The decline in interest rates on investments across the country has led investors to look into other sources with more attractive returns — owning a real estate business. Since there aren’t so many risk-free investments with returns greater than the inflation rates, the real estate industry is a good option if you care about capital preservation.
We know you love investing, and you’ve probably weighed your options carefully. Investments in the real estate sector seems to be the best bet, as it’s a tad safer than putting most of your funds in the stock market. If there’s something important to pick from the book “Rich dad, Poor Dad” by Robert Kiyosaki, it definitely should be the importance of investing in real estate business. In any part of the world, there is always a similar investment pattern in real estate.
Smart businessmen in the oil sector have been diversifying into real estate for a couple of years now. When you look at the increasing number of filling stations in major roads around the country, you see investments in downstream oil sector, but they see beyond that. It’s a strategy they are using to maximize their real estate assets. Their choice of location make the stations easily marketable.
Today, we’d be letting you know that anyone can go into real estate. And you do not need to have enough money to buy a house before you can enjoy the rewards of the sector. You may also be wondering if you’d have the time and energy required. Well, we sincerely think you’d find it shocking to know that it simply depends on the form of real estate you’re delving into.
There are several reasons people consider investing in real estate. Most times, it’s simply to get passive income, to ensure a positive cash flow. And it’s quite reliable. Other times, it could be for residential purposes. Everyone want a happy family life, and that’s what you get in a lovely home.
Currently, we’re expecting a boost in the real estate sector. This is as a result of the of CBN lending policies introduced towards the end of last year. Banks are more than ready to give out loans to customers at much lower rate as compared to before. Very soon, more mortgage plans would start rolling out for customers.
What is Real Estate Business?
Like every other business, real estate business is one in which making profits is the sole aim. Real estate consists of lands, the buildings on it and every other natural resources. The house you live in, the gigantic building down the road and the farm close to the city’s outskirts are all under real estate.
The real estate sector is usually classified into: commercial real estate, industrial real estate and residential real estate. Money can be made from all three forms of real estate, you just have to know your onions.
Investing in Real Estate Business in Nigeria
We’d be looking at five ways you can make money in the real estate business in Nigeria.
• Working as an Agent
• Buying or Building a Rental Property
• Flipping Lands and Properties
• Renting a Portion of Your Home
• Real Estate Investment Trusts (REIT)
Working as an Agent
One can engage in this as a full time or a part time job. When you choose to work as a real estate agent, it’s more of a business than an investment. Your work is simply to get buyers and sellers together, and you then get a cut at the end of the day. There are so many real estate agents in Nigeria, so your service have to be top notch to retain customers. You have to work on your negotiation skills in order to be able to persuade clients when necessary.
Another way you can act as an agent is by serving as a caretaker of houses. As the caretaker, you’d be in charge of the house. You’d serve as the intermediary between the landlords (owners) and tenants. When things are faulty or not in place in the house, you are then contacted. So it’s reasonable to have a very good relationship with the landlord for smooth transactions.
Buying or Building a Rental Property
When you find houses for sale in suitable locations, you can buy them in order to earn passively from the investments. After buying the house, you can decide to manage it yourself, or give it someone else to do the managing. You have to study the area carefully before you proceed to buy a house. You want to know the kind of individuals that would be able to afford the apartments.
In some communities rents are paid monthly, while in others rents are paid yearly. You want to know the payment method in the community, since your aim is to attract people in that community to rent the apartments. If you buy a house in an area where people pay high rent, you can earn millions yearly from the house. For example, in highbrow areas in Lagos and Abuja the rents are millions of naira per year.
You can find a house to buy by contacting real estate agents, or by visiting several websites on the internet. Recently, I received an intel that the house opposite where I live is up for sale. So, you can get info from people that live in your preferred neighbourhood. You have to be make sure it’s legit though, you definitely wouldn’t want to fall into the hands of scammers.
Another challenge with buying a building for rent is the initial cost. Before you can buy such a building, you’d need to have a good amount of money at your disposal. You know it’s mostly down payments around the country. So, you have to really do some maths and evaluate if buying the property would be worth it.
Real Estate Management
Also, it could be a challenge dealing with tenants. This is one reason investors prefer to hand over their houses for real estate agents to manage. If you’d be managing the house yourself, you want to take your time to screen prospective tenants and try to find out their sources of income. When the tenants have steady sources of income, it’s difficult to default on payments. We have friends that refuse to give houses to people that are not salary earners, because majority are usually unreliable.
