Real Estate investment in Nigeria is a lucrative business in Nigeria that is almost 100 percent risk-free – except for natural disasters or government acquisition.
however, before diving into the real estate investment business, there are a few things I would love you to take into consideration – but before I point out these few elements to you let’s look at what investing and real estate are and how they all began.
Investing in a simple term is a means by which one grows his or her cash flow system in order to bring more meat to the table. It’s actually an act of multiplying one capital source in order to maximize profit at a given time frame or end goal. It can be referred to as buying an asset that increases in value over time to make a profit.
An investment is an asset or item acquired with the goal of generating income or appreciation. Appreciation refers to an increase in the value of an asset over time. When an individual purchase a good as an investment, the intent is not to consume the good but rather to use it in the future to create wealth.
According to Wikipedia, Investments is the dedication of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing is to generate a return from the invested asset.
Investment can be in various categories or fields among them are;
- Real estate
- And a host of others.
The aim of this article is centered on Real Estate investment in Nigeria and the 7 things you need to know before investing in the real estate business. But before that;
What Is Real Estate Investment?
According to Wikipedia, real estate is property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this item of real property, buildings, or housing in general.
Real estate investment involves the purchase, management, and sale or rental of real estate for profit. Improvement of realty property as part of a real estate investment strategy is generally considered to be a sub-specialty of real estate investment called real estate development.
Someone who actively or passively invests in real estate is called a real estate entrepreneur or a real estate investor.
Real estate investment refers to the purchase of property as an investment to generate income rather than using it as a primary residence. In simple terms, it can be understood as any land, building, infrastructure, and other tangible property which is usually immovable but transferable.
History of Real Estate Business
During the 1980s real estate investment funds became increasingly involved in international real estate development. This shift led to real estate becoming a global asset class. Investing in real estate in foreign countries often requires specialized knowledge of the real estate market in that country.
As international real estate investment became increasingly common in the early 21st Century, the availability and quality of information regarding international real estate markets increased. Real estate is one of the primary areas of investment in China, where an estimated 70% of household wealth is invested in real estate.
Types of Real Estate
When dealing with real estate investment — this includes various properties that are differentiated by their uses. These are as follows.
Residential Real Estate:
These are real estate that consists of homes, that is, single, duplex, triplex, township, bungalows, etc. used for residential purposes. Whether it is a newly built property or a house that has been completed and it’s been listed to be resold by the owner over time.
Industrial Real Estate:
Just as the name industrial, it implies a large-scale property utilized to build factories, manufacturing units, warehouses; distribution centers, etc. are categorized under industrial real estate.
Commercial Real Estate:
The properties or office buildings such as a complex are parted into multiple small units. These are rented out or used to run various businesses. Therefore, they are known as commercial real estate. This means flipping properties and developing them, adding value to properties in order to increase their net incomes through renovations and upgrades.
These properties are used as showrooms, restaurants, shopping malls, retail stores, etc. either individual units or multiple units located in the prime location.
Any vacant land where activities like ranching or farming take place is also a form of real estate. If you are considering earning in the real estate business, one of the ways is considering buying land in areas that will develop within a short time.
You can buy a piece of land located in a hot or up-and-coming area. From there, you can decide to hold it for a longer time knowing it will appreciate in value, or you consider turning it into a recreational center for rentals.
Fix and Flip Properties:
The residential properties which are in a poorly maintained state and are available at a low price are termed the fix and flip properties. These properties, when purchased by the buyers involved in the renovation and repairs of properties to modify them and sell at a high price. All you have to do in this scenario is to find a distressed seller and a motivated buyer, then bring them together.
A single high-end real estate project which constitutes of different types of properties mentioned above to ensure diversification and minimize the risk of project failure is termed under mixed-use real estate
Ways You Can Earn From Real Estate Investment
When it comes to making money from real estate, one has various options. The following are important ways of investing in real estate.
Appreciation of Property Value:
This is usually observed when the value of property keeps on increasing even in the situation of inflation on a nation’s economy. This scenario presents one with a big opportunity which is why considering real estate investment in Nigeria is a wise decision and a no-brainer.
Renting out premises, whether residential or commercial, is always a good idea for generating a progressive passive income in the long run. For example, you could give out a space in your apartment and in return collect rents for those spaces. This is also a means of growing your cash flow passively over a long period of time.
This has to do with real estate management companies, agents, or brokers who can make money in the form of commission by facilitating the exchange of property between the buyer and the seller.
Income from Ancillary Real Estate Investment:
Other than regular income from business or salary, one can develop a source of additional revenue by various means. One of these is installing a vending machine in the running business premises.
Real Estate Investment Trusts (REIT):
A Real Estate Investment Trust (REIT) is a company that owns, and in most cases operates, income-producing real estate. REITs are essentially mutual funds that invest in real estate. For most people, investing in real estate is not finally feasible.
That notwithstanding, In some parts of the world for example India, the investors who are willing to invest in real estate but lack sufficient capital can buy units of real estate investment trusts, listed with the stock exchange and approved by SEBI. The fund so collected are invested in different types of real estate projects.
Advantages of Real Estate Investment in Nigeria
As a business when playing the long-term game, real estate investment in Nigeria can be very beneficial. If done wisely, it may generate lucrative returns.
The advantage of real estate investment in Nigeria includes the following.
