Investing in real estate is more than just finding a place to call home. Investing in the real estate sector in Nigeria has become increasingly popular over the last couple of years and has become a common investment thread.
In Nigeria, the real estate business is truly lucrative and profitable, it has to be Real Estate. The Real Estate sector is currently booming in Nigeria and people are making millions in it, irrespective of the economic downturn, it can be seen as a real money spinner.
One thing very good about real estate business in Nigeria is that the investment opportunities it presents are so diverse, there is something in it for everyone and you grow in the business, you can also expand your portfolio.
Although the real estate market has plenty of opportunities for making huge profits, buying and owning real estate is a lot more complicated than investing in stocks. In this article, we’ll go beyond buying a home and introduce you to real estate as an investment.
Here are some of the ways you can see real estate as an investment that could bring in huge returns and not just the buying of a dream home for you and your family alone.
1. The Gift of Rental Properties
Investing in rental properties is as old as the practice of land ownership. You buy a property or properties and then rent it out to tenants. You become the landlord responsible for paying the costs of maintaining the property.
Usually, you would charge enough as rent to cover all of the costs associated with owning a rental property as well as a profit portion, hence the need to do enough research about the rental value been charged by landlords in the area, who have the same property. Owning a rental property automatically leaves you having a fixed rental income yearly or monthly. Generally, properties appreciate in value over time, leaving the landlord with a more valuable asset.
There are, of course, blemishes on the face of what seems like an ideal investment as you can end up with a bad tenant who could damage the property or, worse still, ends up having no tenant at all. This could leave you with a negative monthly cash flow.
There is also the matter of finding the right property. You will want to pick an area that is conducive for people to live in, also, choose a place that people will love to rent.
Perhaps the biggest difference between a rental property and other investments is the amount of time and work you have to devote to maintaining your investment.
When you buy a stock, it simply sits in your brokerage account and, hopefully, increases in value. If you invest in a rental property, there are many responsibilities that come along with being a landlord. You have to be actively involved in the maintenance and running of your property. However, if it gets too much, you can employ the services of a professional manager which doesn’t come free of charge.
2. Real Estate Investment Trusts (REITs)
Most Nigerians do not know about the Real Estate Investment Trusts (REITs). REITs are a form of collective investment scheme regulated by the Securities and Exchange Commission (SEC), which pools capital from investors and uses same in the acquisition of income generating real estate, mortgage loans, or a combination of both. The portfolio of underlying assets is placed under professional management to maximize returns to the investors, who are able to hold an indirect interest in real estate on a flow-through basis, placing them in a position as if the property were held as a direct investment. REITs are bought and sold on the major exchanges, just like any other stock
REITs have been found to come with a lot of benefits. One of this is portfolio diversification, as real estate investment offers an alternative to equities and fixed income securities, especially for investors interested in diversification. Liquidity is also another benefit derived from REITs as it makes for relatively liquid assets (when compared to direct investment in real estate) that can be sold fairly quickly to raise cash or to take advantage of other investment opportunities.
Much like regular dividend-paying stocks, REITs are a solid investment for stock market investors that want regular income. REITs also allows investors into non-residential investments such as malls or office buildings and are highly liquid. In other words, you won’t need a realtor to help you cash out your investment.
3. Land Flipping
This means buying of land and reselling quickly for a profit. This is one of the smartest investment and it requires little to no effort whatsoever. It basically involves your money as well as an in-depth knowledge of land ownership and the buying and selling process, you are good to go. You would have to have a substantial amount of money however if you want to make hundreds of millions but you can start small by buying just one plot and grow to buy tens of plots and acres of lands and keep selling all year round.
4. Property Development
Investing in property development is really capital intensive. This involves acquiring properties in nice locations, developing them into luxury apartments, commercial structures, etc and sell at a very high-profit margin. For example, If you spend N200 million to develop a property in a very nice location, be sure you are going to sell for N400million. The location is key if you are thinking of investing in property development.
These types of real estate investment above, have only scratched the surface. Within these examples, there are countless variations of real estate investments. As with any investment, there is much potential in the real estate sector, however, make careful choices, carry out due diligence, research and weigh out the costs and benefits of your actions before diving in.
5. Real Estate Investment Groups
Nigerian Real estate investment groups are sort of like small mutual funds for rental properties. If you want to own a rental property, but don’t want the hassle of being a landlord, a real estate investment group may be the solution for you.
A company will buy or build a set of apartment blocks or condos and then allow investors to buy them through the company, thus joining the group. A single investor can own one or multiple units of self-contained living space, but the company operating the investment group collectively manages all the units, taking care of maintenance, advertising vacant units and interviewing tenants. In exchange for this management, the company takes a percentage of the monthly rent.
There are several versions of investment groups, but in the standard version, the lease is in the investor’s name and all of the units pool a portion of the rent to guard against occasional vacancies, meaning that you will receive enough to pay the mortgage even if your unit is empty. The quality of an investment group depends entirely on the company offering it. In theory, it is a safe way to get into real estate investment, but groups are vulnerable to the same fees that haunt the mutual fund industry. Once again, research is the key.