Starting a real estate investment in Nigeria can be very rewarding. As the cost of living in Nigeria increases, there are more and more people looking to invest in real estate.
However, there are some risks that you should be aware of before investing your hard-earned money into a property or land purchase in Nigeria.
Here are a few things to keep in mind when considering this type of investment.
What is Real Estate Investment?
A Real Estate investment is an asset or item that provides an income. In simple terms, a real estate investment means buying and selling property for profit.
For example, if you buy a house for 4 million Naira and sell it later for 10 million Naira, your profit would be 6 million Naira.
This profit would be considered a real estate investment. The same applies to renting out properties; renting out houses or apartments can also be considered a form of real estate investment.
If you rent out an apartment for 6 thousand Naira per month and receive rental payments of 7 thousand Naira per month from your tenant(s), then you have made a profit of 1 thousand Naira every month on that property. Again, these profits are considered real estate investments.
How To Invest in Real Estate in Nigeria
Real estate investing isn’t for everyone. While real estate can offer great profit potential, you should have a sound understanding of how and where to invest your money.
To invest in real estate, you typically need a healthy bank account (it takes money to make money) and plenty of time to do your due diligence before making an offer on a property.
There are three main types of property investments: residential, commercial, and industrial.
Residential Investing in residential properties can be a good way to earn rental income. This type of investing is most popular among those who already own their home and want to generate additional income from their existing assets.
Residential properties range from individual homes to apartments or even small-scale multi-family buildings like self-cons to duplexes.
In general, these properties require less work than other kinds of real estate, but they also tend to provide lower returns particularly if you’re not living there full-time.
Commercial Property
Commercial properties are generally defined as income-producing assets such as office buildings, retail stores, or warehouses that aren’t owner-occupied housing units.
Because commercial properties often have higher price tags, investors typically need more money upfront to purchase them.
However, commercial properties usually offer higher returns on investment (ROI) because of their ability to bring in revenue from tenants and customers on a regular basis.
Industrial Property
Industrial property refers to land used for industrial purposes (such as factories). These types of investments are often considered high-risk due to high maintenance costs, longer payback periods, and more complicated tenant relationships.
However, industrial property offers some advantages over residential and commercial real estate investments; for example, many industrial spaces come with built-in utilities (which means you don’t have to worry about paying for power).
What To Do Before Starting a Real Estate Investment in Nigeria
Investing in real estate is not a bad move, but it’s important to understand that buying real estate can be risky.
Whether you’re a buyer or seller, making sure that you understand what you’re getting into will help guarantee that your decisions are made with care and confidence.
Here are just a few things to consider before you make any moves.
– How much do I have for a down payment?
The higher your down payment, the less likely you’ll have to deal with negative equity. You’ll also want to determine how much money you’ll need for closing costs, which typically range from 2%-6% of total property value.
These include transfer taxes, loan fees, and more. In most cases, sellers pay half of these costs so factor that into your budget as well.
– Do I have enough cash reserves saved up?
If not, think about how long you’d be able to survive without an income if something were to happen unexpectedly. This way, you won’t put yourself in a situation where you can no longer afford to keep up with payments.
Why Real Estate is a Good Investment in Nigeria?
Real estate investment in Nigeria is good because of these reasons.
1. Nigeria’s population is one of the largest in Africa, and its real estate market has yet to reach full capacity. The country’s population is over 200 million as of 2021, according to World Bank estimates, and that number continues to grow at a rate of 2% per year meaning there are still plenty of people who need housing. This means demand for property will continue to rise for years to come.
2. Real estate prices in Nigeria have been on a downward trend since 2009, making now an ideal time to invest.
According to data from TIPRE (The Institute for Property Valuation and Research), residential property prices fell by 30% between 2009 and 2012; commercial property values dropped by 17%.
In other words, if you were looking for an opportunity to buy low on Nigerian real estate, now would be it.
3. The government has taken steps to improve Nigeria’s infrastructure, which should support future growth in real estate demand. The Economic Recovery and Growth Plan (ERGP) was launched in 2015 with ambitious goals of increasing the GDP growth rate from 5% to 7%, reducing the unemployment rate from 24% to 14% and improving energy production capacity.
What is the Best Investment to Make in Nigeria?
The best investment to make in Nigeria is real estate. This is because real estate is very profitable and worth investing in if you have the money for it.
Real estate prices have always increased over time, and even though there are some years where they may not increase much, they will always eventually go up again.
Conclusion
Investing in real estate is a solid long-term strategy, but there are risks involved. To ensure that you avoid some of these inherent dangers, take your time and do your research.
Invest only what you can afford to lose, and never invest more than 20% of your overall net worth in the property.
Make sure you have a good understanding of all legalities before you start investing as well.
