REAL ESTATE INVESTMENT STRATEGIES THAT WORK

Real estate has been valued globally at more than $230 trillion, making it the world’s largest asset class and one of the most entrepreneurial fields, drawing people in with the promise of predictable, long-term passive income and positive returns on investments.

In this goldmine of investment opportunity, it is important to be able to identify real estate investment strategies that work to help you determine which of the real estate portfolios you can best invest your money.

Historically, in Nigeria, real estate investment strategies has been known to give investors who are able to understand the nitty gritty and nuances a very attractive yield, making the asset class one of the most booming sectors of the Nigerian economy.

In fact, with Nigeria considered one of the fastest growing economies in the world, real estate presents an opportunity to create wealth for smart investors while directly or indirectly contributing to housing development, commercial development and sustainable urban expansion for Nigeria’s huge population.

However, even at that, there are strategies that work better than others. Real estate investment strategies that work are those strategies in the business that helps you maximize your returns in the best possible time.

However, while discussing the real estate investment strategies that work,  which this article is aimed at doing, it is important to keep in mind that like any other investment, there are inherent risks attached, which must be carefully considered by any prudent investor.In the following lines we will explore five successful strategies for property investment in Nigeria.

These strategies are quite interesting and can be a guideline for investor on how they should take advantage of the investment in the Nigeria real estate market.

1. Land Banking

Land banking is perhaps the most effortless real estate investment strategy that works in Nigeria. It simply refers to buying land in a growth area, holding on to it and then selling in future at the gain of the appreciation over the years. The country’s urbanization pattern, especially within cities such as Lagos, Abuja, and Port Harcourt, gives land banking a rightly crucial value.

Best Areas to do Land Banking

There are specific areas where land banking thrives best as an investment strategy. They include:

i. City Outskirts: It is common to see areas once considered city outskirts, that is, places that were in the fringes, become prime real estate locations as industrialization sweep through cities. Take areas like Lekki and Epe in Lagos for instance. These areas were once considered city outskirts.

However, they have now become so developed that they have become some of the most expensive areas in not just Lagos but Nigeria as a whole. Land banking in such outskirts are therefore smart as it is almost certain that development  would drive up the cost of the land in just a few years.

ii. Industrial and commercial areas: You are sure to get significant return on investment when you buy land for the purpose of land banking near upcoming Industrial developments. As businesses thrive in such areas and workers move there to work, the value of landed properties in such areas are sure to appreciate in little or no time.

Having said that, land banking, even though very lucrative, has its risks, just like all other forms of investment. Therefore as an investor, you need to do your due diligence to ensure that the land you want to invest in is free from legal disputes while having the right documentation.

2. Rental Properties

Owning rental properties is the most common form of real estate investment in Nigeria. In many cosmopolitan states, people invest in properties primarily to earn passive rental income over their lifetime.

Not only does rental property help you earn rental income, it also helps you enjoy long-term capital appreciation as the value of the property increases in time. This is one of the real estate investment strategies that work, and you should pay attention to it.

Types of Rental Investments

There are different types of rental investments that form part of the real estate investment strategies in Nigeria. They are:

i. Residential properties: One of the most profitable real estate investment strategies is investing in residential properties to earn rental income. Residential properties are always in high demand all year round in a city like Lagos or Abuja due to the high population density and rapid urbanization in those areas. With a good investment in residential properties, you could focus on other things while your investment yields regular returns in form of rents.

ii. Commercial properties: Another aspect of rental property is commercial properties, which even though is more capital intensive compared to the residential apartment, is more lucrative. When commercial properties investment is concerned, you should consider investing in areas such as Lekki, Victoria Island and Ikeja in Lagos.

Having said that, even though rental properties is a very lucrative strategy for real estate investment, it has its own risks, the biggest being the tenant turnovers, high cost of maintenance and in some cases, rental errors. 

These errors can be mitigated by engaging professional property managers who specialize in helping investors maximize rental income while reducing tenant-related problems. For instance, it may be smarter to allow a professional real estate agent or lawyer handle your rental property than being responsible for the collection of rents by yourself.

3. Real Estate Developments

Real Estate Development is another strategy of investment that works in addition to the above-mentioned methods. This involves purchasing land or buildings with the intent to refurbish them before selling or leasing them to make profit. This often involves huge capital expenditure but can also yield huge amounts of profit when invested in high demand areas.

Real estate developments are gaining popularity in many cities across Nigeria, especially Lagos, Ogun, and the FCT, Abuja. It is becoming very common to see real estate properties under developments in places like Epe, Lekki and Sangotedo in Lagos State. Before investing in real estate developments, however, it is important to:

i. Carry out adequate market research focusing on high-demand areas, such as Lagos, Abuja, and Port Harcourt. Look for emerging neighborhoods with potential for growth and invest there. There are secrets behind real estate investment strategies that work and this is one of them.

ii. Consider the property types: Assess your financial standing and decide on which apartments you would like to invest in, whether residential (apartments, houses), commercial (offices, retail spaces), and mixed-use developments.

iii. Regulations: Also, familiarize yourself with local building codes, zoning laws, and property registration processes as well as the legal status of the property.

