HOW TO INVEST IN REAL ESTATE
Investing in real estate is one of the best ways to achieve financial independence, whether you are living in Nigeria or Abroad. If you’re new to investing in properties in Nigeria, here are some tips on how to get started:
Table of Contents
STEPS TO INVEST IN REAL ESTATE IN NIGERIA
1. Think Strategically
Know what your goals are. You need to be clear about what your goals for the investment are, and how the investment will help you achieve them. Are you saving for retirement? Or do you want to use the money from this investment to pay off debts or fund other projects later? Or do you want to plan for your children’s future (so you know their financial life is secured whether or not you are alive). Knowing your goals will help guide your decision-making process when investing in real estate. Once these questions have been answered and a strategy has been created, then it’s time to figure out how much capital you are willing to invest in real estate.
For individuals who don’t necessarily have all sorts of financial resources available at their disposal right away, they also need to know the kind of property they can purchase. Sometimes people who purchase homes might find themselves needing help from mortgage banks, friends and family etc. Some may also prefer investing in properties that offer long instalment payment plan so they can pay little by little and become an home owner. Properties that usually offer long instalment plans are offplan properties (properties that are still being constructed). Although, some developers of fully built houses may offer up to 12 months or less. Click here to see properties like this. Once these things have been established, then you can begin looking at different options available within Nigeria’s market which may help you get closer towards achieving your goals.
2. Do the math
Calculate the cost of the property you want to invest in
Calculate how much it will take to buy the property you want to invest in. Ensure you calculate all the costs including documentation fee (Deed of assignment), Survey etc. Continue reading to know more about these fees.
Calculate the ROI (return on investment) of your property.
For example, if you buy a 2 bedroom apartment in Lekki Phase 1 for 60 million naira and you put it up for rent for 5 million naira per annum. Let’s say you spend around 500k per annum on repairs and caretaker services, this means your return per annum will be around 4.5 million naira annually.
Calculate the costs of operating your property
It is important to note that the costs of operating your property will vary depending on the type of investment you choose. For example, if you have a rental property and need to pay for repairs, then you need to have an idea of how much you will be paying for the repairs. On the other hand, if your investment property is like a landed property and has no major maintenance issues, then it may not cost you much at all (you may just need to clear the bushes on your land).
To determine how much money needs to be invested in order to maximize returns from an investment property:
Calculate how much it would cost annually to keep up with maintenance costs for each month of operation (e.g 40k per month = 480k in a year).
Calculate the break-even point
From the calculation, let’s say you make 4.5 million naira per annum return from your 2 bedroom apartment after costs of maintenance have been deducted, it will take around 13 years to make back the cost of buying that apartment. This is your break even point.
3. Know your market
You can’t invest in real estate if you don’t know the market. If you do not have an idea of what the value of a property should be, then how can you make an informed decision? The first step of investing in real estate is research. You should know the market, the area, the location, regulations, the price range of properties in the location you desire. If you are looking for a particular building type (e.g an apartment), you can check online for this or you can contact a professional realtor to get different property options that suits what you want. Click here to contact a dedicated and experienced realtor from Hamborg Properties.
4. Understand legal and tax consequences
This is the most important part of your strategy. You need to understand land titles and documents and involve a knowledgeable and honest property lawyer. You need to know about due diligence on properties. You need to know about land purpose. For example, a land may have a good title but it may not be suitable for what you want to use it for. Lets Mr. A wants to build a school in a place that is for recreational properties like hotel, parks and gardens etc, if Mr. A does not do enough due diligence, he will pay for that property and maybe even build on it but anytime in the future, it can be demolished because it does not suit the purpose for that area.
You also need to know about the other charges associated with investing in properties. Just like when you buy a car, you pay fees like vehicle registration fee, vehicle Insurance, road worthiness etc. So also in real estate, when you buy a land, you pay for Survey (this shows the exact land measurement and the boundaries of the land), Deed of assignment (which shows the transfer of ownership from the seller to the new buyer) , Development fee (this is common when buying land from an estate. This fee is for infrastructure in the estate such as good road network, electricity, recreational amenities, good drainage system, central sewage system etc). Even if a person does not buy land in an estate, he would have to connect to electricity, do drainage system (gutter), sewage system etc for himself. In addition to this, he may also have to pay Omo-onile fees to get his documents signed from the family who sold it to him. He may also pay the omo-onile at different stages when building his house (e.g at foundation level, at decking level etc).
