If you ask any seasoned investor for financial advice, 15 times out of 10, they will recommend real estate investment.
In fact, even the average Joe on the street will tell you buying properties is the way, the truth, and the life of smart investing.
Beyond mere speculation, tons of data support this stance—the real estate supremacy. According to Statista, Nigeria’s real estate market is projected to hit $2.2 trillion USD in 2024, and frankly, that is a modest projection.
In this article you will learn about the types of real estate investment and tips you need to make the most of your endeavors.
6 Benefits of Real Estate Investment
There is a general consensus that real estate is a great choice for investment. However, what is the why behind this? What are the benefits of investing in properties?
Steady Income Stream
A real estate investment is literally a cash cow. Through rental income, real estate investment trusts, and other avenues, property investment can guarantee a steady stream of income. This is why real estate is literally the gift that keeps on giving.
Investment Portfolio Diversification
Portfolio diversification means distributing investments across different asset classes and industry. Since real estate is a different asset class from equities, fixed-income securities, and commodities, it gives you an alternative with a guaranteed potential for returns.
Hedge Against Inflation
Real estate investment offers investors an asset with a high potential for capital appreciation, rental income growth, and debt leverage. These advantages positions real estate as a hedge against the inevitable gnashing of inflation.
Physical Asset
Unlike most investments, real estate is tangible with an intrinsic value that underscores stability and security.
Potential for Appreciation
Real estate as an investment asset class for investment has a high potential for appreciation. The reasons for this is due to factors like scarcity of land, population growth, economic development, supply and demand, inflation, and other factors. As long as the aforementioned factors remain in play, properties have a significant potential for appreciation.
Overall, it goes without mentioning that investing in properties is undoubtedly advantageous. There are millions of people who have made millions from real estate, you can be on that list too if you have a clear understanding of the types of real estate investments and follow the tips outlined here.
Types of Real Estate Investment
Typically if you ask even the most skilled investor, they would lump together different types of real estate investments including commercial real estate, short-term rentals, and REITS (real estate investment trusts).
Most people who say that usually mistake the “type” for “strategies”. Basically, types of real estate investment usually follow the popular types of real estate like residential, commercial, industrial real estate, and land.
Residential Real Estate Investment
Residential real estate (RRE) investment refers to investing in land or building for the purpose of housing families or individuals. RRE is the most popular form of real estate. For this category, investors usually buy, fix and flip or rent it out to tenants.
The common avenues for this are single-family homes, condos, and multi-family apartments. The Nigerian RRE market is projected to reach 15.32bn USD in 2024.
Commercial Real Estate Investment
Commercial real estate (CRE) usually refers to properties like office buildings, hotels, restaurants, industrial warehouses, retail centres like malls, etc, which are built or leased out for commercial purposes.
This category of investment requires more capital and typically has a higher rental returns compared to residential real estate investment. This is why it is not shocking that Nigeria’s commercial real estate industry is expected to grow to a market volume of $459.70bn by 2028.
Industrial Real Estate Investment
By definition industrial real estate (IRE) properties cater to the core touch points of industrial activities such as manufacturing, distribution, and storage. This means IRE investment involves investing in non-public commercial properties like manufacturing plants, distribution centers, R&D facilities, and storage warehouses.
Like the commercial real estate investment, IRE too requires a large upfront investment and accrues greater returns due to the commercial nature of the property. However investing in IRE properties in Lagos presents challenges such as long-term vacancy and the usual cost of renovating the property to suit the need(s) of new occupants—who would require new set ups—when the old ones moves.
Real Estate Investment Strategies
Beyond profitability, real estate is one of the oldest asset classes in the world, yet one of the most layered.
This implies that by virtue of longevity and due to the complexity of the industry, you need to have a solid strategy for making profit. If not, there is a high tendency that you will make grave mistakes and lose your funds.
By definition, real estate investment strategies are intentional plans and methods investors implement to maximize profit in the market. The strategies usually involve investment goals, risk assessment, market analysis, asset selection, financing strategy, management plan, and in some cases, exit strategy.
Some of the strategies include
- Long term buy and hold
- Fix and flip
- Real estate investment trust
- Real estate crowdfunding
- Short-term rentals
- Commercial leasing
Real Estate Investment Tips for Young Professionals
Ground Yourself in Real Estate 101
If you’re going into the real estate business in Lagos, you need to understand how the system works and what your best options are. Failure to do this will cost you in the long run.
Read books, get videos on your YouTube, and consult professionals or a real estate investor with clear results. It is true that experience is the best teacher, but oftentimes being informed on the fundamental aspects of anything makes your experience a profitable one, rather than a lesson in the art of failure.
However, when consulting professionals (or learning from their books/videos), do your due diligence before acting on their advice. Some “experts” will offer you “meaningful” guidance geared towards selling to you. There are so many young investors who have fallen victim to this because they swallowed the hook, line and sinker offered by faux or shady experts.
Set Clear Goals
Failing to plan is essentially planning to fail. Before you go trotting into the real estate investment business, remember that you need a solid strategy. Your research should have provided you with information on the options and strategies.
