HOW TO MAXIMIZE RETURNS ON YOUR REAL ESTATE INVESTMENT
One of Nigeria’s biggest real estate investors once shared a brief story about how he made his first real money from real estate. He wrote:
In 2000, I was only 19 when I made my first major break in Real Estate and earned a commission of 1 Million Franc (over 200,000 Euros today). I was still living in a 1 Bedroom Apartment in LA Madeline, Nicé, France at the time.
Sekou, a friend and partner from Mali got 600,000 Franc and bought a BMW. I couldn’t drive but I was thinking ‘MONEY GENERATING ASSEST’, so I contacted my Mum. I sent half of the money to her, and asked her to buy me a land and start building a house.
My Mum went to Lekki and saw a land around Admiralty road, 1 plot for 5 Million Naira but she didn’t buy it because she saw that it was a swampy land and it might cost more to develop. She didn’t consult a professional, but she went to her Surveyor friend, who got her 3 plots in Egbeda for 3.5 Million Naira. What a bargain!!! To her, she has done a deal of a life time.
My mum, a shrewd Ijebu woman thought I was crazy. What will I do with a house? She built 11 flats (that will generate rental income) and a small 1bedroom apartment BQ. She said to me: “Son, you are never in Nigeria, but any time you visit, instead of spending money in hotels, you will sleep at the 1bed BQ”
By 2001, I was 20 years old and my first property was ready! Just last week, my Egbeda caretaker called me and said, “The rent is ready sir”. He transferred the rental income into my account, which helped a great deal in taking care of some urgent staff salaries as well as other little expenses.
Although today, the land in Lekki is worth 150 Million Naira and my 11 flats plus the land is worth 100 Million Naira, but this money came at a time when I least expected and needed it the most.
16 years after, and this experience reaffirms my conviction that REAL ESTATE is still the best and most dependable asset to invest in.
His story is full of practical lessons that can be handy when it comes to investing in real estate and making good returns in Lagos. I won’t bore you with the lessons; I will leave you to draw that by yourself. But what we can immediately establish is that investing in real estate in Lagos is a smart idea.
In fact, in Nigeria, the real estate market is rapidly expanding, making it an attractive option for those looking to generate passive income and establish long-term wealth. With a plethora of investment opportunities to choose from, from commercial real estate to rental properties, navigating the Nigerian real estate market may seem daunting. However, with the right guidance and strategic approach, investing in Nigerian real estate can yield significant returns.
In this article, we have compiled Five (5) ways to get the best returns on investment when investing in Nigeria:
The first is rental properties.
Rental properties are an attractive investment opportunity in the Nigerian real estate market. With the increasing demand for housing in major cities like Lagos and Abuja, investors have found that purchasing properties and renting them out can be a profitable venture. The rental income earned from tenants can provide a steady stream of cash flow, while the property itself can increase in value over time, delivering capital appreciation. This dual benefit of rental income and property value appreciation makes rental properties a popular choice for many savvy investors looking to grow their wealth.
Moreover, investing in rental properties allows individuals to diversify their investment portfolio. Instead of putting all their money into one asset class, such as stocks or bonds, investors can spread their risk by including real estate in their investment strategy. This diversification can help to protect against market fluctuations and provide a stable source of income even during economic downturns. Rental properties can also serve as a hedge against inflation, as rental prices tend to increase along with the cost of living.
Another compelling reason to invest in rental properties is the potential for long-term wealth accumulation. As properties appreciate in value over time, investors can build equity and create a valuable asset that can be passed down to future generations. This can provide financial security and stability for families, as well as a legacy that can benefit their loved ones for years to come. By carefully selecting the right properties and managing them effectively, investors can unlock the full potential of rental properties as a lucrative and rewarding investment opportunity.
Second, commercial real estate.
Commercial real estate is undoubtedly one of the best ways to invest in the real estate market. Unlike residential properties, commercial real estate offers investors the potential for substantial returns, especially in high-demand areas where rental rates are consistently on the rise. This is because commercial properties, such as office buildings, retail spaces, and industrial complexes, tend to have longer lease terms and higher rental yields compared to residential properties.
Moreover, commercial real estate provides an excellent opportunity for diversification in an investment portfolio. By including commercial properties in an investment portfolio, investors can spread their risk across different asset classes and reduce their exposure to market volatility. This can help protect their overall investment portfolio from downturns in the real estate market.
