by Christopher
Understanding how to invest in real estate in Lagos is both simple and complicated.
It gets even more complex if you approach it with assumptions or the mentality of real estate investment practices outside Lagos.
However, regardless of disparities in approach and strategies, one thing that is consistent across board is the fact that real estate investment in most countries is consistently profitable.
Boomers, millennials, and Gen Z investors indeed have differing opinions on the best form of investment. But both sides unanimously agree that investing in real estate has lower risk and higher profit margins compared to other investment asset classes.
In this article, we have compiled a comprehensive guide on how to invest in real estate in Lagos.
Top 5 Ways to Invest in Real Estate in Lagos State
Here’s how to invest in Lagos real estate like a pro
- Rental properties
- Property development
- Real estate investment trust
- Land banking
- Fixing and flipping
1. Rental Properties
One of the best ways to profit from real estate is by building or buying a house and renting it out. This is the most popular form of real estate investment in Lagos because about 75% of Lagosians still live in rented properties.
This means that over 12 million [actually 12,402,000] of Lagos’ population pay rent to someone. You will be among those “someones” receiving rent monthly/yearly if you invest in rental properties in Lagos.
With the house rent in Lagos reaching an all-time high, you can never go wrong investing in rental properties in Lagos. All you have to do is buy or build a house at a great location, agents will market the property and get you tenants in no time.
If you would like to buy an apartment in Lagos Island for rental, click here to contact us. Want to know to know the best part?
Our apartments are in the best location in Lagos Island, and we have over 2958 agents who will get you tenants in no time. Click the link above to get in touch with us now!
Advantages of Owning Rental Properties in Lagos
- Steady rental income aka Cash Flow
- Long term appreciation
- Rental properties can be used as collateral to obtain loans
- Investing in rental properties provides tax advantages through deductible expenses
Downsides to Owning Rental Properties in Lagos
- Problematic tenants
- Property maintenance
- Unpredictable market conditions
2. Property Development
Property development and developers are one of the reasons Nigeria’s real estate is currently valued at $2.26tn, with residential properties generating a large chunk of that.
Investing in property development in Lagos means buying land, building on it, renting or selling off finished houses, or selling shells [uncompleted buildings].
In some sense, no society can do without property developers. They help bridge the gap between housing needs and economic growth. You can make a hooge profit developing properties in Lagos.
The major downside to this is that it is capital-intensive. Hence, to pull it off, you will need a mortgage or other forms of external funding, which usually comes with a high interest rate.
Advantages of Investing in Property Development in Lagos
- High potential for profit
- Asset/value creation
- Profitable tax benefits
Downsides to Investing in Property Development in Lagos
- High capital requirement
- Local “taxation and regulation”
- Regulatory and permitting challenges
- Market uncertainty
- Legal risk
3. Land Banking
If you meet anyone who has built a house in Lagos recently, ask about their blood pressure pills. 11 times out of time, your curiosity will be rewarded by more pills than you can count.
This is because the rising cost of building materials and labor have made it difficult to build a house today and still be sane.
This is why most real estate investors have fallen back to the age-long practice of buying lands and reselling in the future at a higher cost. Others buy lands in developing areas or neighborhoods with potential, hold for years, and build at the first sign of urbanization.
Land banking has been one of the safest real estate investment opportunities in Lagos. All you need to do is buy land at a strategic location, hold it for as long as you want, and resell it at a higher price.
Advantages of Investing in Land Banking in Lagos
- High potential for appreciation
- Low maintenance cost
- Future development opportunities
Downsides to Investing in Land Banking in Lagos
- Liquidity issues
- Lack of cash flow
- The long period of appreciation
- Legal issues (in some cases)
4. Fixing and Flipping
One of the most underrated types of real estate investment niches in Lagos is the fixing and flipping niche.
Here’s how it works: you buy an old building, renovate it, and sell the now-renovated house at a higher price.