In addition, if a person decides to buy a property in a fully serviced estate (for example in an estate that provides amenities like 24 hours electricity and security, portable water, wifi etc), he should also know he would pay service charge when he starts living in the house. Service charge cost can be 20000 naira month (more or less) depending on the amenities being provided, the number of houses in the estate etc.
Hence, it pays well to know exactly what these costs will be before deciding on what kind of property and where to invest in.
5. Visit the Property
You need to know what kind of property you’re looking at so as to know whether it’s worth investing in. If you are not in Nigeria, you can either create time to come to Nigeria to view it or you can ask a representative to come inspect it on your behalf and you can view the property via virtual tour (video inspection e.g whatsapp video call).
Also, do some research about the property and location before and after visiting it. This will help you determine if there are any issues with the structure or property document. For example, you should find out if there are issues in the neighborhood like flooding, electricity issues etc.
6. Buy a property with great potential
The first step to investing in real estate is to buy a property with great potential. What is great potential? It’s the chance that your investment will appreciate over time and increase in value, which means more money for you. To find out if there’s potential in the area where you want to invest, look at how much other homes (or lands) are selling for—if they’re selling for more than what similar properties sold for just one year ago (or even five), then there’s probably good reason why so many people want this particular neighborhood as their home base. For example, one of our clients invested in a plot land last year for 6 million naira and one year after, that plot of land is selling for more than 15 million naira and it will still appreciate even more.
What are some benefits of buying that property? Some properties are in estates with more amenities than usual e.g Golf course, Lakes and Garden, Parks, Ocean front etc These properties tend to appreciate higher than properties in estates who do not have these amenities. Investing in estates which have these amenities or in new estate who are making provisions to have these amenities is one smart real estate move. This is because the people that buy plots of land in these new estates when they are launched will be the ones to enjoy the highest return when all these amenities are put in place. Some lands in such estates can appreciate from 16m to 50m and above in few years. This is why many smart investors look for opportunities like this to invest in. Click here to view some properties with great potential.
How To Invest In Real Estate in Nigeria
Investing in real estate can be lucrative but you need to do it right. Here’s how to start investing in real estate in Nigeria:
For starters, investing in land is one good way to start. Land prices have been increasing steadily due to its popularity among investors across the globe.
You can buy a plot of land that you can later sell at a profit or lease out depending on the location of the land. For example, people lease out land for commercial purposes such as car wash, event centre, automobile store etc Click here to view secured lands.
Also, you can buy one or more units of apartments that you can use for shortlet (air bnb) or you rent out. You can still resell these apartments at a profit later. Click here to view profitable apartments to invest in.
You can also set up some buildings on your plot of land and sell it or rent it out. Or you can set up buildings with other investors if you want to form a partnership. For example, joint venture is very popular nowadays. With joint venture (JV), a land owner can partner with a developer to build a particular structure on the land (e.g Blocks of apartments, high rise buildings, semi-detached, terrace duplexes and more). The sharing ratio would have been decided before the start of the project.
For example, if they decide on building sets of terrace duplexes, the cost of building would be calculated, the value of the land would be known and both the developer and the land owner would then come to an agreement in such a way that it will be a win-win situation for everyone involved. For lands in Ikoyi whose value is very high (worth billions of naira) and which some sellers may not easily get buyers for, the land owners go into joint venture with developers so as to get the value of their land and sometimes with additional profit. While the developer gets back the cost of building in addition to his profit. However, in some joint ventures, the land owner will request for a particular number of house units which he can decide to sell or rent out.
These are some of the ways to invest in real estate in Nigeria. To know about more ways to invest, click here to book a free real estate consultation session with one of our dedicated and experienced real estate consultant.
The real estate market in Nigeria is growing at a rapid pace and there are many opportunities for investors. Investing in properties can give you a stable income stream as well as help you diversify your portfolio.
Like I usually advise, do not put your eggs in one basket. Diversify your portfolio and have different good investments.
You can also invest in real estate by constructing new properties or buying existing ones. Reputable real estate companies and developers have made it easier than ever before to invest and not have to deal with omo-onile issues and without having to build yourself especially if you don’t have the time. So now is the time to invest! Click here to see some beautiful and secured properties.
I hope this article has given you some insight into investing in Nigeria’s real estate market and what it takes to succeed. If so, please share it with others who may need help learning about investing or buying their first home. If you have enquiries or you have interest in investing in land or houses in Nigeria, you can contact us via call or whatsapp (+2348135593206) or send an email to firstname.lastname@example.org. In other not to miss out on subsequent articles on real estate, click on the button below to subscribe.