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Are you looking to explore the hidden treasure in Nigeria’s highest wealth creation venture, here’s your Real Estate Investment Guide. Investing in real estate is one of the most popular options for people who want to grow their wealth. And it’s no coincidence.
Over the years, real estate investments have proven to be a winning choice, capable of generating solid long-term returns and offering great opportunities for professional and financial growth.
In this guide, I will provide you with a complete overview of real estate investing. Here, you will learn the basics, risks, and opportunities of real estate investing, and what are the best strategies to apply to the sector. In addition, we will give you some useful tips to get started and maximize your returns. If you are interested in making money with houses, this guide is a good starting point.
What is a real estate investment guide?
Real estate investing is any type of activity that involves the ownership or control of real estate. This can include buying and selling real estate, leasing real estate, building and developing real estate, and participating in real estate funds or real estate investment companies. In everyday language, when we talk about real estate investing, we usually refer to flipping, which is the practice of buying, renovating, and reselling a house to make a profit, and to renting out real estate, which is not an investment in the classic sense of the term, but a real business. From this perspective, real estate investing has nothing of the typical liability of investments but is a job in all respects and as such requires commitment, professionalism, and time. In exchange, however, it offers great opportunities for long-term professional and financial growth. Let’s find out why.
The advantages of real estate investments In Nigeria
The real estate industry is constantly expanding. The need for residential and commercial real estate is increasing, which means that investing in real estate is and will continue to be a safe and winning bet for those with the right knowledge. Real estate is a long-term asset that can be very profitable. Keep in mind that it is difficult to lose money if you buy the right property. There are different types of real estate investments and each of them has its advantages and disadvantages, depending on your goals and possibilities. You could, for example, buy a house or apartment directly from a seller; rent out your own home or vacant land; invest in commercial buildings that serve as offices for third-party companies or as shopping centers; buy shares in a condominium or commercial real estate development company; get involved in land deals abroad (i.e. buy land abroad); buy a raw land and develop it yourself; or buy and rent out a property that is already rented out.
Why You should take advantage of investing in real estate in Nigeria
Regardless of which approach you decide to take, there are some benefits that all real estate investments have in common: Real estate is an asset class that will always be in demand: No matter what happens in the economy, people need a place to live, so there will always be a demand for housing. Stability and appreciation in value over time: Real estate prices generally increase over time, which means you can sell your investment at a profit and use the money to buy another property or keep it and continue collecting rent checks. High liquidity: Real estate is highly liquid, you can sell it relatively quickly if you need cash or want to move elsewhere (e.g. abroad). You don’t have to wait years, like with other investments like stocks or bonds, to get your money back and the interest accrued. Scalability: You can use leverage, which means borrowing money from someone else to pay a portion of the purchase price and then repay it with interest over time (e.g. monthly payments). Tax Benefits: Real estate investments may offer tax benefits at the national or local level, which can help reduce the total cost of the investment.
The risks of investing in real estate
Obviously, like any form of investment, real estate investments also hide potential pitfalls:
High Purchase Cost: Real estate can be expensive to purchase, especially when considering purchasing prime properties or in desirable locations.
Skills: Every type of operation requires expertise to be successfully closed, from choosing and evaluating the right property to putting it on the market. If this is missing, you risk making significant economic holes.
Possibility of rental holidays: in the case of renting out, if no tenants are found, the real estate investment may be subject to rental holidays and no income will be received on it.
Difficulty in evaluating the investment: Valuing a property can be difficult, especially if you have no experience in the real estate sector.
Costs associated with renovation and maintenance: Investment properties almost always require renovation and some maintenance, which translates into significant costs.
High Yield Real Estate Investments: How to Calculate the Profitability of a Property
The return on a property depends largely on three factors: the investment strategy we decide to implement, the goals we want to achieve and the time we give ourselves to do it. But before telling you how much you can expect to earn with a house, we need to introduce some basic concepts about investments, to avoid misunderstandings. You should know, in fact, that regardless of the investment strategy you decide to implement, there are essentially two ways in which you can earn: capital gain and cash flow. Capital gain is the profit that corresponds to the difference between the sale and purchase price of a property. So, if we buy a property at a certain price and then resell it at a higher price, we generate a capital gain; if instead this difference is negative, we incur a capital loss, loss. It is important to note that capital gain is a net gain, from which costs, expenses, and taxes are subtracted, and should not be confused with profit, which is instead the gross profit, or what remains when we subtract costs from revenues. Cash flow, on the other hand, is the amount of money that comes in and goes out of a business or individual’s coffers over a given period of time. In other words, it is the money that comes in (such as revenue from selling a product or renting a property) minus the money that goes out (such as rent, utilities, food, etc.). Cash flow can be positive or negative and represents the ability of a business or individual to pay for its expenses and investments over the long term.
