Have you ever wondered why a lot of real estate investors fail in Nigeria and very few succeed?
Surprisingly, the few who succeed and are extremely successful in the business are not usually those who join the business with the most capital . They are simply people who understands and knows how to play the game
Some people teach about investing with little or no money. The idea of investing with little or no money started in the United States of America, and I can guess you have read a couple of books on investing with “Little Down Payment”.
The truth is that Nigeria is different from from the United States and most of what works in most parts of Europe and America hardly work here.
The mortgage system, tax system, government policies and consumer behavior is totally different. More so America is a Capitalist economy while Nigeria is a mixed economy
However smart Investors who spend time to study the Nigerian real estate Industry always win using this simple strategies below-
This refers to adding values to properties that are yet to reach their full potential. These properties are unable to realize their actual market value because of a number of reasons, including lack of Capital from owner, lack of vision, poor management, repair requirements, owner not understanding the market demand, etc
Value add is one of the smartest ways to invest in property and make maximum profit, not only in Nigeria but across the globe and this is what most successful real estate investors do.
Smart Investors target undervalued properties in promising locations, add value to this properties to maximize profit, and makes it available to other investors or home-seekers
We are going to illustrate this with 2 examples-
Mr Jude, a property developer acquires hectares of land in a fast developing neighborhood at a good price from a community who is motivated to sell, convert this property into an estate and provide amenities to this property. (This step could be very hectic but lucrative hence one needs to understand properly the Nigerian Real estate Industry before you can invest at this level or you run the risk of losing your hard earned money. Another smart way of doing this is to get the service of an expert.
He(Mr Jude) split this properties into plots and acres, and other Investors and home seekers take advantage by buying into it. The subsequent Investors continue to develop this property by building residential apartments, terraces and duplexes which can be sold to other Investors and home seekers for Capital Gain or rented out for Cash Flow.
In this type of investment, every one ( Initial Investor and subsequent Investors all wins together).
This example is best for emerging locations.
We got an old two storey building that houses 6 blocks of 3 bedroom flats. The owner was desperate to sell this house at a giveaway because the house is old and tenants are refusing to rent it.
When we finished our due diligence we found out that the reason why this house is not rented is not just because it’s an old house but because people around this area are looking for studio apartments and mini flats (a mini flat is a room and a parlour with toilet and bathroom plus kitchen while a studio apartment is a single room with toilet, bathroom and Kitchen).
So we started our due diligence on the property, after we got satisfied with everything we needed to know, we negotiated and got this property far below market value because the owner is desperate to sell. So we paid for the house and got to work immediately.
At the end of 6 months we had 12 units of Mini flats and 6 units of studio apartments and before we we were done with this value-add exercise, the 18 units was completely rented out.
On the first year, we realized a double and half more rent on the initial value of this property. It’s four years now and the rent value have continued to increase and we have never had a unit unoccupied.
IMPORTANT NOTE –
Investors who choose to acquire value-add properties need to include the following 3 in their due diligence–
- Understanding the physical condition of a property is essential and a background in construction or architecture is a major plus.
- Market analysis is another crucial skill, as many of the factors relating to property valuations are outside of your immediate control.
- Understanding property management, and how to generate and maintain cash flow is also incredibly important.
2. Rental Property –
Those seeking consistent income and full control over the real estate investment experience may want to consider purchasing rental property or buying a piece of land and building it for tenants.
This investment option involves creating accommodation for tenants and collecting rent from them and most times the property may appreciate in value.
Finding a perfect rental property in Nigeria might be difficult especially if you are targeting prime locations like Ikoyi, Victoria Island, Lekki or even Surulere, but if you are lucky to find one after tens of inspection, consider yourself diligent.
Also being a landlord may not be an easy task. You’re responsible for paying the property taxes, as well as the maintenance and upkeep of the property. You also run the risk of vacancies and irresponsible tenants who can damage your property or neglect to keep up with rent. This is the reason why you need to educate yourself on property Management or get the service of an expert before you venture into rental property.
