You don`t need any prophet to tell you where real estate could be a profitable investment, just check the population.
In the most populous African country (Nigeria), no doubt, real estate investment is one of the most lucrative investment opportunities you can venture into.
The reason is simple… people will always need a place to lay their heads, people will always need hotels to pass nights and students will always need hostels. Businesses will always need a shop or office space to work from.
Properties of various kinds will be needed whenever there are much people.
Should you ask, what is real estate?
it`s simply an investment by which an investor develops, renovates or buys and resell properties (i.e. land, hotels, residential apartments, and buildings of various kinds)
Let`s get straight to how you can make good money from your real estate investment in Nigeria.
- Understand the nature of the real estate investment.
Every business or investment you want to venture into requires that you understand how it works, since no two investments are the same.
Investing in shares or bonds are different ball game compare to investing in real estate.
Especially for beginners, real estate investment is a long term investment. You cannot invest in a property today and make huge money tomorrow (especially if you`re just starting in the game of real estate development)
You have to understand that real estate isn`t a good cash flow generator, though it`s the best wealth building investment.
This is what I mean.
If you acquire a piece of land in Lagos (Nigeria) today for #5 million naira, you may have to wait for a few years before such investment yield a good return. This is unlike some other business investments that are capable of bringing in daily income.
Though at the long run, your real estate investment could bring in 1000% ROI (Return on Investment), you may have to wait.
That`s the common experience for most people who are investing in property development. However, there is an exception.
Let`s discuss that.
- Educate yourself and invest like big boys.
For most people to invest in real estate, they just have to follow the above mentioned way of buying and waiting. This is what most Nigerian property developers are doing.
There is a smarter way to go about it.
You can buy properties and resell them at good profit within few days. You can buy piece of land, develop it and resell it. You can buy some property, renovate them and sell them. In fact, some highly smart investors buy properties and pay for them with the buyer’s money.
I mean they buy property from Mr. A and collect money from Mr. B (who wants to buy) and use his money to pay. In that case, they invest nothing and the whole transaction can happen in matter of days.
How do you get to this level in your real estate investment journey?
First, start with a simple procedure as explained in my first tip (only make sure you master some of the other things I will discuss soon), then, continues in educating yourself about the real estate industry and how the big guys play their game (I mean ethical, honest and moral dealings, please).
Be a student of real estate. Read books from the real estate giants (Donald Trump, Robert Allen, Robert Kiyosaki are some of the authors I have ate their materials). Watch what other fellow investors are doing and practice new acts as you try new deals.
If you`re serious about educating yourself and trying new things, you will become a master real estate investor and will be able to play smart, like the big guys.
- Master a single aspect of real estate investment, first.
Starting a new business or investing in a new area you`re not familiar with requires that you start somewhere (not everywhere).
Real estate has various aspects by which you can approach it. You can start with acquiring pieces of land or by building little apartments for rent or by developing shops, offices etc.
You can start by buying some old buildings in well located places and renovating them or even start as a realtor (real estate agent).
Some people may specialize in buying and selling raw land, others may love to develop single-family homes, duplex, triplex or large rental apartments. You may love industrial properties (for manufacturing, warehouses etc.) or small commercial offices.
You get my point. Just start somewhere you love most (not everywhere). You can grow to two, three or even all areas soon, but it`s always good to start somewhere, first.
- Use OPM
Real estate investment is capital intensive. That is, we need much money to be fully involve. No matter how much you have to invest in, it`s always good to use Other People’s Money (OPM).
Do you have a partner to invest with? If not, can you approach your bankers and discuss with them?
Depending on few things (which vary from one bank to another), you may get your bank to finance certain percentage of your investment or down payment.
- Master the art of negotiation
Negotiation is where the money lies when it comes to real estate investment. Unlike stock market where you cannot negotiate the price of stocks, the real estate market is 90% of negotiation.
If you don`t master the art of negotiation, you may end up buying properties at the higher prices than you should.
There are many negotiation tactics you can master and use (in ethical ways) You can find out who the real seller is so as to make sure that the property you want to buy has not be in four or fifth hand. If for instance a property has moved from the original seller to another three hands, each of them must have added their own percentage of gain.
You can as well find out how long the seller has being finding a buyer. If it`s been a long time he wanted to sell the property, many people might have priced it and by now he might be willing to sell at a lower price than his original price.
Another negotiation tactic is that you must never show the seller (through your words or actions) that you`re in a hurry to buy his property. If you do, you may end up buying at higher price than normal.
What other thing?
Let the seller know that you have options. When a seller knows that you could just leave him and get your desire property elsewhere, his power drops.
He`s willing to sell at moderate price.
There are many other (ethical) negotiation tactics you can learn. A great book I can recommend about negotiation is, You Can Negotiate Anything by Herb Cohen.
I have that book. Can I borrow you? Ok. Come to my house. Lol.
- Be willing to kiss many frog
When you`re going into property acquisition and development, you must take it as a business (because it is). You must be willing to kiss many frog. You must be willing to check many properties, ask questions about them and price them.
The reason is simple. There is no formal price tag in the mind of people so there is no right or wrong price either.