How to Calculate the Return on a Property: ROI and ROE
Capital gain and income production give us the cue to briefly talk about two other fundamental concepts for a real estate investor: ROI and ROE. To calculate the return on any real estate investment, whether it is a sale or rental transaction, it is necessary to know and be able to calculate these two indicators. ROI, an acronym for Return On Investment, is a general indicator that expresses the percentage of the gain or loss of an investment in relation to the amount invested. To calculate ROI, the formula is used:
ROI = Gross Profit / Investment X 100
where gross profit represents the proceeds from the sale of the property or the cash flow generated by it, while investment includes all costs incurred for the purchase of the property.
ROE, an acronym for Return On Equity, is an indicator that expresses the percentage of the profit generated by the investment in relation to the money that the investor has taken out of his own pocket.
To calculate ROE, the formula is used:
ROE = Gross Profit / Equity X 100
where equity represents the amount of money invested directly by the investor, excluding any external financing. ROE is a particularly important indicator because it takes into account the risk taken by the investor or the amount of money that the investor has put at risk to make the investment. In this sense, ROE allows you to evaluate whether the investment is convenient compared to the risk taken. In any case, both ROI and ROE are useful tools for analyzing and evaluating the effectiveness of real estate investments, but they must be used together with other indicators to make a complete and accurate assessment. Well, now we are ready to find out what the main strategies are for earning money with real estate and the average return you can expect to obtain from each of them.
How Much You Can Earn With Real Estate Investing: The 5 Most Used Investment Strategies
How much does a property yield today in Nigeria? As we anticipated, the yield of a property varies significantly depending on the strategies we use and the objectives we want to pursue. For this reason, we have drawn up a ranking of the five most profitable types of real estate investment, ordered according to a logic of gain: from the least profitable to the most profitable. Keep in mind that the established order does not reflect the superiority (or inferiority) of one strategy compared to the others. Each strategy has its pros and cons and can be more or less functional based on the situation, competence, and experience of the individual operator.
1. Buying a first or second home
In fifth place among the types of real estate investment, we find the purchase of a home to live in or as a second home, that is, the purchase of a first or second home from which you do not expect to generate a profit. You may be wondering why we decided to include in our special ranking the purchase of a property not intended for resale or income generation. The question is legitimate: if you do not receive an income or do not resell the property, how can you earn money from it? In reality, if we look at the NBS data, over the last 60 years the Nigerian real estate market has grown and even significantly. Specifically, speaking of numbers, NBS reports an increase of 2.14% per year net of inflation. This means that the real estate market, once inflation is removed, yields an average of 2.14% per year, which is not bad at all. One aspect to be careful about, however, is not to judge the quality of the purchase based on short periods. For example, if we take the real estate market trend over the last 10 years as a reference, we realize that not only have we not obtained our 2.4% annually, but that property prices have actually risen. Therefore, remember that we are talking about a very calm, very long-term form of investment, suitable for those who do not feel like investors and want to buy a property primarily to live in or to exploit it directly. In fact, to see a result we must consider periods of at least 20-30 years.
2. Real estate income generation
In fourth place, we find the classic income investment, that is, the purchase of a property to rent it out. According to a survey by Nigeria Property Centre, this type of investment currently yields 7.8% per year. More specifically, among the most profitable types of properties to rent are shops, which yield 11.6%, and offices, with 9.2%. Obviously, the aforementioned percentages refer exclusively to the yield we receive from rent. To these, in fact, we can also add the income deriving from the simple possession of the property, that is, from the appreciation of our asset over time. A well-made, careful, and studied income investment can yield even more than 10% per year on each property owned.
3. Real Estate Crowdfunding
Now the situation gets serious because we arrive on the podium of real estate investments. In third place, we have placed real estate crowdfunding, a type of investment accessible to everyone, with very low barriers to entry both in terms of finances and skills. In fact, to get started, all you need is a small amount of capital, which can even be diversified across various operations and different platforms. On average, if you learn to choose the projects you invest in well, a crowdfunding investment can yield from 8 to 11% per year. The projects you participate in are managed by companies and professionals who buy, renovate, and resell properties, then share a part of the earnings with the investors who financed the operation, in proportion to the capital invested. With crowdfunding operations, it is possible to earn a little more than with income generation, especially if you manage to get in direct contact with real estate companies and avoid the intermediation of online platforms, which generally retain a significant commission. For example, in the operations of Marock Real Estate, this allows us to reward our investors with returns of 15% per year.