- Hedge against Inflation:
Unlike other assets, real estate is not adversely affected by inflation. Instead, its value and income increase with the rising economy.
- Rent Pays Off for Mortgage:
Residential and commercial properties are the only assets that have the capability of generating income through rentals to pay off the interest on their mortgage.
- Stable Income:
It can be seen as the most significant source of generating passive income. The investors can rent out their property to ensure regular and steady cash inflow.
- Tax Benefits:
Real estate investors relish tax exemptions on rental income up to a specific limit. Even the tax rates for such investments when made for the long term, are quite low.
- Self Decision Making:
A real estate investor is free to make his or her own decision, similar to running any other business entity. In short, the investor is his or her boss.
- Financial Security:
As we know that putting money in real estate is a long-term investment. The investor has possession of a physical asset, hence providing financial security to the person.
- Value Appreciation:
Real estate investment is the purchase of property that encounters capital appreciation in the long run.
Disadvantages of Real Estate Investment in Nigeria
While real estate is a profitable business to make a great choice, it has some disadvantages which are advisable for one to consider as well as the risks involved before embarking on investment.
These disadvantages are as follows:
- Huge Transaction Cost:
Buying and selling properties is a costly business affair. The transaction cost, including registry charges, legal expenses, diversion, etc that takes place in the process is so high that the cost of investment increases for the buyer.
- High Maintenance and Management:
This is a major drawback and you should always give some thought and time to how to approach this. Real estate investment is buying a physical asset that involves the expenditure on its maintenance. The investor also needs to manage the source of income so generated.
- Creates Financial and Legal Liability:
The investor may become overburdened by the financial liability and possibly leads to acquiring debts if he or she buys a property on loan. Even the transfer of ownership at the time of property purchase creates a legal obligation on the investor.
- Less Liquid in Nature:
Unlike other investments like stocks, shares, or agriculture, real estate cannot be easily bought and sold regularly. Therefore, it may not prove to be a suitable investment option for investors seeking short-term profits as it rewards long-term investors. The business model requires one to be dealing with the Market and be aware of the trend of the market.
Sometimes, the investors who lack the necessary information about the prospective real estate project may end up putting their money into unprofitable projects. Proper research and quality information about the property in question should be conducted as this helps take away the guesswork and care for one money management.
- No Fixed Maturity:
Real estate appraisal does not take place at a fixed rate in a defined period. Capital appreciation in the case of properties is a long-term process; it is presumed but not pre-defined.
7 Things to Consider Before Going Into Real Estate Investment in Nigeria
1. Consider Population Growth
Just like the law of demand and supply, when prices are low, the demand for that commodity goes up and when the prices are high the demand for such commodity is low. This essence signifies the growth rate of that commodity. This principle can be used in proportion to the real estate business.
When considering an investment property, look at the fundamentals like population growth. When people are moving to an area in droves, the demand is high and we have a healthy market for buyers to find the right properties and get involved.
2. Look At Rent Estimation
People who are interested in buying a home as an investment property should look at rent estimations in the area. Properties may be hard to make profitable today, but if rental rates are predicted to climb, the property stands to become profitable over time. If the property is in good shape, lock in the low mortgage rate now and be diligent about raising rents as the market supports it.
3. Carefully Consider Affordability
People are skeptical of spending even though they spend money on things on a daily basis. At the end of the day, the most important factor is affordability. Can you afford to buy it? It is a two-part question where you have to consider how much cash you have/are willing to put into a transaction and how much you are willing to pay monthly. Yes, rates matter when thinking about the monthly payment, but so does the price point.
4. Don’t Wait for the ‘Perfect Time’
When mortgage rates go up, the price of housing eases. It is very hard to plan the perfect time to buy. If buyers are waiting for prices to decline or for a market correction, they may be facing higher interest rates. If prospective buyer needs housing, they should buy when they would like to. A large part of homeownership is intrinsic and not financially driven.
5. Examine the Timeframe
In nearly every market, real estate is a great long-term investment. The biggest consideration for buyers, aside from basic affordability, is the timeframe for their investment. If you are thinking of selling in fewer than five years, you are taking a serious risk of losing equity. If your time horizon is 10 or more years, your chances of substantial value appreciation are greatly increased.
6. Project Future Job Stability
For most families, job stability should be the main consideration when thinking about buying a home. Careers primarily dictate which area a family lives in and for how long. It’s a cliché, but it really is about time in the market, not timing the market. Despite some highs and lows, the real estate market has gone up over a long enough period of time.
7. Watch the Market
This point narrows down to a buyer’s personal risk tolerance. In such a competitive market as real estate, buyers are writing offers over the asking price, putting more money down, and even looking for means to forfeit any tendency of happening. Those are all great strategies, but buyers shouldn’t feel trapped into doing them. If they aren’t comfortable, they should keep watching the market so they’re ready when it begins to cool.
For anyone who’s is considering venturing into Investments to grow cash flows, the real estate investment in Nigeria is a gold mine one should consider tapping into. It’s among the few Investments that have tested the fate of times and is ever-renewing. The real estate business is a great choice to make considering the fact that it’s ever-renewing and it’s not time-bound (it’s a business that will keep growing and modernizing).
Its advantages include the ability to have access to stable income, as well as the freedom that comes with it, most importantly it gives one hedge over inflation as the properties are little to no way affected but in a way in proportion to a nation’s economy. As the economy raises so is the value of the properties.