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Here you will learn how to avoid Insecurities In Buying Property In Nigeria.
All you need to know about real estate investment insecurities and how to avoid and deal with them!
Some people who are considering passive income and asset management may be thinking about starting real estate investment.
However, since it is a field in which tens of millions to hundreds of millions of naira of money are involved, if you do not have a correct understanding of the insecurities, you may suffer large losses and have a negative impact on your life.
Before starting a real estate investment, it is important to know in advance the causes of possible losses.
In this article, I will explain the possible insecurities and how to deal with them for those who are considering investing in real estate.
[Related Article] Risks of Real Estate Investment in Lagos Nigeria: Interesting Ways to Avoid Them That Beginners Should Know
By reading this, you will be able to prepare for insecurities and make an investment.
It is important to anticipate insecurities and take measures before starting a real estate investment. This is because real estate investment is always accompanied by various problems such as a fall in value, disasters, renovations, and rent arrears. Here, I will explain the insecurities that can occur during real estate investment. Learn how to deal with problems.
Insecurities In Buying Property In Nigeria
Insecurity of vacancy
It is important to be aware of the insecurity of apartments being vacant due to lack of tenants. If the vacancy rate is high, the amount of payments and loan repayments will increase, making life difficult, and in the worst-case scenario, it may even lead to personal bankruptcy.
To prevent this from happening, research areas and conditions with low insecurity of vacancy and use this information to help you choose a property. When deciding on a property to purchase, it is essential to have a plan that calculates the purchase cost of the property and monthly maintenance costs as a profit simulation and sets a target profit. It is also important to choose a management company that is good at dealing with vacancies.
If there are more vacant rooms than expected, one way to reduce the insecurity of vacancy is to offer attractive conditions such as reducing the deposit and key money while keeping the rent the same, offering free rent, or renovating the property.
Insecurity of falling rents
It is common for rent to decrease slightly each year as the building ages. This can result in a decrease in rental income. If your income falls short of your expenses, you may not be able to make the necessary payments or repayments.
To prevent this from happening, choose a used property that is in a good location, such as close to the station. The reason we recommend buying a used property over a new one is that knowing the market price of rent when occupancy rates are high allows you to deal with the insecurity of a decline.
By lowering the deposit and key money and improving the appeal of the room through renovations, you can avoid unnecessary drops in rent.
Insecurity of rising loan interest rates
If you are paying part of the purchase price of the property on a loan, be aware of the insecurity of rising interest rates. If interest rates rise, your repayment amount will automatically increase, which will affect your net profit. Depending on the repayment amount, it may become difficult to continue making repayments.
To prevent this from happening, it is important to plan your repayment schedule with a certain margin of safety relative to your annual income. If you choose a fixed interest rate for the entire term when taking out a loan, you won’t have to worry about rising interest rates.
There is also a rule called the “5-year rule” that requires you to review your repayment amount every 5 years, and when interest rates rise and interest increases, the repayment amount is deducted from the principal. This means that the ratio of principal to interest changes every 5 years. You should consult with your financial institution after 5 years have passed since you took out your loan.
Insecurity of defaulting on rent payments
There are also cases where residents of condominiums and apartments, and users of offices and stores, fail to pay rent. The overdue amount becomes the responsibility of the property owner, and since this amount is also included in income, it will be a loss. If the number of overdue payments increases, there is an insecurity that the investment will fail due to a lack of income.
One way to prevent rent arrears is to partner with a rent guarantee company. This is a system in which tenants sign a contract with a rent guarantee company, and the company covers the amount in the event of arrears. It is also essential to create a system in which tenants are kept informed of the situation to the management company on a regular basis when arrears occur.
Insecurity of natural disasters and fires
It is also important to prepare for damage to buildings caused by fires, earthquakes, typhoons, etc. If real estate is damaged in a disaster, it will lose its value as a residence, etc., and investors may lose rental income. Loss of value also reduces the resale price.
In order to deal with such situations, it is important to use disaster insurance for fires, floods, etc. If you suffer damage from a disaster, apply for compensation from the insurance company. It is also important to be aware of choosing properties with high flood resistance as a countermeasure against floods.
