De Donnies Homes RISK/RETURN ANALYSIS OF REAL ESTATE INVESTMENT IN NIGERIA - De Donnies Homes

RISK/RETURN ANALYSIS OF REAL ESTATE INVESTMENT IN NIGERIA


The Comparative Analysis 
There is this prevailing argument that real estate does not yield as much returns as it's obtainable in other forms of businesses. Those in support of this view often put up a scenario of someone probably investing as much as N20,000,000 on a property and earning approximately N1,000,000 per annum on rental income. In that case, it should take about 20 years to recoup one's capital from that deal. They also talk about maintenance cost throughout the recouping period.

All of that makes a perfect sense from a layman's perspective. But to correct that misleading impression, let me quickly tell this story.

The Story:
About a year ago, I went to the car wash to clean up my car before setting out to give a client his Deed of Assignment. The owner of the car wash, also a car dealer, saw the deed and asked if I am a realtor?

I replied yes.

He told me about his days in the military when he returned from an international mission, got his benefits and invested it (N600,000) in a plot of land in Abuja. Some years later he sold it for N3,000,000 and used more than half the money to buy a Golf 4 car.

When he was deployed to Port Harcourt, he got broke, took the car to a car dealer who gave him a deposit and the balance much later. 

Many years after that incident, someone called to confirm if it was he who sold that piece of land (in Abuja) to the present owner.

The new interested buyer was ready to pay N120,000,000 against the N150,000,000 the new seller wants to sell. My guy almost fainted.

The Car Dealer:
The car dealer he sold his Golf 4 car to at Port Harcourt was a panel beater working on 2 plots of land each bought for N120,000 and paid for in instalments but many years later he sold a plot out of it to an organization for N17,000,000. He used part of the money to build a Guest House and the balance to start his car business.

Real Estate Stands Out If You Do It Right
Real estate has financially liberated a lot of persons. However, it is much of "a buy when it's cheap" and sell when it goes high (land speculation).

The
"be your own landlord" perspective is a mere "feel perspective". You mustn't live in your own house. You mustn't even own a house if it is not economically viable to do so. That's why you are advised to buy property where it's value and ROA will grow reasonably compared to properties in other locations within same period.

The earlier misleading analysis didn't put capital gain into consideration.

It also didn't factor in growth in rental income.

Many persons don't know that rental income is the smallest way of earning from real estate. It has not come to their consciousness that the value of land appreciates while that of buildings depreciate and that's what calls for maintenance etc.

Investors need to avoid over-priced land. A developer presently sells a plot of land in phase 1 of its estate for N20,000,000 and phase 2 which is directly opposite phase 1 sells for N6,000,000.

For no reason should a good investor buy from phase 1. It's already overpriced. Funny enough, the initial price for phase 1 is N500,000 many years back. Phase 1 is better for the "be your own landlord" perspective.

Real estate shouldn't be the main hustle of any serious-minded investor, it should rather be an avenue for saving and growing idle cash or diversifying your portfolio as against keeping your money in the bank.

It is the most secure investment one can ever have but its juicy yields are long term in nature. It has the potential to completely transform one's financial life for good in the long run.  

Other Businesses/Investments Are Riskier
A successful business can face a serious challenge and wind up almost immediately but plots of land or houses own will always be there for you.

Real estate is a good way of diversifying your portfolio to have a good blend of high and low-risk investments.

A month or more ago. I was with a business associate at Alaba International Market when one of his friends walked in discussing a loss of $3,000,000. That same day I heard of a billionaire in same market who went bankrupt loss his shopping complexess to his bank. Business can get as bad as that sometimes.

That is why real estate remains the safest way to go if you are thinking about the future and you understand the game.

Interestingly, real estate is a persive way of earning good figures in the long run.

Unfortunately, the major thing one can influence in real estate is one's purchase decision. If you buy the wrong property (in terms of location, pricing, authenticity, the purpose of use etc.) you are in for trouble.

This is where we come in to help spot the right deal.


1 comment:

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