Also worth considering are the financing options available, whether self-financing, National Housing Fund Loan, or partnerships, amongst others. Market trends, development process, risk management, amongst others.

Like every other real estate investment strategies, real estate develops has its challenges one of which requires dealing with the government to secure permits, managing construction risks, etc.

4. Short-term Rental Apartment:

Another strategy for investing in real estate is investment in short-term rental platforms like Airbnb, a platform that has created new opportunities for many property owners in Nigeria. Cities like Lagos, Abuja and Port Harcourt are emerging hot locations for this investment platform.

Investing in short-term rentals, like Airbnb properties is one of the more recently emerging real estate investment strategies in Nigeria. The model can be a lucrative and highly rewarding venture, but it also comes with its own set of challenges and considerations.

For instance, some of the advantages of investing in short-let apartments include it’s high-income potential with its ability to generate more revenue than traditional long-term rentals; flexibility, which allows you to convert the property for personal use when it’s not rented out and the potential to attract regular customers due to the growing travel trends in today’s world.

However, the risks inherent in short-term rentals are to be carefully considered before you make the investment. They often include, being labor intensive in the area of requiring frequent cleaning, maintenance and guest interactions as well as the strict regulations that the operation of the short-term rental apartment are now attracting in many cities of the world.

When considering investing in short-term rental apartments, you should take note of the following important factors:

i. Location: Short-term rentals thrive in locations with high traffic. Factor that into your plan.

ii. Property Type: Not all property types can work for a short-term rental apartment. It is therefore important to invest in the type of property that appeal to the target market.

iii. Budget: Costs like maintenance, utilities, insurance, and property management fees should be factored into the budget.

iv. Marketing: Invest time in creating an attractive listing with quality photos and descriptions.

5. Real Estate Investment Trust (REITS)

Real estate investment trusts (REITs) are companies that own, operate, or finance income-producing real estate across a wide range of property sectors. These investments allow you to earn income from real estate without having to buy, manage, or finance properties themselves.

With REITS, you can buy any real estate shares in the stock market and enjoy the benefits associated with investment trusts. By investing in a REIT, you benefit from the rental income generated by the properties without the burden of directly managing them.

In Nigeria, REITs are traded on the Nigerian Stock Exchange (NSE) and are bought and sold through authorized stockbrokers in the form of stocks and shares.

Benefits of Investing in REITs:

i. Diversification: REITs offer a way to diversify your investment portfolio by including real estate alongside stocks and bonds.

ii. Liquidity: Unlike directly owning property, REITs are traded on stock exchanges, allowing you to buy and sell shares easily.

iii. High Returns: REITs typically offer attractive dividend yields, often exceeding 10%.

iv. Price Stability: Compared to stocks and bonds, REITs tend to experience less fluctuation in value.

v. Convenience: Investing in REITs is a convenient way to gain exposure to real estate. You can research and buy them through a brokerage firm.

Investing in REITs is a great way to get into the real estate market without having to buy or manage a property yourself. However, there are a few challenges, cons or downsides to investing in REITS. They include the fact that REITS are taxed as income, the variation in the fee structures of different managers, and market volatility due to interest rate movements or trends in the real estate market, amongst others.

6. House Flipping

This is another real estate investment strategy that works in Nigeria and everywhere else.

House flipping is gaining more popularity as an investment strategy that offers lucrative returns for those willing to take on the challenges of buying, renovating, and selling properties. The real estate market in Nigeria offers unique opportunities as well as challenges for aspiring house flippers.

From understanding local market dynamics to navigating regulatory frameworks, successful house flipping in Nigeria requires a blend of market knowledge, financial acumen, and strategic planning.

The key to achieving success in investing in house flipping is identifying properties with high potential for value appreciation. In Nigeria, several types of properties can be considered for flipping, including distressed properties, old buildings in prime locations, and underutilized land.

After identifying the appropriate property for your house flipping, then explore the financing options available to you, including “Securing adequate financing is a critical step in house flipping. In Nigeria, financing options for real estate investments include personal savings, bank loans, and partnerships.

Then explore various funding options. Effective project management ensures that renovations are completed on time and within budget. This includes coordinating with contractors, monitoring progress, and addressing any issues that arise.

Once the renovation is complete, the next step is to market and sell the property. In Nigeria, selling real estate can be competitive, and investors must employ strategic marketing tactics to attract buyers. After this, move on to your next property.

However, as mentioned earlier, there are some cons, in house flipping which you must take notice of before you start. 

A writer once said, “If you’re going to flip a home, make sure you have the cash, time, skills, knowledge, and patience before you lose out.”

The major cons of House flipping in real estate is cost.  The expenses involved in flipping can demand a lot of money, leading to cash flow problems especially if you don’t have the financial muscle to start with, amongst others.