Top 10 Reasons to Invest in Real Estate in Nigeria

Arguably, every adult Nigerian would like to have a piece of real estate, either for housing and accommodation, or investment purposes. Unfortunately, this wish almost always ends up as a mere dream. The reason for this is that real estate, for whatever purpose it is needed, is believed to be capital intensive and most people, including those with a ‘can-do’ spirit, run away from it because, in their mind, it is an investment asset class for only the rich.. 

However, investment experts advise that people should not be discouraged from investing in real estate, pointing out that there are simple ways through which they can invest with little or no money. “You don’t need to be a millionaire to get started in this business. There are several creative ways to invest in real estate with little money,”

Key Takeaways:

• Rental properties offer a reliable source of passive income. As Nigeria’s urban population booms, demand for housing is on the rise, potentially resulting in consistent rental yields.
• Historically, Nigerian real estate has shown positive value appreciation. Investing in strategic locations could see your property increase in value over time.
• Real estate can act as a hedge against inflation. As the cost of living rises, rental income and property values may tend to keep pace, protecting your investment’s purchasing power.
• Unlike stocks or bonds, real estate is a physical asset you can see and touch. This tangibility can be appealing to some investors who prefer concrete holdings.

Reason to Invest in Real Estate in Nigeria

In Nigeria, real estate investment offers unparalleled opportunities for wealth growth and stability. From the burgeoning urban centers to the serene countryside, the reasons to invest in real estate are compelling and diverse.

Steady Income

One of the primary benefits of investing in real estate is the reliable source of income it can provide through rental payments. Unlike other investments that can be unpredictable, real estate provides a steady income stream that can be relied upon to cover expenses and provide a cushion for unexpected events. 

Real estate investors can enjoy the benefit of regular rental income without having to sell the property. Many real estate investors in Nigeria rely on their rental income to cover their living expenses, making it a valuable source of steady income. 

Appreciation

In addition to providing a steady income stream, real estate values appreciate over time. Demand for real estate continues to increase, and as a result, property values rise. Historically, real estate has been one of the most stable investments, with property values consistently increasing over time. 

This means that investing in real estate can provide a reliable source of long-term wealth creation. As the value of your property appreciates, you can sell it for a profit or refinance it to access the equity. Either way, investing in real estate is a smart move for those looking to grow their wealth over the long term.

Multipurpose Use

Another benefit is the ability to utilize the property for multiple purposes. This means that a single real estate property can serve more than one function, providing greater flexibility and potential return on investment.

For example: 

• Commercial property can be used for retail, office, or industrial purposes. 

• Residential property can be used as a rental property, a vacation home, or a primary residence.

• Mixed-use property can provide a combination of residential and commercial space, such as a building with retail space on the ground floor and apartments above.

Multipurpose use allows investors to adapt to changing market conditions and maximize the potential of the property. For example, if demand for commercial space decreases, the investor can convert the property to residential use. 

Similarly, if there is a trend towards remote work, a commercial property can be converted into residential units to capitalize on the growing demand for housing. 

In addition, investing in a multipurpose property can increase the likelihood of steady cash flow from multiple sources, which can provide a more stable income stream than relying on a single tenant or use.

Diversification

Real estate provides diversification in an investment portfolio. Including real estate in your investment portfolio can help reduce risk and increase returns. Unlike other investments, real estate is not closely tied to the stock market or other financial markets. 

This means that real estate investments can perform well even when other investments are struggling. 

Additionally, real estate investments can provide a level of stability to an investment portfolio that other investments may not be able to match. Diversifying your investment portfolio with real estate can help you achieve your financial goals while reducing risk. 

Control

Investing in real estate provides investors with a high degree of control over their investment. Unlike other investments that are subject to market fluctuations and outside forces, your investments can be actively managed to maximize returns. 

Real estate investors have control over factors such as rental rates, property improvements, and tenant selection, which can directly impact the value and income potential of the investment.

This control can provide a sense of security and predictability, as investors can actively manage and improve their investments to achieve their financial goals. 

Additionally, real estate investments can be passed down through generations, providing a valuable asset that can be managed and controlled by future generations. Overall, the control provided by real estate investments makes them a valuable tool for building wealth and achieving financial independence.

Leverage

Real estate investments can be leveraged to increase returns. Unlike other investments that require you to pay the full purchase price upfront, real estate can be purchased with a down payment and a mortgage. 

This means that you can control a large asset with a relatively small amount of cash. An example of this is the Stow Fractional Investment Plan.

The ability to leverage real estate investments can significantly increase returns, making it a valuable investment opportunity for those looking to grow their wealth. Additionally, the interest paid on a mortgage can be tax-deductible, providing additional tax benefits to real estate investors. 

