RISK/RETURN ANALYSIS OF REAL ESTATE INVESTMENT IN NIGERIA
The Comparative Analysis
There is this prevailing argument that real estate does not yield as many 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 N500,000 per annum on rental income. In that case, it should take about 40 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.
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 was like - are you a realtor?
I replied yes.
He then 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 about N3,000,000. He 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 later, he got a call from someone asking him if he was the person who sold that piece of land (in Abuja) to the present owner, he said yes and asked why he was asking.
The man replied cause I want to buy it from him but needed to be sure he is the legitimate owner of the land. He asked the man, how much is it going for? The man's response, "I'm pricing for N120,000,000 but he wants to sell for N150,000,000. 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 now (when it's cheap) and sell when it goes high (land speculation).
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. A lot of persons don't know how to identify and avoid buying 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, phase 1 started at N500,000 many years back.
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 as against keeping it 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 but real estate 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 still at Alaba International Market who went bankrupt and his bank took over all his shopping complex at Alaba. Business can get as bad as that sometimes.
That is why real estate is the safe way to go if you are thinking about the future and you understand the game.
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.