Real Estate Investing In Nigeria: A Pro’s Analysis Of Risk And Returns

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The Comparative Analysis

There is this prevailing argument that real estate investing in Nigeria or elsewhere does not yield as much returns as it’s obtainable in other forms of businesses.

Those in support of this view often put up a scenario of someone probably investing as much as N20,000,000 on property and earning approximately N1,000,000 per annum on rental income.

In that case, it should take about 20 years to recoup one’s capital from that deal. They also talk about maintenance costs throughout the recouping period.

All of that makes perfect sense from a layman’s perspective. But to correct that misleading impression, let me quickly tell this story.

The Story: 

About a year ago, I went to the car wash to clean up my car before setting out to give a client his Deed of Assignment. The owner of the car wash saw the deed and asked if I am a realtor?

I replied yes.

He told me about his days in the military when he returned from an international mission, got his benefits, and invested N600,000 out of it on a plot of land in Abuja. After some years, he sold it for N3,000,000 and used more than half the money to buy a Golf 4 car.

When the military deployed him to Port Harcourt, he got broke and took the car to a car dealer who gave him a deposit for it and the balance much later.

Many years after that incident, someone called to confirm if he was the one who sold that piece of land (in Abuja) to the present owner.

The new interested buyer was ready to pay N120,000,000 against the N150,000,000 the new seller wanted to sell. My guy almost fainted.

The Car Dealer: 

The car dealer he sold his Golf 4 car to in Port Harcourt was a panel beater working on two plots of land, each bought for N120,000 and paid for in installments. after many years, he sold a plot out of it to an organization for N17,000,000. He used part of the money to build a Guest House and the balance to start his car business.

Real Estate Stands Out If You Do It Right 

Real estate has financially liberated lots of persons. However, it is much of “a buy when it’s cheap” and sell when it goes high (land speculation).

The “be your own landlord” perspective is a mere “feel perspective.” You mustn’t live in your own house. You mustn’t even own a house if it is not economically viable to do so.

That’s why I advise clients to buy a property where its value and ROA will grow reasonably high compared to properties in other locations within the same period.

The earlier misleading analysis didn’t put capital gain into consideration.

It also didn’t factor in growth in rental income.

Many persons don’t know that rental income is the smallest way of earning from real estate. It has not come to their consciousness that the value of land appreciates, while the value of buildings depreciates. That’s what calls for maintenance.

Avoid Overpriced Land

Investors need to avoid over-priced land.

A developer presently sells a plot of land in phase 1 of its estate for N20,000,000, phase 2 directly opposite phase 1 sells for N6,000,000.

For no reason should a good investor buy phase 1. It’s already overpriced. Funny enough, the initial price of phase 1 was N500,000 many years back. Phase 1 is better for the “be your own landlord” perspective.

Real estate shouldn’t be the main hustle of any serious-minded investor. It should rather be an avenue for saving and growing idle cash or diversifying your portfolio instead of keeping your money idle in the bank.

Real estate investing in Nigeria or elsewhere is the most secure investment one can ever have. But its juicy yields are long or medium-term in nature. It has the potential to completely transform one’s financial life for good in the long run.

Other Businesses/Investments Are Riskier 

A successful business can face a tough challenge and wind up almost immediately. But plots of land or houses owned will always be there for you.

Real estate is a good way of diversifying your portfolio to have a good blend of high and low-risk investments.

A month or more ago. I was with a business associate at Alaba International Market when one of his friends walked in discussing a loss of $3,000,000.

That same day, I heard of a billionaire in the same market who went bankrupt and lost his shopping complexes to his bank. Business can get as bad as that sometimes.

That is why Real estate investing in Nigeria or elsewhere remains the safest way to go if you are thinking about the future and you understand the game. Interestingly, real estate is a passive way of earning good financial figures.

In buying land or houses, you need to consider:

  1. The property price
  2. How commercialized the property location is.
  3. How government policy will affect or influence the future value of the property in that environment. If the environment is still very local, will government plans for it make it highly commercialized or industrialized in the future?
  4. The authenticity of the property e.t.c.

If you buy the wrong property (in terms of location, pricing, authenticity, the purpose of use, e.t.c.) you are in trouble.

That is why you need to seek expert advice before investing in real estate.

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Donald Karo

Most Experienced Property Consultant/Agent In Nigeria

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