Real Estate Investment in Nigeria (Become a Pro)
Real estate investment in Nigeria has become increasingly attractive to local and foreign investors and also has become one of the most profitable investments in Nigeria.
This is due to the fast-growing middle class and high population of the country.
A country of over 200 million people (the most populous black Nation) with high demand for housing has made the country a viable place to invest in real estate.
Not just that, the government on the other hand is doing all it can to support this industry through commitment to infrastructural development such as; roads, power, and security.
Even though investing in real estate in Nigeria offers numerous benefits, such as high returns on investment, low entry barriers, and a vast pool of potential tenants, it also comes with its own challenges such as; including a lack of transparent market data, a complex legal system, and issues related to land ownership and management.
In this article, we will look at; “why real estate investment in Nigeria is worth considering, the benefits of investing in Nigerian real estate, the types of real estate investment, what you need to know before making an investment, and many other important areas in this business that will make you a pro investor in real estate.
Table of Contents
Why Real Estate is the Best Investment in Nigeria?
The reason why real estate is considered the best investment in Nigeria is because; it provides investors with the opportunity to earn passive income, make profits through capital appreciation and development, hedge against inflation, diversify their investment portfolio, enjoy tax benefits, and invest in a tangible asset.
And with the continuous increase in urbanization, population, and economic growth the demand for real estate in Nigeria continues to be high.
Types of Real Estate Investment in Nigeria
Understanding the types of real estate investment in Nigeria will help you decide on which real estate portfolio is best to invest your money in.
But mind you, all kinds of real estate investments are profitable! It all depends on your budget and needs.
Here are the most common types of real estate investments in Nigeria
- Land Banking
- Commercial Real Estate
- Trading Real Estate
- Real Estate Investment Trust
- Residential Real Estate
- Industrial Real Estate
1. Land Banking
I believe you must have seen or heard of people who bought land in a remote town or location with the aim of not building any project on it, but reselling it after many years. -That is what is called land banking.
Land banking in real estate means, the practice of purchasing land (mostly large parcels of land) in a remote or undeveloped location for a low price with the intention of reselling it years later for a higher price.
The years of reselling the land are not determined or fixed as it could be shorter than expected or longer than expected.
The reason why land banking in real estate is lucrative is that; “it has the capacity to appreciate in value”.
But it should be noted that things could go sideways and the anticipated growth or development may fail to materialize or take way longer than expected, leaving the owner of the land with a choice to either sell the land with little to no margin or hold onto the land longer than expected.
2. Commercial Real Estate
Commercial Real Estate refers to properties purchased for the purpose of business operation. This includes office spaces, shopping malls, warehouses, and hotels.
These building properties are purchased mainly to be sold for profit to those that intend to use them for commercial purposes or they are purchased to be placed on lease for business owners looking for office or business space.
Commercial real estate is upheld in every economy as it plays a positive impact on economic growth by providing space for businesses to operate and contribute to job creation.
3. Trading Real Estate
This type of real estate investment is all about buying and selling properties with the aim of making profits.
The two strategies used in Trading real estate are;
- Buying and holding properties in other to profit from their appreciated value
- Buying and selling properties quickly. It is often called; “Flipping” and it is done to make profits too.
Trading real estate can involve various types of properties, including residential, commercial, and industrial properties, and can be done by individuals or companies.
Factors such as supply and demand, interest rates, and economic conditions, can make the real estate market volatile thereby making trading real estate a potentially lucrative but also risky investment strategy.
4. Real Estate Investment Trust
An investment trust, also known as a real estate investment trust (REIT), is a company that owns, operates, or finances income-generating real estate properties.
Before the introduction of REIT, investing in real estate means you definitely going to be purchasing physical buildings or assets, which takes a long process and sometimes does not turn out as expected.
But since the establishment of REITs in 1960, individuals; “preferably called investors” can now invest in real estate portfolios like they do when they are buying company stocks, mutual funds, or exchange-traded funds (ETF).
REITs’ portfolios of properties can include housing units, data centers, hospitals, hotels, office buildings, and warehouses.
Unlike other real estate companies, REITs do not develop properties to sell them, but instead, buy and develop properties primarily to operate them as part of their own investment portfolios.
A REIT earns income from the properties it owns and distributes a portion of that income to its shareholders as dividends.
In Nigeria, REITs are traded on the Nigerian Stock Exchange (NSE) through authorized stockbrokers in the form of stocks and shares.
Types of Real Estate Investment Trusts are;
- Equity REITs
- Mortgage REITs
- Hybrid REITs
5. Residential Real Estate:
This type of real estate investment is self-explanatory. There are properties purchased for one purpose only, to be used for residential purposes.
The major factor that drives residential real estate investment is population growth; As the population increases, the demand for residential buildings increases thereby giving room for investors to invest more in residential buildings.
The common type of investment in residential real estate is “buy-to-let” investments; “buying residential buildings to be given out on rent to tenants”. This can generate rental income and potential appreciation in value.