Insecurity of decline in real estate appraisal value and value
Even if there are no particular problems with the property, there are cases where the value of the property can plummet due to changes in social conditions. As a result of the plummet, the selling price may decrease, leading to large losses. Such failures can cause the loss of large amounts of assets and have a negative impact on your life.
In order to avoid being caught up in a real estate crash, it is important to take action to sell early while you still have a profit. Selling real estate often takes a considerable amount of time from transaction to delivery, so make sure to make a detailed plan.
By deciding the holding period from the beginning, you may not have to panic even if the price crashes. Even if the value of real estate falls once, it may rise due to further changes in the situation, so one option is to wait and see without panicking about the immediate crash. Be sure to assess the social situation and take appropriate measures.
Insecurity of bankruptcy for companies involved
If you entrust the management of your property to a property management company, you should also consider the insecurity that the company may go bankrupt. If that company goes bankrupt, you will need to terminate the management contract at that time and take steps such as changing the management company.
Some management companies may show signs of financial difficulties, such as not passing on rental income to investors. If you notice something unusual, it is best to change the company before the company goes bankrupt. Even aside from money, frequent changes in personnel may indicate that operations are not going well.
In any case, property management is an important part of operations, so it is important to respond quickly to any problems that arise with the contractor.
Insecurity of repairs and renovations
In some cases, investors decide to repair or renovate the rooms, but there is also the insecurity that they will incur unexpectedly large expenses and be unable to pay them, which could result in the property being seized.
It is important to repair any damaged parts of the building or rooms so that tenants can live in peace of mind, but the greater the damage, the higher the cost. When you own real estate, you should prepare for expenses for repairs and renovations and keep your finances in a comfortable position.
When carrying out renovations, the key to reducing insecurity is to make a plan that estimates your budget and the rental income you will receive after completion and calculates the period it will take to recoup the full amount.
Real estate investment insecurity list
Here are insecurities that may occur in real estate investment. Before investing, it is important to anticipate problems that may occur after the purchase and prepare ways to deal with them.
Insecurity Frequency of occurrence Countermeasures
Vacancies After purchasing real estate, we always look for properties with high occupancy rates, sign contracts with management companies that are good at dealing with vacancies, and change the property details and occupancy conditions, etc.
Rents fall every year Lowering security deposits and working to increase occupancy rates
Loan interest rates rising Unknown Create a repayment plan that allows you to afford it
Rent overdue – Tenants are required to sign a contract with a rent guarantee company, and problems are dealt with in cooperation with the management company
Natural disasters/fires Unknown Contract with disaster insurance and apply for compensation as soon as damage occurs
Decline in property appraisal value/value Unknown Decide whether to sell early or consider a long-term perspective even if the value declines
The bankruptcy of intervening companies Rare Change of management company
Repairs and renovations When deciding on repairs and renovations, estimate the repair and renovation budget and the profit situation and decide on a budget that can be recovered.
Investing in real estate with zero capital is an insecurity
It is wise to avoid investing in real estate without capital because it is high insecurity. If you cover the entire investment amount with a loan, there is an insecurity that you will be unable to make payments or repay the loan if the investment fails, which could lead to personal bankruptcy.
In the real estate business, tens of millions of naira are involved, so the losses can be large if the business fails. In addition to the purchase price, various expenses such as fees and building repair costs are also required.
For these reasons, it is best to avoid investing in real estate with zero capital, as there is an insecurity that you will not be able to cover payments and loan repayments.
The level of insecurity compared to other investment methods
There are many types of investments, including real estate, stocks, investment trusts, and FX. It is important to compare the insecurities with other investment fields and to do a self-analysis to see if real estate investment is suitable for you. Real estate investment properties are available not only in Nigeria but also overseas, so compare the returns of each.
Here we will compare real estate investment with other types of investment, both domestically and overseas, and consider the insecurities and returns.
Insecurity compared to stock investments, investment trusts, FX, virtual currencies, etc.
If you are considering investing in real estate, compare the insecurity with other areas such as stock investment and investment trusts to see which investment type is best for you. The table below divides investment areas by insecurity level.
