Did you know? Real Estate Investing in Nigeria is one of the top sources of income of the wealthiest people in Nigeria.
Are you looking for a way to be successful, make wise, profitable decisions that will lead to high investments?
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Instead of working your ass off every day for a paltry salary, making someone else richer!
You can do it too! The cool part of real estate investing in Nigeria is that you don’t even need massive capital to startup.
You can start small, even without owning a house until you get to the stage where you become a full-time real estate investor in Nigeria.
In this article, you’ll learn the following.
- What is a real estate investing in Nigeria?
- How real estate investors profit from their real estate investment
- How to invest in real Estate in Nigeria.
- 8 real estate investment strategies
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What is a real estate investing In Nigeriaa?
Real estate investing in Nigeria involves the purchase, ownership, management, rental, and sale of real estate properties for profit.
A real estate is an asset form with limited liquidity relative to other investments, it is also capital intensive (although capital may be gained through mortgage leverage) and is highly cash flow dependent.
If these factors are not well understood and managed by the investor, real Estate becomes a risky investment.
How Do Real Estate Investors Profit
1. Asset Appreciation
When a real estate property appreciates due to several factors including:
- Lack of free land to build more houses as demand for housing increases. Scarcity leads to price appreciation.
- Construction of major infrastructure such as malls and highways near the property, thus increasing its accessibility and convenience.
- Upgrade of the property with newer amenities.
- An upsurge in the economic conditions of the region, turning it into a growth area.
If all the above happens, your property becomes attractive to potential buyers or renters, and you can dictate the price.
2. Rent Income
It is also known as cash flow income. Here, you acquire an apartment building and then lease it to one tenant or a host of tenants where you will be collecting rent at the end of every month (year).
Consider renting your property like offices, rental residential houses, car washes, storage facilities, and a lot more.
3. Commissions for Buying and Selling Real Estate
It is the money made by real estate brokers who get to keep a percentage of the money paid by the buyer after they sell a property on profit.
There are also the real estate management companies who collect rent on behalf of the landlord and then get to keep a small percentage of the rent money.
The real estate management firms run the day to day operations of the Estate, such as the orientation of new tenants, hiring plumbers and electricians to fix faults, ensuring the neighborhood’s security.
4. Ancillary Income
Another way investors in the real estate industry make money is by installing ancillary profit-generating infrastructure within the Estate. This infrastructure may include vending machines, laundry facilities, ATM.
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How to invest in real estate in Nigeria
Real estate investing in Nigeria is more than just finding a place to call home or being a landlord.
Real Estate 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.
People need a place to call home. Real Estate investing in Nigeria is very lucrative because people need shelter as it the necessities of life.
One thing perfect about the real estate Investing in Nigeria is that the investment opportunities it presents are so diverse, there is something in it for everyone, and you grow in the industry, 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.
The next subheading is some of the ways or strategies on how to invest in real Estate in Nigeria.
8 Ways to invest in real Estate in Nigeria
Here are 8 ways you can invest in real estate in Nigeria.
- Raw land Real Estate Investing
- Farm Land Real Estate Investing
- Real Estate Investment Trust Fund (REITs)
- Fix and Flip properties
- Crowdfunding Real Estate Investing
- Primary Residence
- Long term Rentals
- Commercial Real Estate Investing
1. Raw Land Real Estate Investing
While raw land in itself won’t produce a profit, it can be an excellent strategy for real estate investors seeking a low-competition, low-barrier-to-entry investment option.
How It Works
You might not look at an empty plot of land and see the potential for making good returns, but the fact is that raw land can be a very lucrative investment strategy for anyone who’s got the time to wait for a more robust market.
The whole key to investing is to buy low and sell high. That’s the exact approach you should be taking when thinking about purchasing some raw (undeveloped) land. The secret to prosperous raw land investing is getting land that can later be developed by either a commercial or residential builder.
By owning the raw land, you are sitting on the property and waiting for its value to increase. If you anticipate much development to begin taking place in your area in the next few years, buying raw land now before the prices skyrocket could be a strategic move on your part. The key is to be able to buy the property and then wait long enough for a motivated investor/builder to come along who’s ready to give you a hefty profit.
