If you are looking for a way to invest your savings, why not consider real estate? Such investments are always very lucrative. If you are in doubt, just look up any of the wealthiest people in Nigeria, or the world; you will find one form of real estate investment or the other in their portfolio.
Today, we are going to look at how you can make your first investment in real estate and earn some serious profit, regardless of the amount of money you want to put in.
What is real estate?
Real estate is property comprised of land and any structure(s) or natural resource on it, including water bodies and mineral deposits, as well as any flora or fauna.
Based on its use, real estate can be grouped into three broad categories:
Industrial properties, e.g. factories and mines.
Commercial properties, e.g. office buildings, retail store buildings, and warehouses.
Residential properties, e.g. undeveloped land, condominiums, and private residences.
Investment opportunities in real estate
Buying a house or building one is not the only way you can make a real estate investment. The market has lots of opportunities. Here are some of them:
1. Real Estate Investment Trusts (REITs)
This is one of the easiest ways to make real estate investments without actually acquiring a physical property. REITs are regulated by the Securities and Exchange Commission (SEC). They are a form of collective investment scheme, which pools funds from investors and use them to acquire income-generating real estate.
The portfolio of underlying assets is managed by a professional whose job is to maximize your returns. With REITs, you hold an indirect interest in real estate on a flow-through basis, which means that you hold the property as if it were a direct investment.
REITs are traded on the Nigerian Stock Exchange (NSE). To buy one, you have to go through your stock broker. It’s just like buying or selling shares.
REITs are a solid investment stock that can earn you regular income. The benefits include the following:
- Requires no minimum investment.
- Offers tax advantages.
- It’s a highly liquid way to invest in real estate. You won’t need a realtor to cash out your investment.
- REITs pay high yields in the form of dividends.
- Provides you the opportunity to share in non-residential properties like malls, industries, and hotels.
2. Land flipping
Another great way to invest is to buy land and sell it at a higher price. It is particularly profitable when you buy in a rapidly developing area, in which case you can make up to 300% in profits within a few months, or years, as the case may be.
You can start small by buying just a plot. Or if you have enough capital, buy as much land as you can and keep selling all year round.
While acquiring lands, keep the following in mind:
Buy in areas that are rapidly developing if you want to sell within a couple of months. Some areas are faster than others.
Ensure you obtain all the documents for the land that show you are buying from the legitimate owner. The documents should include a Certificate of Occupancy or a Governor’s consent. Ensure that you don’t get mixed up in land issues. Acquire lands with the appropriate land titles.
• Low or zero maintenance costs.
• Ease of sale
• High profits
3. Become a real estate agent
This is a good option if you don’t have the capital to make an investment. You can simply offer your services to property owners who are looking for a buyer.
Becoming an agent means you get a commission after you find a buyer for the property. The common rate is 10%. So let’s say you find a buyer for a 40 million naira property, you stand to get a commission of 4 million naira.
To become a successful agent, you need to possess good networking skills in order to locate buyers and sellers. Here are some of the roles you’d have to play:
List the property to the public through notices, banners, fliers, and so on. But things have become very easy in the 21st century, in which case, advertising on the internet is the easiest and cheapest method you can use.
Be readily available to answer any questions buyers may have.
Take buyers to see the property (property inspection) and negotiate prices on behalf of the seller.
Screen the buyers to make sure that they are qualified to buy the property.
- Grow your network.
- Great earning potential.
- Littleor no investment capital required
4. Open space leasing
In this scenario, you buy land in a good location. While you wait for the property value to rise, earn monthly fees by leasing the land to people for temporary use. For instance, you can lease it to a church, mechanics or car wash, or other businesses that can construct a makeshift structure that will be easily dismantled when you are ready to sell.
• Extra monthly profits before actual land sale, etc.
5. Property development
Property development requires a huge capital investment. It involves acquiring depreciated properties that you can renovate and rent or sell at a very high profit margin. As with any real estate investment, a good location is crucial if you want to make reasonable profits.