This higher price is called the after-repair value. It refers to the projected value of the property after it has undergone renovation.
Unlike most real estate investments like property development, this involves less capital, less execution time, and guarantees cash flow in less time.
Advantages of Fixing and Flipping
- High profit margin
- Quick turnover
- Tax benefits
Downsides to Fixing and Flipping
- High risk due to market fluctuations and unexpected renovation expenses
- It is capital-intensive
- Legal issues over property ownership in some cases
5. Real Estate Investment Trust
One of the most complex yet the most simple way of investing in real estate is through real estate investment trusts.
Real estate investment trusts are often publicly traded companies that own or finance real estate projects with investors’ funds.
Think of it like buying Dangote or MTN shares. Investors get paid dividends quarterly or as at when due. There are 3 types of REITs, Equity, Mortgage, and Hybrid. In Equity, profit is made from rentals, lease, and property appreciation.
But in Mortgage REIT, the companies do not directly own properties but finance them through mortgage or mortgage-backed securities, paying investors dividends from profit gotten through mortgage interests.
Hybrid REITs operate both systems, leveraging property ownership and mortgage interests to enrich their investors. Also, REITs usually invest in some of the best places to live in Lagos, this makes their investment a hit 8 times out of 10.
Advantages of Investing in REITs in Nigeria
- High level of liquidity
- Gives you an opportunity to diversify your investment
- Your investment is managed by professionals
Downsides to Investing in REITs in Nigeria
- You have limited control
- REITs are subject to market volatility
- Some REITs are like your typical publicly traded companies and do not provide stable returns
Side Note: The above are the most popular types of real estate investment in Lagos you can engage in. However, you can also consider other verticals like running a real estate brokerage firm or owning a mortgage bank if you can afford the capital and legal requirement.
If you’d like to buy a house in Lagos Island for rental or residential purposes, you can reach out to us on +234 809 708 8878.
Step-by-step Guide on how to Invest in Real Estate in Lagos
- Real estate market analysis
- Set investment goals
- Explore real estate investment options
- Due diligence
- Financing your investment
- Choose the right property
- Seek professional advice
1. Real Estate Market Analysis
Investing in Lagos real estate is not a walk in the park, neither is it like buying a designer shoe you will not need next year.
No.
You have to get into it with your eyes wide open, being duly informed and up to date on Lagos real estate market trends. This is why carrying out real estate market analysis is essential.
While some part of your analysis will be hinged on theoretical knowledge from books, online sources like this blog or from personal observation, a bulk of the analysis you need should be handled by experts or veterans in the Lagos real estate investment space.
You have to study and understand
- the Lagos real estate market
- the potential deal you will like to pursue [read between the lines, cover to cover]
- the market demand for the property and surrounding properties
- the property’s location
- competitors, and
- the regulatory environment.
It is true that real estate investment is mostly low risk, but there are a thousand ways things could go wrong. A million ways you can lose your money. And a billion more ways you can profit from the market if you’re equipped with the right knowledge.
2. Set Investment Goals
The goal of every investor is to make money. However, there are very important questions you should ask yourself, such as:
How do you intend to make money from real estate in Lagos?
When will you like to start getting returns from your investment?
What other ROI can you get from your real estate investment asides money?
These and other questions will help shape your investment goals and give clarity to your endeavors. Answering the above will help you figure out how to invest in real estate in Lagos like a pro.
For individuals who want to invest in Lagos real estate, the goal could be income generation, capital/asset appreciation, portfolio diversification, tax benefits, long-term wealth building, or achieving social impact through affordable housing.
Whatever your goal is, ensure it passes the S.M.A.R.T litmus test for goal-setting. In plain English, the goal must be Specific, Measurable, Attainable, Relevant, and Time-bound.
3. Explore Your Options
If you ask the average investor for advice on investment, 15 times out of 10, they will recommend real estate investment.
But real estate investment is not a house address, neither is it a cash cow sitting somewhere, waiting for you to slaughter it and get filthy rich.