The risk with raw land is that you’ll purchase it, and development won’t take off in the coming years. It is unlikely to hold forever since just about every town in the country is growing, but if you don’t choose the raw land wisely, you aren’t as likely to get a good return, or you may have to wait quite some time (think 5+ years, or more) before real interest sparked in the area.
Now, there is one way to turn raw land into an income property, and that is through “Rent To Own” contracts. Many people who are interested in getting into the real estate market themselves but don’t have much money to invest look for rent to own property so that they can get some skin in the game with a relatively small up-front investment.
By offering your property on a rent-to-own basis, you will act as the financing entity. The goal, of course, is to end with a profit. If you are making an RTO contract with raw land that you bought for $5,000, you may do a rent to own for five years with a monthly payment of $120. By the time the five years are up, you’ll have pocketed $7,200. That’s your investment back with a couple thousand to spare.
RTO can’t offer you huge returns, but then again, think of it this way: 3 years into the 5-year contract, your lease may choose to stop paying on the property. You still own the property up until the final payment, so they have given you $4,320–getting you back almost your entire investment, yet you still hold ownership to the land. You can turn around and rent it out to someone else
2. Farm Land Real Estate Investing
Often overlooked by real estate investors, farmland can be a smart type of property to put your money on.
How It Works
Are you looking to make some money in an often-overlooked industry? While farming is undoubtedly a complex business to get into, as a real estate investor, there are a couple of different ways you can get things going.
First, purchasing farmable land and then leasing it to a farmer would be the easiest way forward. Your only expense will be the property taxes while the farmer handles all the machinery, equipment, and actual farming.
You can set up your contract with a flat fee, similar to other types of leases, or you can ask for a percentage of their farming profit if you anticipate them to do good business.
Secondly, you could purchase an older farm for fixing up and selling/renting to a farmer.
It will take more work on your end as you have to get the land ready for use again, but it can be worthwhile if you anticipate much interest in the property.
In most cases, real estate investors will find that buying farmable land and selling farming rights to another party will be the best way forward. IT is an excellent way to get in some passive income with the property you own.
If you want a more passive investment where you won’t have to worry about turning around to sell a property or try to keep up with tenants, a REIT might be the right strategy for you.
What Is It?
A REIT, or Real Estate Investment Trust, is a form of passive investment. If you want to get into REIT investments, you’ll have to purchase shares of a REIT through any stock exchange platform. It will usually involve a brokerage fee of some sort (this will vary depending on the platform you choose), but that fee is just a one-time expense. You can put as much into REITs as you wish.
REITs were created in the 1960s by Congress to give every individual a chance to benefit from income-producing real estate investments. REITs allow you to get into the profitable real estate market without having to own a property for rent or sell.
Just like you can benefit from a corporation’s success by buying shares in their company, you can benefit from a piece of income-producing real estate by being a stockholder of a REIT. When a company buys an income-producing property to qualify as a REIT and become tradeable on the stock market, they need to meet a variety of criteria.
By law, at least 90% of all income earned by a REIT must be distributed to shareholders (you!), which can happen on a monthly, quarterly, or annual basis. You will need to pay taxes on these dividends.
Of course, being such a low-risk investment strategy, there’s also a lower chance of return. IT should be seen as a long-term type of investment. You wouldn’t want to buy 10 shares just to try and sell them tomorrow. REITs are something you should hold on to for the future with the hope that the value of your shares will continue growing as you enjoy small dividends in the meantime
4. Fix and flip properties
Fixer-uppers on the market tend to be listed at incredibly enticing price points, and that leads many investors to consider them very seriously.
How It Works
You’ve probably heard about “house flipping” before and how many people have claimed to have gotten rich doing it. While it’s unlikely to make you a millionaire, house flipping can be very profitable if you find the right properties and know some key professionals.
A house flipper is someone who buys a property in need of repair and then fixes it up with the intent to sell it for a profit–usually a considerable profit if they play their cards right.
It sounds like the perfect plan: You’re buying up houses for cheap that are in dire need of repair, you give them a new look at-cost, and then you list it on the market for a reasonable price. You profit, and the community also wins because you just fixed an eyesore.
