If you’re just getting started as a real estate investor, you can’t be a professional overnight. You would make mistakes. But does it really worth it to make mistakes with millions of naira?
This is why it is very important to do your due diligence and talk to a professional who perfectly understands the local market in order to avoid regret in the long run.
Real estate investment, as we pointed out as one of the juicy sectors Nigerians in the diaspora can invest in (https://infomediang.com/profitable-industries-nigerians-abroad-can-invest-in-back-home ), comes with a lot of challenges, that’s why it isn’t one of the investments you can dabble into. It’s better not to learn the hard way.
While it’s a common saying that, “experience is the best teacher”, it doesn’t work that way in an investment that requires millions of naira.
So, what steps should you take before venturing into real estate investment so that your loss will be minimised (in case you are making a slight mistake)?
- Buying during the dry season
- Starting without a goal
- Failure to study the local market
- Environmental factor
- Succumbing to agent’s pressure
- Wrong choice of a developer
- Who is your partner?
- Emotional purchase
- Buying a property because it is cheap
- Abandoning A Property For A Long Time
- Treating real estate as a get rich quick scheme
- Overlooking rental needs
- Failing to research land titles
- Failure to perfect the title to your property
- Putting family ties over your investment
- A quick jump on distressed-sale
- Building on land without an investors mindset
- Refusal to maximize value
- Managing Tasks Poorly
- Miscalculating the costs involved
Buying During Dry Season
Don’t get me wrong, there is nothing bad about buying land during the dry season provided you perfectly know the topography of the environment.
We’ve heard cases of people who bought apartments in some parts of Lekki, just for them to later complain about floods during raining season. I ask myself:
Didn’t they know the physical features of the land before buying?
Knowing the state of the land before pumping in your hard-earned money will be a guide for you to know the kind of foundation and other building factors.
As such, buying during the rainy season is the best so that if you’re going to make a purchase, you would have prepared a fat budget to wade off floods.
Starting Without a Goal
The greatest mistake anyone can make is dabbling into real estate with a goal. Are you buying for personal use? Are you buying to serve as another source of revenue? Whatever the purpose is, you must have a definite goal.
Failure To Study The Local Market
If you reside in Abuja and plan to buy a property in Lagos, you need to learn about the new environment. This is called the local market.
You need this for you to make buying decisions that are likely to redefine your investment portfolio.
In fact, if you reside in Agege part of Lagos and you intend to invest in Lekki property, you need to understand the local market in Lekki
Another real estate investing mistake is to make a purchase without putting into consideration environmental factors.
Is the environment prone to cultist attacks? Is it prone to armed robbery and other security threats?
I’m sure you don’t want to buy a property that you would later abandon because of threats. Even if the property is for rent, prospective tenants may avoid such locations. No one want to stay in an unsecured environment.
Succumb To Property Agent’s Pressure
In a situation whereby you’re not buying directly from a real estate company, don’t allow agents or unprofessional property marketers to put pressure on you.
Some agents may put pressure on the prospective buyers because of their 5% or 10% commission on the value of the property.
Avoid urgent purchases, take your time to investigate the property, take time to verify the titles (documents) to be sure that they are valid.
Wrong Choice Of a Developer
Failing to work with the right developer may put your investment at risk. A dubious developer would rather go for sub-standard materials because of his interest while putting your investment in the long run.
In 2006, a branch of a new generation bank was built in Otta, Ogun State. The building was completed within three months. Unfortunately, the bank was planning to commission the new branch when it collapsed.
That’s how terrible it is to work with an experienced developer. A good developer will offer you professional advice
Who Is Your Partner?
So you want to start investing in real estate by working with a partner? Who is he? How long have you known each other? How much of his background do you know?
Is he a college colleague you’ve lost contact with for more than a decade? This is a property investing mistake you must avoid. If you must go into a partnership, choose someone who shares the same goal as you.
In 2015, a Canadian-based Nigerian informed his sister who resides in Nigeria of his plan to buy some plots of land in Lekki.
He wanted his sister to help him get a real estate company selling in his preferred location. The sister lied and convinced his brother to send the money to her personal account.
The brother got to know that his sister bought three plots of land in an undeveloped location in Epe.
Apart from the fact that the man wanted five plots on the Lekki axis, his sister foiled his investment plan.
The biggest mistake you can make in real estate investing is to make a purchase because of the influence of your family member or because your brother is the seller.
Your purchase should be the one that meets your investment goal.
Buying a Property Because It Is Cheap
You must be able to distinguish between price and value even as it’s important to take advantage of bargains.