HOW TO DETERMINE A GOOD RENTAL PROPERTY
People will always need a place to live, and that means getting involved with rental properties. You need to do the proper amount of due diligence to source your property by keeping three principles in your mind: location, demand and demography.
The smartest way to determine if a property is going to produce a positive cash flow is the 2% rule.
It states that a property must rent for at least 2% of the total cost of property per month.
This means that any property bought for 10 million naira should be able to produce a monthly rent of 20 thousand naira for the least.
The cost of a property includes everything you did on that property to set it up for the first tenants which includes renovations and perfection of documents.
3 FIX AND FLIP
Fixing and flipping happens when an investor buys a property remodels it and put it up for sale. This is similar to value-add but in this case, the Investor have a primary purpose – to resell the property after renovation.
A little advise for those who want to make their money through fix and flip – Go after the ugliest and undervalued houses in the nicest neighborhoods. That’s where the real value is. The major difficulty here is not only finding those houses when you’re not well-networked with real estate agents, but also understanding your after-repair value.
How much will the home be worth once you’ve invested in fixes and repairs?
To accurately determine that, you need a strong relationship with a real estate expert and contractor. Know how to carry out detailed due diligence, and be sure you understand the underlying costs and the potential value of this property.
Never bite off more than you can chew, and more importantly, you should look for creative ways to help others. Achieving Success as a real estate investment have as much to do with how creatively you can solve problems as it does how well you can understand the numbers.
Recommended For You ➡️ FIVE MOST IMPORTANT QUESTIONS TO ASK BEFORE INVESTING IN REAL ESTATE
4. BE THE FIRST TO GET TO FASTEST DEVELOPING LOCATIONS-
No matter your reason for investing in real estate, the primary principe of maintaining maximum profits in Real estate investment is location. Smart location is the gold of real estate investment.
Smart investors are always the first to get to emerging locations and fastest growing areas. And if you can’t be the first, be among the first and buy right.
5. WAYS TO DETERMINE FASTEST GROWING LOCATIONS –
- Look out for locations with upcoming government projects such as airports, seaports, and industrial hubs.
- Look out for the growth of industries and commercial activities in a locations.
- Target mainly, areas with Constant inflow of human population
- Also consider locations with good neighborhood that could attract high income earners, good schools, social amenities and good transport system.
A LESSON FROM UCHE
This story was first told in the article – HOW TO MAXIMIZE PROFIT USING CASHFLOW AND CAPITAL GAIN INVESTING. However I will go ahead to retell the story here because I found it to be very valuable. This is how Uche became a millionaire by investing in emerging location. He grabbed an opportunity that many people would have turned down. So here it goes –
In 2002, Uche got an offer on a 15 plots of land at 2 million naira each and was given the option of paying for the land in 3 years.
The young bank manager was able to do his due diligence and realized that Lekki phase 1 had a great potential for growth.
He immediately secured the deal with a 10 million naira deposit and started sourcing the revenue to balance up 20 million. He was willing to share some portions of the investment with his friends if they would contribute to make sure the deal is not lost. He spent time explaining to them the importance of securing some plots for themselves but they turned him down.
Before the three years elaspe, Uche was able to complete the payment of the property, got his documents completed and secured the property.
In 2013, after Ikoyi bridge was commisioned, landlords in Lekki phase 1 were the most blessed as Price of properties trippled and rent jumped off the roof. This was the exact time Uche decided to develop this property. He did some market research and realized that tenants were looking for 2 and 3 bedroom flats primarily.
Rather than seeking financing from the bank, he decided to sell off 3 plots at 70 million each. In june 2015, he already had his 40 units apartment completed to suit the current demand of tennant., consisting of 2 and 3 bedroom flats. Today the property generate an annual rent of over 80 million naira for Uche. Uche told me that he is still reinvesting in emerging location today because it’s have proven to be an untapped gold mine
5. REAL ESTATE INVESTMENT TRUSTs (REITs)
This type of investment is best for investors who want to enjoy dividends from real estate without a traditional real estate transaction – like actually owning the property, running maintance, paying taxes etc. They just don’t want to be involve.