You also don’t want to end up renting out your house to a kidnapper. In some states in the country, the house a kidnap victim is kept is usually seized by the government.
If you’re good at managing properties and people, then you’d may be able to manage your house yourself. If you can’t, it’s no big deal; majority of us can’t deal with tenants. It’s simply to employ an agency to manage your properties. Although that would attract an extra cost, your sanity is worth protecting.
Flipping Lands and Properties
Lands and property flipping is definitely one of our favourite form of real estate investments. It involves buying lands and properties at a low price and selling at higher prices to make good profits. It is one of the best way for a real estate investor to get involved in the business. It’s usually done in areas that are growing rapidly.
We have a guide on Getting the Best Land and Property Deals in Nigeria, you’d love it. Truth is, flipping lands and houses is pretty risky, but when you are well informed, you’d make better decisions. The suggestions in the article mentioned above would prove to be very helpful. Nevertheless, always ensure not to buy an overpriced land or house.
When you are flipping houses, you want to look for houses that wouldn’t cost you so much to renovate if you want a quick gain. People care so much about aesthetics, so just make the house look beautiful and you’d sell easily.
Don’t always get your hopes high though. If you find it easy to sell a house, don’t expect that it’d be that easy to sell another one. And don’t be excessively greedy. We’d say you imitate the average Igbo trader, they would prefer they sell more products at a lower price, than sell less at a higher price. It helps to build a customer base.
Flipping lands and properties is just like flipping domain names online. There’s a ready market, you have to be ready to penetrate into it. Also, note that location is everything when it comes to land and property flipping.
Renting a Portion of Your Home
If you would like to test the waters in real estate business in Nigeria, you can simply rent out a part of your home. The common type of residential buildings in Nigeria is the two unit 3 bedroom bungalow apartment. So, you can stay in one flat and rent out the other.
When you plan to rent out a part of your home, you can consider making the place attractive. For example, a three bedroom apartment with each room en-suite may attract more persons than the conventional three bedroom flats. If you want to live in highbrow area, you can build a duplex and rent out a part of it. It could even be the boy’s quarters.
The main challenge would be that you would have to live with your tenants, but then you can watch them closely. The rent collection is much more easier when you live with your tenants, as there’s higher probability of them paying as at when due. If they fault too many times, you can simply increase the amount for rent so they can find somewhere else. You also get to be called “Landlord” from time to time when your tenant live with you. Lol.
Renting a part of your home is just another way to tap into the real estate business in Nigeria, and there are ups and downs. Oh, before I forget, with Airbnb you can rent out free rooms in your apartment for days. Simply sign up on the platform, and enlist your home. I’ve seen some really furnished apartments around Lekki and Victoria Island, Lagos on Airbnb. You’d be renting to a random stranger by the way.
Real Estate Investment Trusts (REIT)
This is by far the easiest way to get involved in the real estate business in Nigeria, when you have neither the time nor the resources to build or buy apartments. We have a comprehensive guide how you can be Receiving Rent Without Having Tenants.
Real Estate Investment Trusts (REIT) is a good way to invest in the real estate business. You simply head over to the stock market and invest, then you earn dividends. You do not need to get directly involved in the business. REITs are funds that are designed to invest in bonds, mortgage instruments and stocks in the real estate sector.
There are various types of REITs, namely; equity, mortgages, and hybrid. As the different names imply, equity REIT deal with properties, a mortgage REIT deal with mortgages, and a hybrid REIT is the mixture of the both. All three provide high interest to investors, that is similar to the amount they would get if they owned properties equivalent to amounts invested.
Some of the most popular REITs in Nigeria are UPDC REIT, Union Homes REIT and Skye Shelter Fund.
To invest in a REIT, you have to contact your favourite broker. We recommend FSDH securities.
When it comes to investing in real estate business in Nigeria, there are a lot of opportunities. If you are interested, there’s a high possibility you would excel down the line. Personally, we are a fan of the industry. We were watching the growth for a long time, before we decided to look into it.
It’s really good to know there are more than a single path to entering the sector. Whether you are interested in working as an agent, owning houses, flipping lands and houses, renting out apartments or investing in REITs, due diligence is required. Like every business, you have to mitigate risks. It’s no news that you can make a lot of money from the real estate business, it is that profitable.