People price their properties base on various factors, ranging from the information they hear about how much it should cost to their personal greed and few other factors. That`s why you could find two properties of the same value at different prices.
You must be willing to kiss many frog. You must be willing to negotiate many properties.
- Try many realtors
The real estate agents are call realtors. You will need to work with some of them that are faithful and honest. Realtors know where you don`t know and the properties you don`t know.
Check in your locality for some of the realtors there and talk with them.
Some of them could be greedy or fraudulent while some of them are very good. Another reason why you should try many realtors is because the more of them you try, the better deals you will have.
- Location. Location.
There are three things that are important in the real estate investment. The number one is location, number two is location and number three is location.
I was discussing with my wife about two different locations of properties about two days ago. I said, “it`s more profitable to have a plot of land in X place than to have an acre of land in Y place” (talking about two different locations in Nigeria)
A plot of land you acquire somewhere in Osun State (Nigeria) can appreciate at 10% per annum while a similar property can appreciate at 200% per annum in some places in Lagos.
As it is about land, so it is about rental apartments, hotels and other properties, so in the real sense of it, the money is in the location.
But wait. I have something to tell you.
- Train your inner eye to see good properties before it appears good.
Yes, location of your hotel, school hostel, residence apartment, commercial buildings even land are very important for a good return on your investment, but sometimes you will have to go for properties that do not even appear to the physical eyes to be in good locations.
Donald Trump told the story of how he acquired a property in 80`s (if I’m correct) when it was actually stupid to do so (because of the place and conditions of the property). He acquired that property for $1 million and as at 2000 thereabout, when people offered to buy that property, they negotiated it for $450 Million (if my memory doesn`t fail me).
Though the property seemed not to have much value when Trump acquired it, he was seeing what other people could not see.
To make much money with the real estate investment in Nigeria (or anywhere in the world), you must learn how to see good properties, even before they appear good.
These are few things you can watch out for.
A new government policy or development in a particular area.
Take for instance if Nigerian federal or state government decides to locate a university to a particular town. The cost of land in such area may be #100,000 now, but be sure that something drastic will happen in the next two years. The land that could be negotiated for #100,000 now may be #1 million in the next 7 years and the students` hostel and rental properties you could get at #20,000 today may be #100,000 next five years. Why?
Because there is a new development.
But be sure of this. Most people will not see such government`s policy or decision as opportunity for real estate investment. That`s why you have to go in when the time is good.
Other things you may watch out for is, a new major road construction.
If government should construct road to a particular place, people will be willing to live there because the transportation to their working place will be easier, so you can go in and develop some rental apartments there.
New major market is an opportunity to build commercial buildings like offices and shops while tourism center is an opportunity to build hotels.
Just be at alert and take chances.
- Learn a little Math.
Not algebra or calculus, but simple mathematical calculations. If I agree to buy this building for x naira, I will use y naira to renovate it and use w naira to advertise it, so how much can I actually sell it?
That`s a simple math, right? But many people don`t do it right.
When we were studying accounting, we were taught that if you transport yourself to the next street to go and buy a pair of shoes. If you buy such shoes for #2,000 but transport yourself throw and flow with #100, the actual price of such shoes is #2,100.
It`s simple but most people don`t see it that way.
To make money through your real estate investment in Nigeria (Africa or other places), you have to run your mind fast and make financial calculations as per what the cost of buying, developing or renovating certain property could be and how much could they generate and when.
- You will make mistakes
Yes, you may venture into some properties and some legislations may come in to affect your investment. You may act as a visionary investor and later discover that you were wrong in your calculations. In fact, you may bargain a property and acquire such at the wrong price.
Just anything can happen, after all, you`re human being, aren`t you?
If you buy a property today and build a hotel there and tomorrow the government decides to construct a major market right in front of your hotel, what will you do? Since the noise from the market may affect your hotel (who really want to go to a noise hotel?) this has a great effect on your business and investment.
What if you envision a drastic development in a certain town (because of some calculations you`ve made) and suddenly something happens that make your calculation wrong?
Anything can happen, but you will not be crushed, as long as you`re very stubborn.
Stubborn? Yes, being obstinate is the way to go if you truly want to excel as a business man/woman or an investor.
Mistakes and temporal failures will not destroy you. They will only make you smarter.
Be strong. Stand up and fight on!
- Beware of fake properties in Nigeria.
If you`re a Nigerian you will know that some people out there are dubious (not only in Nigeria anyway, thieves and liars are everywhere in the planet earth). I have heard stories of someone selling a piece of land to 5 or more people. Some sell houses and properties that doesn`t belong to them, so watch and make sure you`re buying whatever property you want to invest in, from the rightful owners and with appropriate legal documents.
- Learn. Read.
Have I told you this before? Maybe 100 times in the past. Well, you cannot earn more than you learn. The real game we are playing as entrepreneurs and investors is the game of knowledge.
Forget true success if you cannot read, learn, ask questions and read again.
I`m saying this with the whole authority I carry and can borrow, no man as ever tasted real and significant financial success without adequate business and investing knowledge.
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