4. Real estate flipping
In second place for the most profitable real estate investments, we have placed real estate flipping. Flipping is a business, more than an investment. A real estate flipper needs time to build a large network of contacts and solid skills that allow him to carry out and keep together a large number of activities: from the search for the right property to that of the renovation company, to the home stager for the sale, just to name a few. However, we have included it in this ranking of the best real estate investment strategies because it can be carried out by relying on a professional who manages all the phases of the operation on our behalf. In this case, in fact, it becomes a real investment, because there is no longer any need for technical knowledge or time to dedicate to this type of activity, but everything is delegated to a third party who takes care of it on our behalf. Real estate flipping can be a very profitable activity, especially when you enter into the perspective of scaling it and carrying out multiple operations at the same time. Even if we do not do it ourselves, and therefore decide to rely on a real estate trading company, we can obtain an interesting return of 15-20% on a single operation.
5. Residential Sub-leasing
In first place for the most profitable real estate investments, we have positioned the residential sublease, a type of investment that consists of renting a property at a fixed rate and then subletting it or blocking it with short-term or temporary rentals to tourists, students or workers staying in the apartment for a period of time-limited, usually a few days or a few weeks.
Like real estate flipping, subletting is also an activity, rather than a pure investment, which requires a certain type of market knowledge and a lot of time to dedicate to management of the property and the operation.
Again, if you prefer to keep it in mind investment, you can entrust a company or a professional with the management of this type of operation. Considering this aspect, subleasing real estate can yield 30% to 40% per year.
It may seem like a very high estimate, but these are numbers within reach.
Of course, not all trades are the same, and not all markets are the same. they are the same: you need to know where to go and evaluate carefully the property and above all its yield potential.
Real Estate Investing for Beginners: How to Get Started
Investing in real estate, especially when starting from scratch, it’s not easy, nor immediate, but it can certainly give you great results and long-term satisfaction if you acquire a solid approach mental and the right skills.
To start investing profitably in real estate, you will need to first have a good understanding of the different aspects of the real estate market, learn techniques and methods of planning carefully, evaluate your financial situation, and define your long-term goals.
With the right preparation and a good strategy, investments in real estate will prove to be an excellent choice for building a respectable heritage through a source of wealth conspicuous and continuous over time.
Tips for getting started with real estate investing
Real estate investing is a great way to accumulate long-term wealth, but requires financial commitment and staff in terms of study and understanding of the market not indifference.
If you are serious and want to make a steady and systematic income from your investments, you will need to develop a correct approach:
Get informed: It is important to gain a basic understanding of the market real estate, laws, and taxes that concern the real estate investments. You can start by reading books and articles on the topic, following blogs and forums, and participating in courses and seminars.
Set goals: Set your financial goal and your expectations regarding the performance
of the investment. Also consider your long-term goals term, such as financial security and pension provision pension.
Analyze the market: it is important to understand the situation of the
real estate market in your area, including prices of ownership, supply and demand, and economic trends.
Set a budget: decide how much you are willing to invest and how
to manage expenses related to purchasing and management of the property.
Find an investment opportunity: Explore opportunities for investment, including homes for sale, income homes, and commercial properties. Compare prices, rates
performance, and management costs to find the opportunity to improve.
Evaluate the property: Before purchasing a property, it is important to have it appraised by a real estate professional to make sure that it is a good investment opportunity.
Buy the property: Once you have found the right property, it is need to buy it. You may need to get a mortgage or financing to carry out the 3 phases correctly and without risks of real estate sales.
Renovate the property: after purchase, whether you want to rent or resell the property, you will have to hire a construction company for the renovation works with the aim of increasing the market value and making a profit from future resale.
Manage the property: You will be responsible for its management, including maintenance and leasing. You may want to hire a property manager or agency to get support at this stage.
Resell the property: if you want to carry out a transaction real estate sale, you will have to put it on the market and resell the property in a relatively short period of time, to recover the investment and generate a capital gain.
Best Real Estate Investing Books to Read in 2024
Books are a good place to start your journey
discovering the real estate investment sector.
They can provide you with a basic understanding of the strategies of investment and the economic and financial aspects that are related to its base. They can help you understand how the real estate market works and how you can plan your investment.
Reading books on real estate investing is much more convenient and at a lower cost than taking courses or training programs.
You can do it from your home and at your own pace.
Here is a short list of the best books on investing
real estate to read in 2024 – suitable for both those starting from scratch, and those who already have some basic knowledge – which will provide you with information on how to start investing in real estate, how to manage your property portfolio, and how to take advantage of the opportunities
Real Estate Market to Achieve Financial Freedom:
“The Millionaire Real Estate Investor” by Gary Keller
This book is a timeless classic, updated for the era.
modern, and explains how to get started as a real estate investor.
Offers advice on finding great deals, managing properties, and earning in the long run.