A REIT is created when a corporation (or trust) uses investors money to purchase and operate income properties. It is bought and sold on the major exchanges, just like the stock.
In most countries like the United States, It’s mandatory for a corporation to payout 90% of its taxable profits in the form of dividends in order to maintain its REIT status. By doing this, REITs avoid paying corporate income tax, whereas a regular company would be taxed on its profits and then have to decide whether or not to distribute its after-tax profits as dividends.
Like regular dividend-paying stocks, REITs are a solid investment for stock market investors who desire regular income. In comparison to the previously mentioned types of real estate investment. REITs afford investors entry into nonresidential investments, such as malls or office buildings, that are generally not feasible for individual investors to purchase directly.
Just like the stock market, REITs are highly liquid because they are exchange-traded. In other words, you won’t need a real estate agent and a title transfer to help you cash in your investment.
REITS is a clever way to to create Cash Flow in real estate for amateurs and inexperienced investors who want to invest for long term and receive returns on their Investment without being actively involved.
6. REAL ESTATE INVESTMENT GROUP (REIGs)
This is ideal for people who want to own rental real estate and generate cash flow without the hassles of running it. Investing in REIGs requires a huge capital support.
REIGs are like small mutual funds that invest in rental properties. In a typical real estate investment group, a company buys or builds a set of apartments and terraces, then allows investors to purchase them through the company, thereby joining the group.
Sometimes, the investor might have to buy the property at construction stage and pay in installments, within an established time frame in other to own the property at completion
A single investor can own one or multiple units of self-contained living space, but the company operating the investment group collectively manages all of the units, handling maintenance, advertising vacancies, and tenant screening, In exchange for conducting these management tasks, the company takes a percentage of the monthly rent.
A standard real estate investment group lease is in the name of the Investor, and all of the units pool a portion of the rent to guard against occasional vacancies. To this end, you’ll receive some income even if your unit is empty. As long as the vacancy rate for the pooled units doesn’t spike too high, there will always be enough to cover costs.
7. SHORT-TERM LETS
This is another smart way of making money in Real estate. It describes furnished apartments that are rented for short periods of time, usually by week’s or months as opposed to annual rentals in the unfurnished apartment rental market. It ranges from studio apartments, mini-flats, flats etc
Short Let are usually an alternative to hotels and it’s an advantage for home owners who lack the finance to run a hotel and short term visitors and travelers who love a little privacy and couldn’t afford to pay an annual rent or furnish a house which they will probably stay for 3 months or less. They therefore prefer already furnished apartments where they can feel at home and go after their businesses.
Because the demand for short Let is high and it’s availability is relatively scarce it’s usually smart investments in key locations like Lagos, Port-hacourt, Abuja and most upcoming cities across Nigeria
BUYING RIGHT –
The importance of buying right can never be overemphasize because A lot of people make the mistake of buying a bad property in a good location or buying at ridiculously bad price or joining the market at peak period and they become victims of market crash. Not paying attention to data, cost implication and mistiming deals will always have a negative effect on your returns on investment
Smart investors don’t buy at the extreme end of market price, they lookout for markets that have long-term prospects based on location and demographics and are never on all-time highs
Whether you are investing for Cashflow or Capital Gains, buying right is very important. Always pay attention to movement of people in and out of any location, try to understand what’s influencing this movement and if it’s going to be a long time or short time effect. Whenever people are flocking into an area to settle on long term, value of Properties will definitely go up and if you are among the first to invest in such locations, the result is always positive and massive.
One of the smartest ways of investing in real estate which I didn’t mention in this article is booking appointment with us. You can use the orange button below or the yellow button to speak to us immediately. We are a team of experts dedicated to helping investors maintain maximum profit through smart real estate investment and management
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