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Why to invest in Nigeria Real Estate Business – 2020

Posted on 05/04/2020 8:57 AM | by NaijaHouses

If you’ve been thinking why to consider investing in Real Estate market in Nigeria, Naihahouses.com have come up with a comprehensive article which explains why investing in real estate is highly beneficial than any other investment opportunities.

Real Estate is confirmed to be the most profitable & constantly growing business investment opportunities, not in Nigeria but worldwide. There are many currently available properties in Nigeria which are available to sale, purchase and rent. Real Estate industry in Nigeria is a potential golden goose for investors and surprisingly it’s 5th largest contributor in the economy of Nigeria.

Coming back to the main point, why should you invest in Nigerian Real estate business?

Let’s assume that you’re trying to invest for your retirement, if you need 50,000 NGN every year to make a good living when you retire, then, you should have 1,250,000 NGN invested in stocks, bonds and mutual funds before you retire. When you start liquidating those assets by liquidating 4% of the portfolio each year until it’s zero (after 25 years). If you require at the age of 65, you must not live past 90 or you won’t have any money to spend.

While comparing the same scenario in real estate investment uses a different approach. If you collect 3,000,000 NGN in income to purchase real estate, it will pay 50,000 NGN every year in income and this value will gradually improve over the years. This not only covers you but also gives you an asset to pass on to your children.

As per calculation scenario becomes very interesting. It takes 700,00 in investment capital to accumulate 2,800,000 in real estate assets. Comparing it takes around 900,000 in stock investment to get 50,000 per year annual income. Assuming that you invested for 30 years both investments returns 4% return. Thus real estate has multiple advantages against investing in the stock market, bonds or mutual funds.

Real estate offers predictable cash flow, appreciate and keep up the inflation. It provides higher return cuz of positive leverage and it offers equity growth by debt reduction.

 

Here we have 7 strong reasons to invest in Nigerian Real Estate

  • Real Estate can be leveraged

The most amazing benefit of investing in real estate is LEVERAGE! Leverage is using borrowed capital to increase the potential investment return. In Real estate leverage adds in when a mortgage is utilized to reduce the value of investor capital which was required to purchase a property. Annual return on a 200,000 NGN property with 20,000 net cash flow purchased with cash is 10%.

Assuming that loan of 150,000 NGN transferred in 30 years at 5% interest, but 75% of the money is borrowed to purchase the property. Even calculating the cost of creating the mortgage payment, the annual return quite doubles to 23%.

Once you build an equity position in property investment, you can leverage investment for cash either by securing a loan against the increased equity or original loan amount + increase equity. This gets you more money in hand to invest in other area or even a new property.

 

  • Real Estate Investment has obvious cash flow

Real Estate investment is likely to generate you a good cash flow monthly. Cash flow is net income that you can spend from your investment after all mortgage and operational expenses are deducted. As said good real estate investment should provide you 6% or higher cash flow.

 

  • Real estate provides equity

Most real estate can be purchased with small down payment and loan amount from many lenders. By time passes the principal amount of mortgage gets paid, it builds equity.

 

  • Real estate gets improved

One best and unique advantage of real estate is that it improves. Since real estate properties are made of concrete, wood and brick it will improve the value of the property. You can make money using your real estate property more by improving it.

 

  • Real Estate gives good Value

Appreciation levels grow approx. 6% per year in real estate as per the National Association of Realtors data since 1970. This was the same even when the world economy was down in early 2007.

 

  • Real estate tax is deductible.

You can get your taxes deducted using Real Estate properties in Nigeria. This includes expenses that you made owning property as improving the property, upkeep, maintenance of various aspects and even interest that you’re paying on a mortgage. This is likely to reduce your government taxes in Nigeria.

 

  • Real estate is depreciable

Real estate property (except land) is depreciable just like vehicles, computers & office equipment. However, the value of your investment property appreciates. This allows you as an investor to generate good cash flow while you’re reporting lower income for tax saving purpose.

 

Hope this helps you understand and take the necessary step to make a good real estate investment that gets you broader returns. One final advantage over real estate investment is that it’s easy and understandable by almost everyone. You can purchase it easily like on naijahouses.com while investing in share market, equity and bonds are becoming tough by tough each day.