Before you go ahead to invest in property development, you have to make sure that the development costs will be far outweighed by the asking price of the property when the renovation is done. So if you spend like 2million naira in renovations, make sure you can sell the property for at least 3 or 4 million naira.
Listed below is one of the benefits:
• Earn a higher profit than when you buy and sell undeveloped land.
Franchising is a brilliant way to acquire and hold land in different fast growing locations. It however requires considerable capital.
It’s as simple as when you acquire land and use it to establish a business, such as a fast food restaurant. You then buy land in various other locations, build your structures and find franchisees who will manage the restaurants on your behalf.
It may seem that brands, such as Mr. Biggs, McDonalds, Chicken Republic, and many others that exist today are only involved in the fast food business. But real estate acquisition is a major part of it. These lands quickly appreciate in value over time.
• Run a sustainable business while acquiring high value real estate.
• Own land in several major locations across the country.
7. Build or purchase rental properties
Investing in rental properties is one way to keep earning for life. As a landlord, you receive monthly or yearly income after you build or buy properties and rent them out to tenants. You’d have to regularly maintain the building to keep it in good shape, so that you can attract new tenants or keep up with the competition from other landlords in the neighborhood.
You’d also have to find out the price other landlords in the area charge on rent so that you can fix a reasonable price. Over time, your property will appreciate in value, especially if you are in an area of high demand.
The biggest difference between investing in a rental property and other types of real estate investments is the time and effort it demands, especially if you accept bad tenants who damage your property or delay rent payments. If you are not in a good location or don’t invest in maintenance, you face the risk of not attracting any tenants at all.
• Earning passive income for the rest of your life.
Top tips to keep in mind before investing in real estate
Now that you have seen the various ways you can make an investment, there are certain things you should keep in mind to give you that push you need to take the first step. Some of these tips will also see that you don’t experience any difficulties down the line. Keep reading to discover what you need to know.
1. It’s possible to invest without putting down any money
You can invest in real estate with other people’s money if you can find a lender. This is especially so if you can purchase and sell the land for profit within a few short months, or years. This way, you don’t have to keep waiting till you build considerable savings before you can spring into action.
Once you find a good land in a good location that can appreciate in value quickly, find a way to source for funds. After all, real estate is a stable investment that won’t slip through your fingers, as long as you follow due process and acquire all the necessary titles for the property from the appropriate authorities.
Another option is to collaborate with close friends or family and save up the required capital. Let’s say that 4 or 5 of you save 50,000 naira every month, in a year, you would have saved up 3 million naira. After you buy a land and it appreciates in value after some years, you can sell and split the profits. However, be sure to sign well-structured agreements before going into such collaborations.
2. Conduct proper research
Ask a lot of questions before you commit your money to any property. Also make sure that you are familiar with the location. If you buy land in an area that has a bad history, experiences flooding, or is in a location that does not have good road access, you may have a hard time to get it sold.
You have to be able to identify areas with a high potential to develop quickly in some years’ time. If the area is in high demand and consequently overpriced, consider purchasing your property from the outskirts.
To get the best deals, you have to be able to negotiate. It is the one quality that differentiates a successful investor. When you get the price for a property and you see that you can afford it, don’t be in a hurry to agree at once. You may be able to negotiate a lower price. The same idea also applies when you are ready to sell.
4. Renovations may not necessarily mean an increase in value
Buyers have different tastes. You may find that you won’t be able to sell for as much profit as you had in mind.
5. Always put it in writing
This is very important. Before you part with your money, make sure you acquire all the necessary documents that show proof of ownership. There are many scam artists out there waiting to take advantage of unsuspecting victims. Make sure you ask questions.
Benefits of Investing in real estate
Why should you consider investing in real estate? Here’s a list of some of the benefits:
1. Build equity for your future: Equity is an asset that makes up your net worth.
2. Real estate value appreciates over time
3. Generate passive income and cash flow for your retirement
4. Enjoy tax benefits
Investments are essential for wealth creation. It’s not enough to leave your cash in the bank, where you will get negligible monthly interests. Invest in real estate today. It is something you have to do at some point before you retire, if you want to be comfortable financially. Why not give yourself a good head start?