The responsibilities involved in residential real estate investment are;
- Property management,
- Maintenance, and
- Dealing with tenants.
6. Industrial Real Estate
Industrial Real Estate investments are properties purchased for industrial purposes such as factories, warehouses, manufacturing plants, distribution, power plants, and others.
Just like commercial real estate investment, industrial real estate also plays an important role in economic growth by creating space for businesses to operate which has a direct impact on job creation.
Factors that drive industrial properties are;
- Population growth,
- Consumer spending,
- Global trade, and
- Advancements in technology and logistics.
In addition, the common investment in industrial real estate is the rental/leasing kind of investment.
Opportunities in Nigeria’s Real Estate Sector
The opportunities in Nigeria’s real estate sector are enormous, as the demand for properties (both for residential and commercial purposes) is always on the increase.
As you might already know, Nigeria has a population of about 200 million people, with a fast-growing economy in recent times.
The increase in the middle class also gives the real estate sector a good ground for investors to take advantage of this business.
And with a high level of awareness, there are many young and old entrepreneurs who are looking for ways to invest their money in real estate through group buying. -That is what the Real Estate Investment Trusts (REITs) platform provides.
The Market Watch gave a Market CAP of N1.54B in the 52weeks range on REITs
Another opportunity that can be explored in the Nigerian real estate sector is the continuous development of infrastructures in the country. Thereby giving an opened access to hidden locations which have become the most-priced locations in today’s real estate market in the country.
And because Nigeria is a large landmass country of 923,768 km², it means there will always be opportunities for real estate to flourish in the country.
Technology also plays a pivotal role in creating opportunities in the real estate sector, as many Nigerians are well-educated in technology. This means it will be easy for investors to take advantage of the opportunities in this industry.
Real Estate investment strategies
In the Real Estate investment world, there are seven (7) common strategies used to give investors more profit. These strategies are;
- Buy and Hold
- Rental Property
- Real Estate Crowdfunding
Buy and Hold
Investors use this strategy to benefit or take advantage of capital appreciation over time. Buying and holding strategy in real estate is one of the common types of strategy and only those who can exercise patience can take advantage of this strategy.
The return from this strategy in the long run, almost always turns out to be worth the waiting time.
And why the owner of the property waits for the property value appreciation, he can give the property on lease or on rent thereby creating a double source of income.
Ever seen an old building being bought renovated and sold almost immediately for double the purchased value? If yes, then that is what is called flipping.
Flipping is a real estate strategy for those who don’t so much believe in the buying and holding strategy, as their aim is to buy the property now, renovate or give it a little touch of maintenance and resell for double or close to double the purchased value.
This strategy is capital intensive, you must be willing to spend because the new value will be determined by how much was invested in the renovation or maintenance of the property.
Wholesaling strategy in real estate can be a tough one.
The reason why it is a tough one is, you find and undervalued properties (probably buy them or not), then sell them to other investors for a profit without any renovation or added value to the properties.
This strategy requires strong negotiation skills, I prefer to say; “A strong team of negotiators”, to be able to convince buyers (investors) into buying the property for a profitable amount.
As I have explained earlier in this article, Real Estate Investment Trust is a real estate investment that doesn’t involve purchasing physical assets.
Instead, they are companies that own and operate income-generating real estate properties where Investors can purchase shares in these companies to benefit from regular dividend payments and potential capital appreciation.
This real estate investment strategy is the most common type of real estate investment.
Those real estate investors involved in using other strategies to make money in the real estate sector also own a property or properties that use this strategy to generate passive income for them.
In fact, part of the advice every parent in Nigeria gives to their children who happen to be financially buoyant is to make sure they have a property that is given out on lease/rent.
But in other to be successful using the rental strategy, you must be careful about property selection, tenant screening, and effective property management.
Development involves buying land, obtaining necessary permits, and constructing new buildings with the goal of selling them or giving them out on lease.
This strategy requires significant capital, as well as knowledge of the real estate market, construction, and financing.
Real Estate Crowdfunding
Crowdfunding involves pooling funds from multiple investors to finance a real estate project.
This strategy allows investors to invest in real estate with smaller amounts of capital and to diversify their portfolios.
Is Real Estate a Good Investment in Nigeria?
Yes, real estate is a good investment in Nigeria.
The demand for real estate in Nigeria is constantly growing due to the country’s rapidly increasing population, urbanization, and economic growth.
The real estate sector in Nigeria has remained resilient despite the challenges posed by the COVID-19 pandemic and the cashless policy that was enacted in 2015 by former President Goodluck Jonathan.
And with the rise in inflation in the country, real estate is now more than just a good investment in Nigeria because it has a great hedge against inflation.
Is Real Estate Profitable in Nigeria?
Yes, real estate is profitable in Nigeria. And there are three major ways real estate investors in Nigeria make profits;
- Rental income,
- Capital Appreciation,
- Development profits.
