Real estate is a thriving industry in Nigeria that has made many Nigerians millionaires and billionaires. All it takes to make it big is the technical know-how of the business and your interest in the industry. Although real estate has its demands, it’s an interesting venture. Real estate is all about property investment which includes buying, owning and developing.
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Real estate business is very different from stock and bond investors because prospective real estate owners can use leverage to buy a property by paying a portion of the total cost upfront, then paying off the balance, plus interest, over time.
On the other hand, a traditional mortgage mainly requires a 20% to 25% down payment, in some cases a 5% down payment is all it takes to acquire an entire property. The capacity to control the asset the moment papers are signed emboldens both real estate flippers and landlords, who can, in turn, take out second mortgages on their homes to make down payments on additional properties. In this article, we shall highlight 4 key ways investors can make money on real estate.
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Rental Properties
Engaging in rental properties comes with a lot of opportunities that are easily executed. All that is required in rental services include renovation skills, and the patience to manage tenants. Nonetheless, this type of real estate business requires significant capital to fund up-front maintenance costs and underwrite vacant months.
Pros
- Gives steady income and properties can appreciate
- Maximizes capital through leverage
- Many tax-deductible associated expenses
Cons
- Can be tiresome managing tenants
- There is the problem of the potential damage of properties by the tenant
- During vacant periods, income decreases.
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House Flipping
House flipping is a good real estate venture for those with considerable knowledge in real estate valuation, marketing and renovation. It requires capital and capacity to supervise, and fix all that needs to be fixed. House flippers are interested in selling undervalued properties within the space of six months. Real estate flippers frequently don’t invest in developing properties. Accordingly, the investment must already have the ingrained value desired to turn a profit without any swaps, or they’ll remove the property from contention.
Pros
- Ties up capital for a shorter period
- Can offer timely returns
Cons
- Require a deeper market proficiency
- Heated markets cooling suddenly
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Real Estate Investment Groups (REIGs)
Real estate investment groups (REIGs) are suitable for those who prefer to own rental real estate, without the nuisances of handling it. Investing in REIGs requires a capital buffer and access to financing. REIGs are like small mutual funds that invest in rental properties. In a normal real estate investment group, a firm buys or builds a set of apartment blocks or condos, then enables investors to acquire them through the firm, thereby joining the group. It is possible for a single investor to own one or multiple units of self-contained living space, but the company operating the investment group collectively manages all of the units, handling maintenance, advertising vacancies, and interviewing tenants. In exchange for conducting these management tasks, the company takes a percentage of the monthly rent.
Pros
- More hands-off than owning rentals
- Provides income and appreciation
Cons
- Vacancy risks
- Related fees as mutual funds
- Vulnerable to crooked managers
- Real Estate Investment Trusts (REITs).
A real estate investment trust (REIT) is suitable for investors who prefer portfolio exposure to real estate, without a conventional real estate transaction. A REIT is developed when a company (or trust) uses investors’ money to purchase and operate income properties. REITs are acquired and sold on the major exchanges, like any other stock.
Pros
- Practically dividend-paying stocks
- Core holdings tend to be long-term, cash-producing leases
Cons
- Leverage associated with traditional rental real estate does not apply
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This article was first published on 24th January 2022
nnaemeka-emmanuel
Nnaemeka is an academic scholar with a degree in History and International Studies from the University of Nigeria, Nsukka. He is also a creative writer, content creator, storyteller, and social analyst.
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