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  A majority of real estate investors opt for investments in residential property. This reality reinforces itself—people build and rent out residences because that’s what other people are doing. Many don’t have any qualms about this, as long as they’re getting returns on their investment.
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However, there’s an option that’s often more lucrative than residential property: commercial real estate. Rents per square meter are usually significantly higher than what you’ll get for private residences. Owners of commercial real estate can charge far more than their private property counterparts, and make more money per unit space. Examples of commercial real estate include office spaces, medical centres, hotels, warehouses, restaurants, malls, and retail stores. These tend to attract higher rent than residences because their tenants generate revenue from them.

Why You Should Consider Investing In Commercial Real Estate

Besides the earnings that you could gain, here are some other reasons you should consider investing in commercial real estate.
  • Tenants have an incentive to keep the space in good shape: they will want it to look decent to their visitors and customers.
  • If you run the property as a business, you may build a valuable professional relationship with your tenants.
  • Because there are fewer players in this space, there’s generally less competition than obtains with residential property investments.
  • There are more building types to choose from (anywhere from small shops to high-rise buildings), so you may find one that fits your budget.
  • There’s typically less tenant turnover than you’ll get with private residences.

Steps To Investing In Commercial Real Estate

If you’ve determined that commercial real estate is worth investing in, here are some steps you can take to begin with it.

Have An Investment Plan

Decide the goals you’d want to achieve with your investment, and plot a path to making them happen. Know what kind of returns you’re looking for, and what sort of property is most likely to generate that for you. You can benefit from a little bit of research here. Learn what kinds of returns are feasible given each option you’ve placed on the table, and what locations will be most likely to meet your needs on both costs and earnings (more on this shortly). Another thing you should consider is whether you’re going to buy or build the property you’ll rent out. What can you afford, given the funding available to you? What option is most likely to help you achieve your financial goals?
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Determine Your Funding Source

There are many ways to finance your real estate investment. You may choose to approach Primary Mortgage Institutions (PMIs) or other banks that provide mortgage loans. But note that the rates on offer from them are typically high—perhaps beyond the reach of most Nigerians. Another route could be to fund from your savings. You’ll need to save up a fair bit of money to make this work. You could also source financing from your friends and family. And there’s the option of working with business partners to jointly support the investment. If you’re building a commercial property from scratch, you could take a gradual approach to fund it. Deal with successive stages of the project whenever extra cash becomes available.

Choose A Good Location

What constitutes a good location for commercial real estate depends on the nature of the property. If it’s an office space, you’ll want it to be sited in or near a business district. If it’s a warehouse, you’ll want it to be easily accessible to the people who store and sell the products that will be kept in it. Other things you should look out for are the presence of basic infrastructure in the area, and the type of businesses that are predominant in it (and if they are similar to or complement the type of business you expect your tenants to be). Ascertain that the topography of the land is good enough to build on. Avoid swampy or uneven ground, as these could pose problems for building construction and use.

Acquire Or Build Property

If you’re building the commercial space yourself, you’ll have to get a building plan permit from your state government. In Lagos, this is issued by the Lagos State Physical Planning Permit Authority (LASPPPA). And if you have to purchase the land on which you’ll build the property, you should make sure that the seller is genuine, and that their title documents are authentic. There’s more information about this in our article, How to Determine that a Land Title Is Authentic in Lagos. Some investors would opt to buy an already existing property, carry out repairs, and then rent it out to businesses. We’ve discussed the right steps to take when doing this in the article linked here.

Rent Out The Property

After acquiring or constructing commercial space, you’ll want to get tenants to fill it. At this juncture, you could work with a real estate agent to find suitable occupants. You may also list your property with online directories (such as Connect Nigeria’s Real Estate listings), where prospective tenants may visit to find the type of space you’re offering. Targeted online advertisements could work too. You may even distribute leaflets and brochures to businesses that fit the profile of the type of tenant you want. It’s possible that they’re either seeking a better space to move into or intend to set up a new branch somewhere in the area that your property is located.

Final Words

Commercial real estate can deliver impressive returns for the individuals and organizations that invest in it. As Nigeria’s population grows, more businesses will spring up to meet their needs. This means more tenants for owners of commercial real estate. The steps we’ve talked about here could set you up to benefit from this perpetual boom. Featured Image Source: LandWey
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This article was first published on 20th October 2021


Ikenna Nwachukwu holds a bachelor's degree in Economics from the University of Nigeria, Nsukka. He loves to look at the world through multiple lenses- economic, political, religious and philosophical- and to write about what he observes in a witty, yet reflective style.

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