Location will play a huge role in the value of the property you want to invest in. For instance, you can’t compare the value of a property in Lekki with a similar property in Agege.
If your goal is to earn big in rental, Lekki may be your choice, but you must be ready to bear the financial implications.
Failing To Establish Your Presence On A Property
One of the ways to establish ownership of land in cities like Lagos, Ibadan, Abuja, and major state capitals in Nigeria is either to erect a building on it or fence it.
Don’t make the mistake of abandoning a property longer than necessary. Even if you plan to hold a property for a longer time, establish your presence on it.
Failing To Calculate The Costs Involved
The main goal of a real estate investor is to make a profit, it’s to turn a property into an interest-yielding investment.
The rental value of a 3-bedroom apartment may be N3.1million per year and you have a plan build 10 units. This means the property will be bringing in N31,000,000 per year. A business-minded investor is likely to quickly calculate his return upfront like in three years. That’s a cool investment.
But have you taken your time to also estimate how much it would cost you to purchase plots of land that would be sufficient to build 10 units of 3-bedroom on? What about the cost of materials and other expenses?
Don’t make the mistake of focusing on the return projection, work with quantity surveyor and other professionals to know how much it would require to complete the project.
Using Real Estate As a Get Rich Quick Scheme
Real estate isn’t MMM. If anyone tells you that your investment would bring in 200% interest in a month, he’s a joker or dubious.
Property appreciates over time. The long term is the key, though appreciation in a few months is possible, not as double your investment in a month.
Don’t treat your investment as get rich quick, be patient.
Overlooking Rental Needs
Simply put, match your investment to the kinds of tenants that are most likely to rent in the location where your property is domiciled.
This is one of the reasons short lets are rapidly growing around Lekki, Abraham Adesanya area of Lagos because of beaches around those axes.
Fun-seeking people would prefer short lets with modern facilities than the usual 3-bedroom flat which are mostly in high demand among families.
Failing To Research Land Titles
I have heard several cases of forged land titles like Certificate of Occupancy (C of O), Governor’s Consent, and other important documents.
While you are looking at the long-term return on the property, don’t be eager to pay for what you can’t independently verify.
If the seller claims that the property has C of O, you can verify the title at the Land Registry Unit of the Lagos State Ministry of Land at Alausa.
Irrespective of how much you’ve invested in the property, if the titles are not valid, the rightful owner would kick you out of it or the government takes over if the property belong to the state.
Failure To Perfect The Title To Your Property
This is similar to the point above. As an investor, you MUST verify the documents on the property before making a financial commitment.
Don’t pay before perfecting the originality of titles. Don’t put the cart before the horse.
If possible, engage professionals who perfectly understand the local market and engage the rightful owner of the property.
Putting Family Ties Over Your Investment
As an investor, your business goal comes first even when a plot of land at your village is N50K per plot.
While the family is very important, buying plots of land in a village that doesn’t meet your investment goal will definitely draw you backwards or totally defeat it. Don’t make this investing mistake.
Refusal To Maximize Value
If you are to buy two and half plots of land at Idimu, facing the expressway, you should be able to ask yourself if the land would be suitable to build offices or for residential.
A typical property investor would most likely utilise such land for building offices and lease to a financial institution or any other big firm.
So, you should be able to maximise the value. Would it be worth it if you sell and deploy the money to develop another property that will generate faster returns?
Managing Tasks Poorly
Poor task management can negatively affect your investment portfolio in real estate. While there are people you could entrust your work to plan everything.
For instance, don’t place excessive trust on craftsmen, embark on an unscheduled site visitation unless the job has been handed over to a reputable Building Engineering company.
Even when a trusted Engineer is managing your project, it’s also important to pay an unscheduled visit to the site.
Quick Jump On Distressed-Sale
A distressed sale occurs when an owner of an asset is ready to quickly sell his property because he urgently needs money to meet certain financial obligations.
And because the owner is willing to sell the asset so quickly, the prospective buyer offers a price that is far below the market value of the property.
If the market value of a 3-bedroom duplex is N100,000,000, you offered N40,000,000 and the seller is quick to agree, it’d be the most erroneous investment deal to jump on it without embarking on research.
Before buying a distressed sale, you must get answers to the following questions in order to avoid regret:
- Who is the actual owner of the property?
- Are there court cases on the property?
- Are the titles verifiable?
- What’s the history of the environment?
- Was it built with sub-standard materials?
- Why is the owner selling?
- Does the property belong to an extended family?
Real estate investment isn’t the type you dabble into, you need research, and don’t jump on a cheap property without due diligence in order to avoid regret.