can even go for a house instead of just buying an idle stand. You can then choose whether you want to renovate and flip it or just keep it and rent it out. Just as outlined above the house protects whatever you invested in that property from the effects of inflation. You can also see your investment actually accruing in value. Contrast this with a bag of cash you keep in your wardrobe. It would be wonderous if you woke up to find that the US$1000 you keep in there has grown into US$1200. In addition as already said you can get more income in the form of rentals.

As we examined in other articles you have to vigilantly guard against fraudsters and scammers in the real estate industry. However, it is much much harder to lose a house than it is to lose a bag of cash in your safe. Also, another thing to note is that while the Zimbabwean government in its pursuit of de-dollarization can scrap the multi-currency system, there is always a reason to believe that you will be able to freely sell your house in the future and recoup your investment.

To be clear, again as what we learned in 2008 from what happened in other countries, real estate investments are not immune to the whims of the economy and the financial markets. There are instances when the economy can erode the value of your house and you end up selling your property for less than you paid for it. However, as shown by our own experience of 2008, those effects seem confined for the most part, to the well developed real estate market. Individuals and companies who invested in real estate during the 2008 crisis seemed to have emerged from it all relatively unscathed.

Real estate affords more than just protection against inflation and currency collapse. It can even provide you with a viable source of alternative income and allows you to leave a legacy for your children.

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