High-insecurity real estate investment
Middle insecurity Stock investment, FX
Low-insecurity cryptocurrency, investment trusts
The lower the amount required to enter the market, the lower the insecurity. The smaller the investment amount, the higher the tolerance for insecurity due to uncertainties during operation.
Real estate investment can result in losses of hundreds of millions to tens of millions of naira, making it a high-insecurity and low-tolerance field. Based on your own budget, you should determine how much loss you can afford.
The magnitude of insecurity in domestic and overseas real estate
The insecurities associated with investing in domestic and overseas real estate are different. Although it is easy to obtain continuous rental income from domestic real estate, there is little hope for value appreciation, and there is also the insecurity of a future crash.
On the other hand, there are many countries overseas that are experiencing economic growth, and there is a possibility of making a profit from capital gains, which means profits from selling after the value has increased. If the investment destination is an emerging country, there is a possibility of obtaining high returns as the population and income increase, leading to increased demand for housing.
However, it is possible that you may unknowingly enter into a sales contract under unfavorable conditions due to language barriers, etc. It is also important to remember that the points and insecurities you can expect from real estate investment in Nigeria and overseas are different.
How to learn knowledge and know-how to avoid insecurities
In order to avoid losses in real estate investment, it is important to study knowledge and know-how. In order to face insecurities, make use of books and blogs to acquire correct knowledge. By studying, you can learn the important mindset for real estate investment and know-how to ensure profits. Here are three ways to learn about real estate investment.
Study with books
To learn about real estate investment, it is recommended to read books. Books contain a lot of highly reliable information, and some of them contain useful information that only the author knows.
Pick up a few books based on your level of knowledge about real estate investment and the information you want to know. In particular, you should learn about revenue simulation methods and legal matters, which are important when dealing with real estate.
Accumulating know-how through blogs, etc.
You can also get know-how by reading blogs related to real estate investment. However, there is a lot of unreliable information on the Internet, so be careful not to just accept it at face value. It is important to check the people or groups writing the articles and see if they are trustworthy.
You can easily obtain reliable information by reading blog articles written by people with experience in real estate investment or business owners in related businesses.
Attend seminars and talk to professionals
If you want to learn about real estate investment, consider attending a seminar. Seminars are a chance to hear real talks from professionals in the field, and they are a great way to hear meaningful information that is different from what you can find in books or on the Internet.
It is recommended that you choose a topic that meets your level of knowledge and that you are likely to be able to hear the information you want to know, and actively seek out opportunities to consult with experts. Pay attention to the group hosting the seminar and make sure they have a wealth of investment experience.
When choosing a real estate investment seminar, choose based on “experience” and “expertise”
The key to distinguishing a quality real estate investment seminar is experience and expertise. There are various types of seminars, but if you want to experience a meaningful opportunity, check the instructor’s profile.
It is important to analyze how knowledgeable the person is about real estate investment based on their expertise and track record. If the lecturer has a wealth of expertise and a track record, you may want to decide to attend the seminar.
Marock Resources specializes in asset management and inheritance planning procedures.
We also specialize in consulting services dealing with real estate investment-related matters, with a focus on creating wealth through real estate investing. We hold real estate investment seminars, so please come and join us.
We also provide consulting services focusing on real estate investment, fundraising, international purchases, etc. If you want to learn the know-how of asset management through real estate, please come to Marock Resources Seminar.
Conclusion:
Taking on the challenge of real estate investment comes with various insecurities. If you are not prepared for problems, you may not only suffer huge losses, but in the worst-case scenario, you may even go bankrupt. To prevent such situations, it is essential to anticipate the insecurities and put into practice measures and methods for dealing with problems.
Instead of rushing into buying real estate without thinking about anything, learn the necessary knowledge and know-how and make careful preparations before investing.
Marock Resources (the parent company to Naija Wealth News NWN) handles real estate investment projects. We also provide comprehensive support in terms of taxes and fundraising, and for overseas projects, we have staff with extensive experience in foreign countries. If you are considering real estate investment, please contact Marock Resources.
What is your thought on this article? Do you have any questions, suggestions,s or concerns are you or anyone you know looking to buy or rent a property any time soon, reach out to us directly, comment on this post, and kindly share it for your family and friends to be part of this.
