Is Real Estate Profitable in Nigeria? This is one question most Nigerians ask before going into the business of the real estate. It is estimated that real estate is worth $56 billion; as such, it is a very lucrative business.
In this article, we will be answering the question, “Is Real Estate Profitable in Nigeria” and looking at the various ways in which you can make good ROI and profit from this business.
Is Real Estate Profitable in Nigeria?
Yes, Real Estate is profitable in Nigeria. The most common way of making a profit in Real Estate is through Appreciation – an increase in the value of the real estate property. According to research, the national appreciation rate for real estate is about 3.5% to 3.8% per year.
Before going into ways of making money in real estate, let’s look at factors that influence real estate profitability.
Factors that influence Real Estate Profitability
- Location: The importance of location in the real estate business cannot be overemphasized. Investing in lands or buildings in the city metropolitan gives more significant ROI than investing in lands or structures at the city’s outskirts. You get higher ROI from Residential houses located in the city’s heart than those in a small corner of the town.
- Level of Development: This is the reason why most real estate investors are called developers. They look for land, develop it and make good money from it. This entails why underdeveloped lands yield little or no ROI. Also, developed lands appreciate quicker in value.
- Government policies and laws: The existing policies or laws regarding land and landed properties can influence the rate of your profit-making. This is why consulting legal real estate personnel is pertinent before investing in any land or building.
- The rate of Inflation: Inflation does play a role in increasing a property’s value over a while.
What are the ways to make money from Real Estate?
You can make money through the collection of rents from both residential and commercial properties. This is one of the most popular ways of making money, and the best part of this is that it is a continuous thing. It is broken into two:
- Residential Property Rent
In this particular real estate investment, you get paid a fixed amount of money, either monthly or yearly. The good thing about this is that the rent can be pushed up by increased demand or inflation, which means more money for the owner. In this particular investment, location is critical.
- Commercial Property Rent
In this case, you make money by collecting rent from properties occupied by business or corporate bodies. It can also come in the form of leasing. This is also a regular and continuous thing.
- Royalties/Raw land income
This is similar to rent. Government, Companies, and individuals pay your royalties or regular payments on raw land, for example, land use for agricultural purposes, construction of pipelines, cell towers building, and construction of road or mining any natural discoveries, such as oil or mineral resources. Usually, this brings colossal income back home.
- Buy and hold
This is a very traditional method of making money in real estate. This method entails you buying a single-family home and renting it out; while you buy a multi-family house and rent them all out to or live in one of the rooms while renting the others to cover your mortgage. You can decide to manage the property yourself or hire a management agency to manage the property, including rent collection.
This is a more complex and short time procedure of making money in real estate. Flipping entails you looking for properties to fix up, after which you resell them at a higher price. Before going into flipping, you should be sound in calculating a property’s underlying cost and potential value. Also, you must have an eye for good properties.
- Vacation rentals
This is a very lucrative way of making money in real estate. This is usually carried out by homeowners who live in properties close to a tourist destination. For example, those that live close to the Lagos Beach or Yankara Game Reserve in Bauchi can embark on this. This entails renting your homes for a specific time to a tourist for handsome pay. However, it is not a very popular way of making money in real estate in Nigeria.
Alternative Ways of Making Money in Real Estate include:
Some investments bodies and agencies help us in earning passively from real estate, and they include; Real estate investment trusts (REITs), Real estate investment groups (REIGs), mortgage-backed securities (MBSs), and mortgage investment corporations (MICs). So, we will be looking at them individually and see how they function and operate.
- Real Estate Investment Trusts (REITs)
REITs enable the owners of multiple commercial properties to sell shares to investors (who buy into the properties to be co-owners). The REIT serves as the landlord for the tenants. The owners of the REIT only record profit after the expenses of the buildings and the REIT are taken out. Then the remaining is shared among the co-owners to their different percentages.
- Real Estate Investment Groups (REIGs)
REIGs is a private Real estate investments platform uniquely structured to provide investors partnership, servicing, and equity investments. It is pertinent you read the terms and conditions before signing into them.
- MBSs, and MICs
MBSs and MICs involve you investing in private mortgages rather than properties. It is more of a debt investment rather than a real estate investment. MICs hold the entire mortgages and share the interest from payments among the investors, while MBSs securitize the principal and interest portions before sharing.
Is Real Estate Profitable in Nigeria? You can agree that real estate is a very lucrative and profitable business in Nigeria with the above information. You can never run into a loss in real estate.