However, it’s important to remember that leverage can also increase risk, so it’s important to carefully evaluate your investment opportunities before making a purchase.

Tangible Asset

Real estate is a tangible asset, which means it has a physical value that can be seen and touched. Unlike other investments that exist only on paper or in digital form, real estate is a physical asset that provides a sense of security and stability. 

This tangible nature can make real estate investments more appealing to some investors, as they can see and touch their investments. Additionally, owning a physical asset like real estate can provide a sense of pride and ownership that may not be present with other types of investments.

Retirement Income

Owning rental properties can provide a steady stream of rental income while selling properties can provide a lump sum that can be used to support retirement expenses. 

Additionally, real estate investments can appreciate over time, providing a valuable asset that can be sold or used as collateral to access funds during retirement. This will help you maintain your lifestyle without solely relying on a pension or other retirement benefits.

Legacy Building

Investing in real estate can help you build a legacy by providing long-term wealth creation that can be passed down to future generations. By building a portfolio of real estate investments, you can create a source of income that can be enjoyed by your heirs for generations to come. 

This makes real estate a smart investment choice for those looking to build a lasting financial legacy. 

Inflation Hedge

Real estate is a great hedge against inflation. As the cost of living increases, so do rents and property values. This means that as inflation rises, the value of your real estate investment will also increase. 

This makes real estate a valuable investment opportunity for those looking to protect their wealth against inflation. In fact, many investors turn to real estate as a way to protect their portfolios from inflation and market volatility in Nigeria. 

The stable income stream provided by real estate investments can also help offset inflation, providing a reliable source of income that keeps pace with rising costs.

Potential Returns from Investing in Real Estate in Nigeria

The potential returns from investing in real estate in Nigeria are difficult to predict, as they depend on a wide range of factors, including the type of investment and economic conditions. The average annual returns from investing in real estate in Nigeria are expected to be around 15-20%. However, it is important to note that real estate investments are long-term investments, and investors should expect to hold their properties for several years. In addition, the annual returns can vary significantly from one year to the next, making it difficult to accurately predict the expected returns.

Rental Income

One of the primary sources of return in real estate is rental income. Depending on the location, property type, and demand, investors can generate monthly or annual rental income from leasing out their properties. Rental yields in Nigeria can range from around 5% to 10% or higher in some cases.

Capital Appreciation

As property values rise over time, investors can benefit from capital appreciation. This is the increase in the value of the property itself, which can be realized when the property is sold. The rate of capital appreciation varies greatly depending on factors such as location, economic conditions, and supply and demand dynamics.

Development and Flipping

Investors in Nigeria can also profit from real estate development and flipping properties. By acquiring land or properties at lower costs, renovating or developing them, and then selling them at higher prices, investors can potentially earn significant returns. However, this strategy involves more risks and requires expertise in construction and market timing.

Commercial Property Investments

Investing in commercial properties, such as office buildings, retail spaces, or industrial properties, can provide steady rental income streams and potential for capital appreciation. Commercial properties often have longer lease terms and may offer higher rental yields compared to residential properties.

Land Banking

In rapidly urbanizing areas, investors can acquire undeveloped land at relatively low prices and hold it for future development or resale, potentially benefiting from significant capital appreciation as the area becomes more developed and land values increase.

Risk of Investing in Real Estate in Nigeria

The Nigerian real estate market is still new, and it is not as transparent as the markets in more developed countries, such as the US. This can make it more difficult to accurately assess the value of properties in Nigeria. In addition, the real estate market in Nigeria is largely unregulated, which could lead to fraud. For example, many unlicensed brokers in the country could misinform investors about the value of properties. There are also significant communication barriers, which can make finding the right properties and partnering with the right brokers more difficult.

There are many risks associated with investing in real estate in Nigeria, including the potential for fraud, lack of liquidity, and lack of transparency. Due to the lack of regulations in the Nigerian real estate market, there is a higher risk of fraud, which could lead to significant losses for investors. In addition, there are fewer buyers in the Nigerian real estate market, and this could make it more difficult to sell properties. This may result in significant losses for investors who are unable to sell their properties quickly. There is also a smaller pool of potential partners, which could make finding the right partners more difficult.

Conclusion

Investing in real estate is a proven method of building personal wealth. Of the world’s millionaires, more than 90% of them have real estate somewhere in their investment portfolios. Whether you’re an established real estate investor or you’re new to the world of real estate investing, you must have a method and a purpose for what you’re doing with your money.

Moreover, the increasing demand for residential and commercial spaces, coupled with emerging technologies and innovations, further amplifies the attractiveness of investing in Nigeria’s real estate sector. 

With a proactive approach to risk management and a keen eye for market trends, investors can capitalize on the opportunities inherent in Nigeria’s evolving real estate landscape.

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