Real Estate as an Investment Vehicle: Its Risks and Rewards

ESV Nafisah Abdullahi Sani

Real estate has long been regarded as one of the most dependable investment vehicles globally, offering a balance of stability, income generation, and long-term wealth creation. In countries like Nigeria where inflation is high and financial markets remain volatile, property investment is increasingly seen as a strategic hedge. Yet, like any other asset class, real estate comes with its own set of risks. Understanding the balance between risks and rewards is essential for investors seeking to make informed decisions.
One of the biggest appeals of real estate is its potential for steady appreciation. Land and well-located properties tend to increase in value over time, especially in urban centres with growing populations.

Investors who buy strategically can reap significant capital gains. Additionally, real estate provides passive income through rental earnings, making it a preferred option for those seeking long-term cash flow. In many cases, rental yields can outperform returns from fixed deposits or unstable stock markets.
Another reward is real estate’s role as a hedge against inflation. While inflation erodes the value of money, property prices and rents generally rise with the cost of living. This makes real estate an appealing asset for preserving wealth. Moreover, because property is a tangible asset, it offers a sense of security that intangible financial instruments often cannot. Real estate also supports portfolio diversification. Investors looking to spread their risks across different asset classes often include property to reduce overall volatility. With emerging sectors such as short-let apartments, industrial real estate, student housing, and proptech-driven solutions, investors today have multiple sub-markets to explore.
However, the sector is not without risks. Real estate is capital-intensive, requiring significant upfront investment. This can lock investors out or expose them to financial strain if the investment is not carefully planned. The sector also suffers from market fluctuation risks, particularly in economies where political instability, interest rate changes, or currency devaluations can slow down demand or affect rental income.

Another major risk is illiquidity. Unlike stocks or bonds, property cannot be easily converted into cash. Selling a property may take months, and in a slow market, even longer. Additionally, investors must navigate regulatory and legal risks, including land title disputes, lack of proper documentation, and inconsistent urban planning regulations issues that are particularly common in Nigeria.

Maintenance and management challenges also pose risks. Properties require continuous investment in repairs, tenant management, and security. Poor property management can reduce rental income and diminish long-term value.

Despite these challenges, real estate remains a powerful investment tool when approached cautiously and strategically. Investors are advised to conduct thorough due diligence, verify land titles and approvals, understand market trends, and work with reputable developers or agents. Diversifying within real estate, such as mixing residential, commercial, and industrial properties can also reduce exposure.
Ultimately, real estate’s rewards often outweigh its risks, particularly for investors with a long-term outlook. When handled with proper planning and risk management, property investment offers not only financial returns but also stability, security, and a pathway to generational wealth.