It sounds like a beautiful plan and a great way to improve the curb appeal of any town, but it’s not quite as simple as it seems.
Getting the upfront capital to buy a house, and then pay for all the repairs promptly so you can put it on the market, is perhaps the most challenging part of the whole plan.
Experts suggest going back to your team of professionals before getting into the house flipping market. You should have some construction experts and some people well-versed with the legal and accounting side of things to help you buy, fix, and sell on time.
What happens if you sit on the property for too long? Financing costs will eat away at your profits. You’ll have to be able to sell it at a high price just to break-even on the whole thing.
When it comes to flipping houses, being able to precisely crunch the numbers is essential to pocketing a good deal of profit when it’s all said and done.
If you are purchasing a house without having to put down a large downpayment, that can be difficult with little/no down financing options being very hard to come by from trusted vendors. Plus, when you’re buying a fixer-upper property, lenders know there’s a greater risk because these properties are harder to sell, which generally means they expect more down.
But, balancing the books is vital with this part and everything else to do with such a high-risk investment. If you put down too large of a downpayment, where’s the capital for fixing up the house going to come from? If you have to finance all the repairs in addition to the house purchase, that’s when interest can begin eating up the profit margin you had set.
As a final consideration, just note that your long-term profit plan relies on you buying and flipping houses regularly. Once a home sells, you either pocket a profit or a loss, and then you move on. The idea is to profit from one sale so you can put it right into a new project
5. Crowdfunding Real Estate Investing
Do you like the thought of a more passive real estate investment strategy? Crowdfunded real estate is one alternative to traditional REITs that’s worth looking on.
What Is it?
Chances are, you have likely heard of LendingClub or Prosper before. These are platforms that connect micro investors with everyday people who would like to borrow a sum of money to pay down debt or finance a purchase. These peer-to-peer platforms have made headway for new real estate focused platforms.
In return for investing in the project, you’ll get a % dividend usually paid monthly. It is similar to a REIT. The difference is that, when crowdfunding a real estate project, you cannot merely sell whenever you choose to. Instead, you’ll need to count on this as a long-term investment strategy and keep your money in the pool for a minimum of 5 years. Most platforms will charge a penalty for taking your money back any sooner.
Additionally, these platforms often have long wait times (up to 90 days) when you do choose to get your money out, so read the fine print and keep these terms in mind investing
Crowdfunding a real estate project may be one of the most modern ways to get into the lucrative real estate market, but it does come with risk. Just like with any investment, your project may fail (lose its value), or the dividends may be much lower than expected. It is a long-term investment strategy with a minimum investment horizon of 5 years, and you should treat it as such.
Don’t put any money into a crowdfunded project that you want to use in the next few years and don’t expect to live off your dividends, but this is an excellent way to diversify your savings/investment portfolio
6. Primary Residence
If you don’t already own your own home, you’re missing out on perhaps one of the best real estate investment opportunities out there
How It Works
You probably wouldn’t see owning a home as much of a real estate investment. Still, it’s an excellent opportunity to get into a hot real estate market while benefitting from it personally.
When buying a home for yourself, you’ll get the chance to maintain and update it to your liking while also having the opportunity to get an older home perhaps and fix it up, so it increases in value. If you want to add to your investment, you’ll find a property that you see much potential for (especially in location) and then add equity to it through upgrades and projects over the years.
While you aren’t going to be earning dividends or monthly rent from tenants by owning your own home, this is a long-term investment strategy that can work out well in the long run. If you buy a home today and, in seven years, the prices have increased 20%, that’s probably enough all ready for you to sell for a profit and pay your mortgage off early (and then move on to another investment).
You can also treat a home purchase as a long-term investment that you’re just going to sit on for a while. There’s nothing wrong with staying in your home for the full 15 or 30-year term and paying it off in full, especially if you have fallen in love with it, that would be ideal, and then you’d have something to put in your Estate for the entire family to benefit from.
You can also rent out any extra space for a reasonable price, and if you price it correctly and you’re in the right area, the renters might be enough to cover your monthly mortgage while even leaving a bit of money to spare.
