By Godfrey Kenneth Gobba
Millions of people are busy toiling day and night so that they can save enough money to buy land.
The average individual tends to look at a land title with their name on it as a sign of financial accomplishment even if most of the time the land sits idle for years with no income producing activity going on.
So this got me thinking.
Does struggling to acquire land make financial sense? Is land the right place to invest your hard earned savings especially if you are still struggling to earn a living?
Could this “African Dream” of owning land all be an illusion? Could there be a better way?
Many people tend to invest a huge portion of their savings into land. Others have the luxury of having stable jobs so they acquire salary loans to finance the acquisition of land.
Usually, the plan is to acquire the land and then start saving to construct a family home or rental units. Others start doing some kind of agricultural activity on the land which in most cases brings in zero income. Speculators buy land so they can resell it several years later for a killing and then repeat the process.
But in my world, this whole land thing doesn’t make financial sense at all. The idea of burying my hard earned savings in a non-income producing asset-just so I can feel accomplished sounds ridiculous.
Investing is not about acquiring assets just for the sake of owning assets. Investing is about acquiring “income producing assets”, the key word here being “income”.
Hence your focus should be on generating investment income and not on just acquiring an asset.
Assets that give you no current income are potentially useless to you even if they could appreciate in value and you could resell them in future for a profit. This is explained by a concept we know as the “Time Value of Money”.
A dollar in your hand today is worth more than the dollar you hope to acquire in the future.
The dollar you have today can be invested to produce dividends, interest and rental income which makes it much more valuable than the dollar you hope to get in the future.
As you make your investment decisions, the deciding factor should be how much current investment income that particular asset will give you today and not on how much money you will make when you resell that asset five years down the road.
Your focus should be on generating investment income today and let future capital appreciation or capital gains be an additional bonus.
That being said, I honestly believe that we should be thinking in terms of buying rental properties or investing in income REITS (Real Estate Investment Trusts) that will give us current investment income instead of buying empty chunks of land that are going to sit idle for the next five years.
Unless you have the cash to immediately start developing that land or if you intend to use the land as collateral to acquire a mortgage for a rental property, you should desist from burying your hard earned savings in idle land that won’t give you any current income.
A regular and dependable stream of dividend income, interest income and rental income are what will make you wealthy.
Capital appreciation and capital gains are icing on the cake to make you super wealthy. But first, you must earn income.
Don’t buy assets just for the sake of owning assets. Focus on buying income producing assets. PERIOD.
The author is CEO, African Investor Academy
Email: godfrey@theinvestmentguru.co.ug
