The Comprehensive Guide To Real Estate Investment

The real estate industry has long been perceived as the safest haven to invest any form of business capital. This has majorly been fuelled by a spike in property valuations in countries around the world, especially Nigeria. While some countries have experienced downturns in real estate returns due to certain economic problems, some continue to enjoy greener incentives in the industry.

Some investment experts clamour for lesser investments in real estate because, it majorly only ties down potential capital, and piles up property maintenance costs, unlike other investments. This could be true, based on some economic factors. But in Nigeria, real estate is a thriving gold mine.

The industry is growing faster and getting more valuable, due to uncontrolled vices and open opportunities. As a result, the first course of action most people take when they start to earn some significant income, is to try to own their first property as soon as possible.

How then can anyone get into, and profit significantly from real estate investment in Nigeria, and anywhere else in the world? This article is specially geared to fully enlighten you with everything you need to know about real estate investment where ever you are.

Enjoy the ride!

First, let’s highlight some various ways you can get involved in, and generate revenues from real estate investment:

• Developing properties to raise it’s value
• Owning and renting/leasing properties
• Acquiring and selling properties1

Through every one of these real estate investment channels, you’d have to do an in-depth research, determine what you truly want, estimate valuations, explore finance procedures, and determine if the estimated return on investment (ROI) would be worth it on the long run.

Let’s dive right in.

1). Developing properties to raise it’s value:

This involves improving properties to increase their sales value in the market. Property improvements could be done on residential properties or commercial properties. Improving the property’s condition doesn’t just raise it’s market value. It also gives the agent a good bargaining power.

Real estate entrepreneurs here, usually focus on getting properties that currently have low market value, especially poor-looking houses that require a lot of repairs. Renovating and eventually selling them off, would give the entrepreneur a great return on investment, compared to what was spent in purchasing and renovating it.

Before a house is purchased for a total makeover, the real estate entrepreneur would have to do a thorough research on the potentials of eventually earning a good return from the property. If the environment is off-city, unpopular for consumer tastes, or there’s no form of a government project (e.g construction of an airport) going on in the district, the real estate entrepreneur might walk away from the deal before it turns out to be a bad investment.

2) Owning and renting/leasing properties:

Real estate investors, sometimes build or buy houses specifically for rent. A building with 6 blocks of flats fully filled with tenants, would guarantee a steady return on investment from each apartment; monthly or yearly.

In some countries, high property taxes, high maintenance costs, and several other vices, make real estate look like an investment most people should stay away from.

For instance; maintaining an apartment in New York could cost as high as $30,000 a year, or extremely weigh higher. But in Nigeria, property maintenance costs mostly never exceed $300 a year for the common residential real estate. And that’s if the landlord even decides to do any form of maintenance.

The leniency on property rentals in Nigeria, makes the real estate sector highly lucrative for interested parties.

The profitability of rental properties become more lucrative based on the location, the tenant, the property, and the lease duration. A long-term lease for several years benefits real estate companies more, than short-term leases. This is why irrespective of the potential profitability of residential real estate, commercial real estate, is a gold mine to explore. Especially in Nigeria.

3). Acquiring and selling properties:

This is a very common real estate model. Many real estate entrepreneurs mostly only buy or build properties to sell them. These properties are usually purchased at prices lower than their market value. This results in a good return on investment after the property is eventually sold at a higher price.

The real estate investors would usually identify areas with key growth potentials, and start buying a lot of properties there. The goal? To be able to sell them off at a weigh higher price in the future.

They base their purchases on market trends, and leverage heavily on first movers advantage when going on a buying spree. This also applies to land purchases. As a region develops, and real estate entrepreneurs realise there could be a spike in the demand for land in the area within two years, they dive right in early-on, and purchase most of the available lands they can lay their hands on.

This model is highly risky because, if their predictions turn out wrong, they’d have to count their losses as they try to sell off what they can, at probably lower costs than they originally purchased the properties.

How Do You Help Buyers Finance Their Real Estate Purchases?

Real estate financing can occur in a couple of ways. One is, the buyer could choose to pay the full sum for the property at a go. Few people have a true legal financial ability to do this. While the vast population can’t carry out full purchases, there are several other options they could consider.

People could use bank loans to also finance a real estate purchase, based on the bank’s exact requirements. This form of financing is usually carried out through a mortgage. The buyer would have to show some form of stable, and assuring income stream that would be able to eventually cover the purchase loan gotten from the bank, over a long period of time.

How Can The Economy Of A Country Affect The Real Estate Market?

Several factors can either drive up or down the potentials of real estate investment. Some of them are:

1). Corruption: 

When a government official re-routes a country’s fund to his/her personal care, the next best place they plan to hide the theft, is in acquiring landed properties. As a result, they walk into location A, where the original general value of lands there are =N=15,000,000 ($75,000). When the real estate agents realise it’s a quick purchase to probably hide unaccountable funds, they spike the price to about =N=45,000,000 ($225,000). The corrupt public official, with little time to weigh multiple options, makes a quick decision and settles.

As soon as word goes out that a certain property worth=N=15,000,000 ($75,000), was sold for =N=45,000,000 ($225,000), every other similar property in that district’s value rises to about =N=25,000,000 ($125,000) to =N=35,000,000 ($175,000).

2). High Interest Rates:

If the cost of getting a property purchase loan from a bank is high, demand in properties would drop. The reverse is the case in the event of favourable interest rate.

3). Relocation Trends:

This has to do with where various people are relocating to, or from. As people quickly move away from a place, the value of properties there drop, and the value of properties in the area they are moving to, slowly rises.

4). Rental & Homeownership Rates:

If the rent-cost of a place is too high, a lot of people would find cheaper places to live. The same applies to home purchases. The cost of the properties will determine if there’ll be a surge in demand or not.

How Do I Succeed As A Real Estate Entrepreneur?

The key to success in real estate or any other business venture is resilience. Tenacity of purpose is supreme, and when you have a clear goal of what you want to achieve in the sector, working both smart and hard in the right direction would gear you up for real success.

With different sub-sectors for a lucrative real estate investment, you need to clearly state what you want to get involved with, and what you want to stay away from. You’d achieve more success with a focused stance than if you try to be a jack of all trade.

As there’re are great profit potentials for real estate investment in Nigeria and many other places in the world, there’re also challenges that’d shake you up as a real estate entrepreneur. These factors majorly range from finance, to finding the right properties to buy, and having to deal with terrible tenants.

While these challenges are a reality for many real estate entrepreneurs, knowing that several others have crossed these tracks and eventually come out successful, is a good indication of the potentials real estate investment holds.