By Dennis Isong
The current hype about real estate businesses being one of the profitable keeps growing, as many investors think of it as one excellent way to invest money in Nigeria. Does real estate investment thrive in Nigeria? Why should you channel your money to such a business? Going through the list of the richest people in Nigeria, I found a lot of them investing in real estates.
Thus, you can see that such investment is worthwhile, and offers good returns. Real estate holds various opportunities for investors in Nigeria, as rental properties and land flipping offer great returns. Not convinced yet? Continue reading to find out more on why you should consider real estate investment.
Why you should invest real estate business
The real estate market holds huge profitable opportunities for Nigerians, and you can start investing to enjoy the leverage and tax advantage. With that in mind, here are 5 more reasons real estate investment in Nigeria sounds like a great idea.
Increase in value
Some investments depreciate overtime but that is a different case when it comes to real estate investments. If you invest about 150 million Naira in getting rental properties or property developments, you are sure to get about 250 million Naira after a few years.
If you’ve noticed, the rents in Nigeria paid in the last five years have increased, and the owners of these properties would enjoy the returns they keep getting from their initial investments. All you have to do is decide on how you want to invest in and make sure you use the services of genuine organizations. Then, stay relaxed and start expecting a great cash flow from this fantastic investment.
The importance of portfolio diversification is quite huge and can be very beneficial to help reduce the risk of your investment. The correlation of real estate with other top classes of assets often come out negative in many cases. Thus, they help lower the volatility, as you now have a portfolio of diversified assets.
Investing in real estate, you can mitigate the risk you face since this tangible asset seems quite secured. For Nigerian investors, you can consider investing in Real Estate Investment Trusts if you don’t want to bother yourself about owning or managing properties.
Does not necessarily require a huge capital
There are various areas of real estate business and not all require that you invest a huge amount of money. Although getting involved in property development may require that you invest much, as you have to pick properties in the best location and reconstruct to a better standard, you can pick other real-estate businesses to make investments.
You can get involved in land flipping and get concerned with only the purchase and sale of lands without developing further. Similarly, investing in Real Estate Investment Trusts (REITs) can also come less expensive and you can still look forward to a great profit.
They serve as hedge against inflation
There is a positive relationship between real estate and GDP, and they contribute largely to Nigeria’s GDP (the 5th biggest contributor). This relationship becomes stronger, and the economy keeps expanding with the growing demands of real estate properties. Thus, the rents from tenants start increasing with time.
In essence, you do not face the effect of the inflation alone as an investor but gets relieved, as some inflationary pressure gets laid on the shoulders of tenants. This effect takes place with the appreciation of real estate value after a short while. Hence, this investment is quite better than some other opportunities in Nigeria’s economy.
It is improvable and offers equity
One interesting aspect of investing in real estate businesses in Nigeria is the fact that you can improve the value of your investment. The attractive changes that it allows you to make in turn provides you with some great profits. So, if you had invested in a rental property some few years back, you can improve them and increase its value.
Although you have to spend some money on the changes and maintenances you make on the property, the rent you get can cover these costs and still leave you with much money to serve as your profit.
4 Ways of earning through real estate investment
When you decide to invest in real estate, there are 4 common ways that you can earn in Nigeria, and they include:
- The income from rental properties: The rents tenants pay for the invested commercial or residential outlet would keep you on a steady passive income.
- Real estate investment trusts: If you have limited funds and still want to invest in real estate, REITs would be the best option and you can earn from your invested units.
- Property value appreciation: During inflation and recession, you can still find the cost of properties increasing. Thus, you earn without the need to feel worried.
- House flipping vs. rental property: Most investors in Nigeria seem to go for either house flipping or rental property. They are both great and offer excellent profits but as a new investor, it would help to note the difference between both to help you make a better decision.
House flipping is a good real estate investment that requires active management, and it involves investing in properties and selling out without further developments. It involves lesser capital and allows great flexibility on the part of the investor.
Although house flipping is a kind of real estate investment, you can picture it as one running a business. Hence, you get your money in huge sums and after you close the deal you are out there sourcing for more properties to purchase.
On the other hand, rental properties may require some more capital, as you may tend to improve the property you purchase to suit the needs of your tenants, and once in a while, you have to do some maintenance. Your tenants would often pay rents in a monthly or yearly term (based on your agreement).
So, which form of investment would be more suitable? Well, this solely depends on your needs and thoughts about the real estate sector. If you would be needing payments in huge sums and seek an investment that runs for the short term, you may want to consider house flipping.
However, you may have to deal with the higher tax rates and always depend on what the market has to offer then. But, if you need a steady cash flow, face lesser inflation, and recession risks, and want an investment that would appreciate over a short while, you should consider rental property.
The rental property might be an excellent option for you if you are not so concerned about the long-term management plan. Nevertheless, you can still amass wealth through any of these options and face lesser volatility.
Real estate is a vastly growing industry that keeps improving the economy of Nigeria and as the demand for real estate properties increases, this growth keeps pushing through. Does real estate investment thrive in Nigeria? Well, it does and has offered many investors various opportunities to multiply their money. Investing in any of the real estate opportunities within the country would mean increased returns, and you can enjoy the various other benefits they offer.
Dennis Isong is realty expert. He writes from Lagos and helps individuals invest right in real estate.