Rental income is one of the most common ways to make money from real estate in Nigeria.
The properties are bought solely to be given out on rent to tenants. The rental income earned can be used to pay off the mortgage and other expenses, leaving the investor with a steady stream of passive income.
Capital appreciation is another way to make money from real estate investment in Nigeria. As mentioned earlier, real estate values tend to appreciate over time.
Real estate investors can buy properties and hold onto them for a period of time, waiting for the value to increase or appreciate so it can be sold at a profit.
Development profits are also a way to make money from real estate investment in Nigeria.
Real estate developers can buy and develop land into residential or commercial properties. Once the properties are completed, they can be sold at a profit.
Benefits of Investing in Real Estate in Nigeria
The benefits of investing in Real Estate in Nigeria are enormous, and among many here are the top benefits of investing in Real Estate;
- Steady Cash Flow
- Capital Appreciation
- Hedge Against Inflation
- Tax Benefits
- Tangible Asset
Steady Cash Flow: Real estate investment in Nigeria can provide a steady stream of passive income through rental income. Real estate investors can earn rental income on a monthly basis, providing them with a reliable source of income.
Capital Appreciation: Real estate investment in Nigeria provides investors with an opportunity to make profits through capital appreciation by buying properties at a lower price and selling them at a higher price at a profit.
Hedge Against Inflation: Real estate investment can help investors preserve their wealth; as it serves as a great hedge against inflation. Inflation erodes the value of money, but real estate values tend to appreciate over time.
Diversification: Investing in real estate allows investors to diversify their investment portfolios. This means that they can spread their investments across different asset classes, reducing their overall risk.
Tax Benefits: Real estate investment in Nigeria comes with tax benefits. Real estate investors can deduct expenses such as mortgage interest, property taxes, and repairs from their taxable income. This can help them reduce their tax liability and increase their net income.
Tangible Asset: Real estate is a tangible asset, meaning investors can physically see and touch it. This makes it easier for investors to understand and evaluate the value of their investment. Exemption on REIT investors.
Things you should do to Invest in Real estate
Just like every other business sector, real estate can be both rewarding and not rewarding. That is why it is recommended you fill yourself with some level of knowledge before diving into this venture.
Investing in real estate is a great way not only to make wealth but also to secure wealth.
Here are some things you should do before investing in real estate:
- Educate Yourself
- Develop a Plan
- Build Your Network
- Secure Financing
- Conduct Due Diligence
- Hire Professionals
- Manage Your Investment
This is the number one thing that every potential investor must do no matter the business sector.
Before investing in real estate, it’s important to educate yourself about the market, financing options, and investment strategies (which I have pointed out so far).
Read books, attend seminars, and consult with real estate professionals to gain a comprehensive understanding of the industry.
Develop a Plan
Knowledge without a plan could turn out to be a waste of time and resources.
The real estate sector is a large world on its own and you must be precise about what your goal is, otherwise, you might end up putting your resources where it will come back as a loss.
So, make sure to define your investment goals, assess your financial resources, and develop a plan that aligns with your objectives.
Determine what type of real estate investment you want to pursue, and develop a strategy that maximizes your returns.
Build Your Network
Networking is crucial in the real estate industry. Building relationships with real estate agents especially brokers can give you an edge over other investors on affordable properties.
Other parties in the real estate sector that you must build relationships with are; investors and lenders.
Apart from your personal finance, you need outsourced finance to really take advantage of this industry.
Real estate investments require significant capital, and most investors rely on financing to make their purchases.
Secure financing from banks, mortgage companies, or private lenders to fund your investment.
But as you are sourcing for funds, make sure you are careful as many loan sharks are out there.
Conduct Due Diligence
This aspect is very important. As an investor who is interested in purchasing a property, you must do due diligence in finding out everything about that property, including knowing the reason why the owner wants to sell the property.
As property appreciates in value so it also depreciates in value. And the major factor that depreciates the value of properties, is when the location becomes prone to water as a result of a wrong drainage system done by the government or the community.
Two major professionals every real estate investor must have are; a legal professional and a financial advisor. The reason for hiring these professionals is because of the complexity of the real estate investment.
Hire a real estate attorney, accountant, and property manager to guide you through the process and ensure compliance with legal and financial requirements.
Manage Your Investment
Once you’ve made your investment, manage it effectively to maximize your returns. This includes tenant screening, property maintenance, and staying up-to-date with market trends to make informed decisions.
What is the Most Profitable Real Estate to Buy?
The most profitable real estate to buy in Nigeria are residential real estate and commercial real estate. This doesn’t mean other types of real estate are not profitable.
The key factors that determine the profitability of residential real estate, commercial real estate, industrial real estate, and others are; The location of the property or asset, market demand, and the type of property.
Real estate investment in Nigeria offers great benefits and it is considered one of the most profitable investments available in the country.
If you have any questions or contributions, leave them in the comment section below.
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