“Rich Dad Poor Dad” by Robert Kiyosaki
“Rich Dad Poor Dad” by Robert Kiyosaki is a book that focuses on financial education and how the mindset can affect a person’s life.
Kiyosaki, in a simple and captivating way, through anecdotes personal and practical advice, overturns the way we are used to thinking about money and introduces us to creating sources of income passive and alternative.
“A Guide to Investing in Rental Properties” by Brandon Turner
Turner offers advice on the best ways to find and manage rental property investments in this informative guide.
It is a great choice for anyone who wants to enter the world of real estate investments without any experience or knowledge of the sector.
“The Automatic Millionaire” by David Bach
Bach’s book is an excellent guide that will teach you how to build an income with real estate, although many of the notions which you will learn, since they come from a different market, that is, the American one, will have to be adapted to the Italian reality.
Among the many concepts scattered throughout the guide, you will learn how compound interest works, which for the author represents one of the master keys to wealth.
“The Intelligent Investor” by Benjamin Graham
“The Intelligent Investor” by Benjamin Graham is a book exceptional that provides a solid foundation for investors who try to understand the art of stock investing.
The book is intended for both beginners and investor experts and contains a wide range of examples and case studies that make it easy to understand the concepts presented.
Graham introduces the concept of long-term investing.
Why investing in real estate is a choice…
Elena Bianco 9th edition
Furthermore, it provides a detailed overview of the techniques of evaluation of stocks and investment strategies. In short, the book is an investor’s vademecum, a guide to becoming of informed and aware investors.
Is it possible to make real estate investments without money? The answer, As often happens, it depends.
Let’s start from the assumption that, in most cases, it is very difficult to find profitable trades that do not require a financial outlay: there are many things that should happen, and all they should row in our favor.
In other cases it is simply impossible for this to happen, for example, if you want to buy a house to live in, you will need capital or to take out a mortgage, obviously.
However, there are ways to earn money with houses without money, which you can use especially if the goal is to resell quickly a property, as in the case of real estate flipping.
The first thing to do is to know the sector and understand where to find people willing to make a zero or near zero compromise to give in the property. This allows you to gain control of the property and fix it quickly to increase its value and resell it.
A widely used technique is the transfer of the preliminary contract, which allows you to control the asset with zero or little money and resell it in few months improving it in various ways, for example in the management of spaces, in lighting or in marketing.
As mentioned, however, these opportunities do not always present themselves and
in any case, they require a lot of technique and knowledge of the sector.
Another method to do real estate transactions without money is that
of the balance and cancellation, which consists of identifying a property that has
financial problems, such as a property that is about to go at auction.
In this case, you can negotiate the debt with the bank and the owner of the property. If the bank needs to recover quickly the money, he will agree to give up a part of the debt.
The property can therefore be purchased at a lower price than the market one, but without having to have money. This operation can be advantageous for all parties involved: the bank recovers money, the property owner frees himself from debt and the buyer purchases the property at a favorable price.
Balance and clearance is a very powerful technique, but also one of the more complex in the real estate investment landscape, as there are different types of mistakes that can be made, especially in the phases of property evaluation and negotiation.
Tax aspects of real estate investments
In order not to compromise the success of the investment, it is essential to consider the taxes that will have to be paid on the
real estate sales transactions and the income generated by the real estate.
Taxes and duties on real estate sales
Taxes, duties, and benefits on real estate purchases are a rather complex topic, on which it is necessary to constantly update themselves to keep up with the regulations and tax.
Before embarking on an investment, it is important to know them and know how to evaluate them based on your starting situation. Without going into detail, we present you below a list of the most common:
Registration tax: The registration tax is a tax that must be paid to the Revenue Agency when you are about to change the title of the property to your own name.
Mortgage Tax: Mortgage tax is another tax that must be paid to the Revenue Agency and which also varies according to the value of the property.
Land Use Charge: The land use charge is another tax that must be paid to the Revenue Agency and which is based on the category.
Real estate agency commission: If you choose to rely on a real estate agency for the purchase and sale of property, you need to pay commissions to the agency.
These commissions also vary based on the value of the property and at the rate set by the agency. In Nigeria, on average, agencies they apply a percentage of 5% on the value of the property.
Real estate property taxes
Real estate properties are subject to various taxes that the owners must pay annually.
Conclusion:
Investing in real estate in Nigeria can be a great way to mix up your investment portfolio and get steady returns. The options we talked about offer a variety of opportunities for investors with different risk tolerance and experience levels. But keep in mind that investing in real estate requires careful research and due diligence to make it work. As you look at your options, we encourage you to think outside the box and find creative ways to invest in real estate that fit your individual needs and goals.