This should help you define what you intend to achieve. It is probably time to remind you about S.M.A.R.T. as a goal-setting technique, but you don’t have to follow the textbook mechanics for setting your real estate investment goals. Just ensure they are realistic, simple, and achievable.
Understand the Local Market
There are tons of videos and “gurus” online telling you how they flipped a 300k house and made 1.5M in 2 months. There are others too who have millions of videos and books on tricks they used to compound their interest in real estate. Seeing all that, you might get pumped and want the same result.
But understand that while real estate is a global investment asset class, your locality or the locality of your interest might be a different ball. You don’t want to be that person that learnt how to drive in the UK and tries to replicate it somewhere in Lagos where the driving rules are somewhat different.
Go to the locals, understand the field you’re about to play in. One way to do this is by speaking to local real expert players. Also, endeavour to speak to homeowners or anyone without a vested interest in the market or who is a non-participant player. This has saved many from investing in crappy projects.
Pick a Strategy
Real estate is a vast market, the fastest way to lose is to approach it with a pray and spray attitude, hoping that you might score a big win. You have to pick a strategy that works: buying homes and flipping them, short-term rentals (Airbnb), buying and holding—pick your poison.
This method helps you streamline your effort and play to your strengths. It also helps you gain more knowledge about a specific area of real estate and make the best of it.
Financing
This tip is self-explanatory. Financing is an integral aspect of investing in real estate. It is in fact, the lifeblood of real estate in Lagos, second only to land. As a newbie in real estate investing, it is either your capital comes from personal funds or from other sources like bank loans, support from trusted family or friends, or real estate crowdfunding.
Regardless of the source of your funds, you need to be strategic on the financing aspect of your endeavour. Calculate everything down to the T so you are not stranded halfway. Also consider strategizing on the possible list of external help you might need in terms of partners, lenders, banks that finance projects like yours, contractors, etc.
Networking
This is a bonus tip for riding along till this point.
Networking solves a whole lot of problems for you. It is through your network that you gain insight into the market, access investment opportunities, meet potential partners and collaborators, access financing, build credibility, and generally connect with the players whose relationship will be beneficial to you in the future.
One way to network is digitally, connect with the right people on social media and support their posts. Another way to do it is physically, by attending real estate events or business meetings with the right people you want to connect to. The right people to network with are
- Experienced investors
- Real estate agents
- Financial advisors
- Local real estate groups
- Contractors
- Lenders
- Local officials/planners
Like your every move, who you’re networking with is dependent on the aspect of real estate you want to dabble in. The key is to pick a niche and find the major players there. Some of the places you can meet these people are networking events, online forums, real estate associations, charity events, property tours, and real estate or business schools.
Challenges of Real Estate Investment
This article wouldn’t be complete if we discuss all the pros of investing in real estate and leave out the downsides.
Financing
This is the biggest hurdle for most investors, especially newbies in the Nigerian real estate space. It is easier to fly a chopper without blades than to secure funding for a real estate project, especially if you’re new to the market. But this challenge goes beyond securing funding. Some of the challenges in this criteria include
- High interest rate
- High cost of financing
- Limited access to financing
- Currency volatility
- Stringent lending criteria
Financing has discouraged many individuals from venturing into the industry, and has also limited many others who are already in it. One way to solve the general finance quagmire is to explore alternative funding solutions like partnerships, crowdfunding, etc. You can also start investing in small projects and expand your portfolio with time. Doing this will invariably build your network, net worth, credit, and credibility.
Complexity in Ownership
Most Nigerians know at least one person who is in a legal tussle over land ownership. If you are interested in investing in properties in Nigeria, this is one factor you should be wary of. Usually, these land ownership disputes occur due to
- Lack of formal documentation
- Inefficient land registration system
- Land grabbing and other fraudulent activities
- Insecurity and conflict
This is why it is necessary to do due diligence before committing your funds to any project. The ways to avoid this challenge are: use only licensed real estate professionals in your deals, engage legal professionals to go through every fine print, invest in titled properties, and ensure you reach out to stakeholders in the community to better understand the land tenure system plus related issues.
Regulatory Environment
A system is only as efficient as the procedures and policies regulating it. If you look at Nigeria’s real estate regulatory environment, you will notice certain dysfunctionalities that bleed into and deter people from engaging in real estate investment in Nigeria.
You will find this in or in the bodies responsible for land use regulations, land registration systems, property taxes, building permits, etc.
These anomalies reflect in the form of inconsistent regulatory frameworks, performative bureaucratic processes, high and hidden fees, permit and approvals delays, compliance burden, and lack of transparency.
Inadequate Infrastructure
One of the major challenges of investing in real estate in Nigeria is the inadequacy of necessary infrastructure such as good roads, water supply, electricity, security, etc.
What this means is that with unavailability or inadequacy of these resources, investors have to incur extra costs to repair roads, power machineries, secure properties, and source for other infrastructures needed to carry out their projects. This automatically increases the cost and time spent on projects, which has a ripple effect on the cost of living and other factors
Conclusion
Investing in real estate is not a child’s play, neither is it an endeavor that should be undertaken with closed eyes. This is why it is important to understand how the aforementioned tips apply to your goals, and implement them accordingly. If you need to invest in real estate properties in Lagos, click here.