No. There are various types and strategies of real estate investment in Lagos, each distinct in terms of profit, risk, and procedure.
You can decide to invest in rental properties, commercial real estate, land banking, land development, real estate investment trust, short let/vacation rentals, or you can buy and flip houses.
The sum of this is, just as your real estate investment goals are specific, so too should your investment niche. This will help you narrow your focus, funds, and effort. Knowing the options will help you play to your strength.
However, in order to pick the best option for you, you have to do your research and collate the best options.
4. Due Diligence
Typically, this should fall under the market research. But the importance of due diligence before buying a property or getting into Lagos real estate cannot be overemphasized.
If you go to courts and police stations in Lagos, you will be surprised at the increasing number of land and real estate investment deals gone wrong. And there are some others that got settled out of court or swept under the rug.
The point is, you have to investigate the property you are buying or real estate investment platform you’re getting on to ensure that
- It is legitimate
- The valuation is accurate and
- It has potential for returns
Basically, due diligence helps you verify title, check zoning compliance, carry out environmental assessment, survey verification, HOA rules and service charges, property amenities, available road network, availability of utilities like light and water, etc.
There are a lot of things that can be termed “too much.” But there’s no such thing as carrying out too much due diligence before committing to a real estate investment in Lagos.
5. Choose the Right Property/Platform
After carrying out due diligence on the ventures with potential, the next step is to choose the property or real estate investment platform that best serves your investment goals, keeping in mind the risks, returns, and other factors involved.
To choose the right property/platform, you have to consider factors like the location, property price, rental yields, vacancy rates, property type and condition, legal considerations, and property management.
While doing this, beware of the paradox of choice. The more options you have, the harder it gets to choose.
This is why you should pick out only the properties/platforms with the most potentials and select the option that falls within your strength.
Because at the end of the day, the yardstick for your choice will be determined by your finance, risk tolerance, and investment goal.
6. Financing Your Interest
Some investors who get into real estate come loaded–they are wealthy and can self-finance their investment. Others take a different route by seeking for external source of funding.
At the end of the day, you know your financial position and investment goal better than anyone. This means you know better if you can self-fund or seek external support.
External support in this sense can mean loan from banks, support from co-investors or partners, crowdfunding, or collaborating with developers like Nedcomoaks or other stakeholders to make it work.
Whichever you choose, think of the long term implication of your move and ensure you seek expert counsel and carry out due diligence before any commitment.
7. Seek Professional Advice
This step should be number one on your list.
You can execute some of the aforementioned activities on your own.
However, a bulk of your success investing in Lagos real estate depends on the quality of professionals involved in your endeavour.
In fact, you can’t do without them.
You NEED professional advice and services at various stages of your real estate investment pursuit, especially if you can afford it.
Why go through all the troubles of doing the work (and risking mistakes) when professionals can do it for you?
You might ask, what do I need professional advice for? If you want to invest in Lagos real estate, you need professional advise when it comes to: market analysis, property search and selection, due diligence, legal compliance, property management, etc.
In our parlance, we say “follow who know road.” In this case, the real estate professionals know the best way[s] because they have helped hundreds and thousands of other investors like you get there.
The professionals you need to consult include real estate agents, lawyers, financial advisors, surveyors, etc.
Click here if you’d like to buy a house in Lagos Island for rental or residential purposes.
FAQs
Which investment in real estate is best?
Residential rental properties are the best in terms of steady cash flow, property value appreciation, and the obvious collateral value.
What type of real estate is profitable?
All kinds of real estate are profitable, some more than others. For most real estate investors, multi-family residential properties yield the most profit churning out rent from multiple families.
Which real estate company in Lagos is best for investment?
Victoria Crest is the best real estate company for investment. Many clients and homeowners choose us every other day because it our goal to
What is better than real estate investing?
The better in this sense is vague. But some investors prefer stocks and cryptocurrencies to investing in real estate.