Another advantage of investing in commercial real estate is the opportunity to earn passive income. With the right property management in place, investors can sit back and collect rental income from their commercial properties without having to deal with the day-to-day operations. This passive income stream can provide investors with a steady cash flow that can be reinvested into other income-generating opportunities or used to fund their lifestyle.
However, it is worth noting that investing in commercial real estate requires a significant amount of capital and expertise. As an investor, you can purchase properties outright or invest in real estate investment trusts (REITs) that own commercial properties.
Third, house flipping.
In Nigeria, the concept of “house flipping” has gained popularity as a common practice in the real estate market. This term refers to the strategy of purchasing a property, investing in renovations to improve its value, and then quickly reselling it for a profit. It is a widely recognized practice in English-speaking countries worldwide, where investors seek to capitalize on the potential for increased property values.
House flipping has become a lucrative venture for many individuals in Nigeria, as it offers an opportunity to generate significant returns on investment in a relatively short period of time. By strategically selecting properties that are undervalued or in need of improvement, investors can increase the property’s market value through renovations and upgrades. As the demand for quality housing continues to rise in Nigeria, house flipping has become a popular strategy for investors looking to capitalize on the country’s rapidly evolving real estate market.
Investing in house flipping is a lucrative venture for those with knowledge and expertise in real estate renovation. Successful house flippers have a keen eye for design and are able to effectively manage renovation projects. If you intend to go into house-flipping, you must possess the skills to identify potential properties for flipping, calculate renovation costs, and market the finished product for a profitable return on investment. Without proper knowledge and experience, you risk making costly mistakes that could result in financial loss.
In order to succeed in the competitive world of house flipping, you must continuously educate yourself on market trends, renovation techniques, and business strategies. You must also have a strong network of contractors, real estate agents, and other professionals to help you navigate the complexities of the real estate market. Investing in house flipping requires patience, perseverance, and a willingness to take on calculated risks. With the right knowledge and skills, you can turn a rundown property into a profitable investment that can generate substantial returns.
Fourth, buy and hold strategy.
The buy and hold strategy is a popular approach for investors looking to generate good returns on their real estate investments. By purchasing a property and holding onto it for a long period of time, investors can take advantage of potential appreciation in the property’s value as well as earn rental income. This strategy is often favored by investors who are looking for long-term growth and stability in their investment portfolio.
One of the key benefits of the buy and hold strategy is the ability to generate passive income through rental payments from tenants. By renting out the property, investors can cover their mortgage payments and expenses while potentially earning a profit. Over time, as property values increase, investors can also benefit from the appreciation in the property’s value, further increasing their overall return on investment.
In addition to the financial rewards, the buy and hold strategy also offers investors the opportunity to build equity in the property over time. This can provide a valuable asset for future financial security or the potential to leverage the equity for additional investment opportunities. While this strategy requires patience and a long-term commitment, it can be a successful way to build wealth through real estate over time.
In a nutshell, the buy-and-hold strategy allows investors to earn regular income through rental income. Additionally, the buy-and-hold strategy allows investors to earn capital gains through the appreciation of the property value.
Fifth, Joint Venture Investing
When it comes to seeking a high return on investment, joint venture investing is another lucrative option that investors should consider. This strategy involves partnering with another investor to collectively invest in a real estate project. By pooling their resources and expertise, investors can maximize their chances of success and potentially earn a significant ROI.
One of the key benefits of joint venture investing is the ability to share the capital requirements of a real estate project. Often, the cost of purchasing an apartment or buying a land and developing a property can be prohibitive for individual investors. By partnering with another investor, both parties can contribute funds to cover the costs, making the project more feasible and reducing the financial burden on each investor.
Additionally, joint venture investing allows investors to leverage each other’s expertise and experience in the real estate market. When investing in a property, there are various factors to consider, such as market trends, property valuation, and potential risks. By partnering with an investor who has complementary skills and knowledge, investors can benefit from a more well-rounded and informed approach to decision-making. A growing trend in the real estate industry in Nigeria is joint purchase of real estate apartments. This is referred to as co-investing. It’s a process where two or more people pull funds together to buy an apartment and put it up for rent to earn income. As their income increases, they buy more apartments and do the same until they have chains of apartments on rental income. There are real estate firms offering this option and one of the prominent ones is PWAN Stars where investors can buy apartments from them collaboratively.
