When you look at it from a distance, investing in real estate is cost-intensive. Its long-term nature largely makes it so. But experts in the sector argue that starters need not get scared away because there are circumstances that beat the myth that unless they have a lot of capital they cannot achieve much in the property market.
If you can think beyond some myths about real estate, you will earn good income from it in no time
By the time the observer moves closer, he will discover that it is also a sector that, with little or no money, he can at times surprise himself by making good profit in no time. The reason is that between the sub-sector of estate agency, land speculation and building for rent or for sale, there is usually a gap to be filled. Mr. Makanjuola Ojewumi, a practitioner and author of How to Make Money in Estate Agency, buttressed this point, just as the way a Lagos-based tenant recently “surprised himself” in this context is instructive.
An official of an Ikeja-based bottling company, the tenant, Abiola Badejo, moved to the house where he presently resides in Oko Oba area in February 2004. He paid about N250, 000 as two years’ rent. That was not a little money for the guy who had to sweep his bank account and reach out to other sources before he could secure the key to the three-bedroom flat. Anyway, life continued until late last year when his landlord ran into some difficulties and decided to put the house up for sale.
When Badejo and his co-tenants in four-flat apartment learnt about the landlord’s plan, anxiety rapidly snaked into their hearts. What if the new landlord asked them to go even if at the expiration of the two-year rent this February? That would mean having to begin again in the forest of the Lagos property market that many believe is laden with multiple thorns. The other possible alternatives the new landlord could offer them was a hike in rent, which could still spell trouble for their budgets.
For about three months, nobody successfully bid for the house, as some people who showed interest offered below the N 12 million the landlord insisted on taking. During this time, however, Badejo ran into a Warri-based businessman who was interested in the facility. That was how he connected the businessman with the landlord. As at the time he was doing this, he was not very conscious of the fact that he too was actually doing business. It was when the agreement was being tidied up that he fully realized that he was already a party to be reckoned with, as he has assumed the role of an estate agent, even if inadvertently. To cut the long story short, by the time the deal was sealed about two weeks ago, Badejo had transformed from an apprehensive tenant to a bulk earner. He got about N900, 000, which was 10 per cent of the N9.5 million for which the house was eventually sold.
Today, the house as well as the tenants remained transferred from one landlord to the other. Some new rent terms are being negotiated. But the most important thing is that Badejo’s relative breakthrough has taught him and his co-tenants that every crisis situation usually comes with some opportunities. Besides, it has taught them a lesson on how estate agency works like magic at times.
On this, when you find yourself in Badejo’s circumstance, and you want to intervene as a marketer, all you need to do is to be discerning and persistent, while also realizing that, often, potential buyers are always around him.
Beyond this, however, whoever will do well in real estate should rise above some popular perceptions about the business. For instance, many people’s belief that they can make huge money from rent is erroneous.
Often, you invest for two major reasons. You either build or buy to nest, (to live, that is) or to make money. When the latter is the case, then you are looking at it in a totally unsentimental way. The question you thus ask is: Is there going to be a yield? This yield can be through rent or outright sale of the facility. But the fact is that nobody ever makes great money off rent. On the other hand, you have to look at capital appreciation. If it costs you, say, N10 million to build a house, the moment you finish building, chances are that it is probably worth N15 million. If you don’t build, it means you are already buying somebody else’s labour. If it is already worth N15 million, you have captured growth on your investment, and you have beaten the phenomenon called inflation. This is not to say that whatever you get off rent is useless. That can take care of school fees and other related expenses. But if you are selling the house in the next 10 years, the money you get on it, you will never have saved it from your earnings – including rent.
When you want to build for investment, you have to give location serious consideration, because it is a key determinant factor of how much your investment will yield. Although the cost of buying land varies from one area to other, ultimately, your target should be where people who have much money will like to live. Interestingly, the cost of building the house say in a low-income area like Mushin is the same as the one in Ilupeju or Lekki. But, in both places, capital appreciation differs.
If you invest N40 million in Mushin about five years ago, maybe you get the facility sold for about N50 million today. But if you had invested the same N40 million in a building in Lekki five years ago, you might have the value of about N100million.
In conclusion, therefore, the winning tips in property market can be summed briefly as follows:
- Form the habit of turning yourself into a marketer of every house that is for sale
- Potential buyers are always around you
- It is a myth to think that you can make much money off rent
- When you want to build or sell, look for where people who have good money will like to live