It may not be enough profit to live off of, but it’s a fantastic way to dip your toe in the water, learn more about being a landlord, and be working towards a more robust credit score in the meantime. Plus, this money can be put into savings as you prepare to buy a second investment property if you so choose
7. Long Term Rentals
Just about everyone has dreamed up being a landlord at some point or another. What could be better than owning your property (or an entire row of them) and having tenants cover the mortgage and then some each month?
Long-term rentals are in high demand, and they can prove to be a lucrative investment strategy for anyone who gets in at the right price.
How It Works
Purchase a home and rent it out. It seems easy, right? Chances are, you have thought about the possibility of being a landlord before. After all, the idea of buying a home, finding a tenant, and then having a monthly income source from there on out is hugely tempting. Imagine if you could rack up multiple properties and double or even triple your monthly income.
First and foremost, you need to think about your local housing market. There need to be two things present to set yourself up for success: a house that you can attain at/below the fair market price that is desirable by local renters and local renters who are going to be willing to pay your monthly mortgage and then some.
Becoming a successful landlord boils down to the property you choose. Think about it: If the home you end up purchasing is too small or far too outdated, you’ll have trouble bringing in tenants in a family-centric neighborhood. Likewise, if you choose a house that is far too extravagant or large based on the little local needs, you’ll have just as much trouble finding a long-term tenant.
While short-term rentals are normally aimed at vacationers, long-term leases are for people who want to stay in the area full-time. It means they need to be more affordable and offer the location and amenities to support a good life in the area. In most cases, this would mean getting further away from the waterfront and luxury areas and closer to the schools and shopping.
When looking for a long-term rental property, you need to think about the local demographics. This is when professional guidance can prove very helpful. Who in the area is searching for a rental property? Is it an individual, a young couple, or a whole family? What are they looking for? What’s their budget? These are questions you need to know the answer to choose the right rental property.
The next step is then considering the size of the property that would be ideal for the area, its location, its yard size, how new it is, and so on.
Being a landlord is indeed a real estate investment strategy that most people will consider. Still, you need to do your research to ensure that the property you’re buying will be in mid to high demand.
8. Commercial Real Estate
If you like the idea of having one or more tenants paying your monthly mortgage and then some, you may be interested in looking further into the concept of commercial real estate.
Commercial real estate is similar to renting out residential property, except with a few more complications and the potential of being even more lucrative.
How It Works
Find a property, purchase it, clean it up, and rent out space. That’s the goal with commercial real estate. You can find single buildings that you might rent out to just one business or a row of shops, buildings, or offices that can be rented out to multiple tenants at once.
What type of commercial real estate property you consider will depend on the money that you’re able to put down along with the economy in your area and what you think would perform the best.
As with the other methods of buying an investment property, it’s very beneficial to have professionals on your side who can lend a hand with valuing a property and helping you understand the potential monthly profit.
Businesses will usually pay more to rent out space than residents, for obvious reasons. However, commercial property usually costs more too.
The location of commercial property is going to play a massive role in its value and, depending on the businesses you have in mind, so will the property’s amenities. That’s why you need to keep location, parking, signage, and other aspects in mind.
Additionally, consider that the property’s appreciation will generally be more generous than it would be for residential property. It is even more true if the business is producing much profit each year. Your tenant will usually also be responsible for the building’s upkeep, helping to save you time and money.
With a commercial lease, you can even structure the terms so that you get a percentage of the business’ monthly profits. However, this could discourage enterprises to in areas where you have lots of other competition (i.e., many different choices for them to look through).
While considering all of this, you also have to keep in mind that, while people will always need housing, a business might not always have customers. Commercial property is directly subject to the natural business cycle. When things get tough, your business will have less revenue and may not be able to pay rent. They may even go out of business, and it could take months or even years to find a new tenant.
As with everything, commercial property can be a high risk/high reward investment but is generally best for experienced investors who already know about finding an estate, valuing it, and searching for tenants.
A commercial real estate is an ideal form of investment for any investor looking to get into the rental business, but it’s best left to those who have some experience with being a landlord. If you want to be successful, you have to do your research, and you have to make sure that you have run your numbers correctly.