Generally speaking, one of the major benefits of buying or investing in property in Nigeria is that it’s a very lucrative business as it offers a steady flow of income and capital appreciation. Although real estate can be very lucrative, it’s important to also understand the risk. This is what led to the topic of today; Is Buying Real Estate in Nigeria safe?
According to the Nigeria Property Centre, 2019 was a great year for Nigeria’s housing market, with demand for properties surged around 73%. Just like any investment, buying real estate in Nigeria too has risk. Below are risks you should watch out for
- Choosing a bad location: Location plays a very important role when you intend to invest or buy real estate in Nigeria. However, it is always advisable to research good locations when investing in property. A property in a bad location will bring about a low potential to appreciation compared to the one in a good location. For instance, a landed property with proximity to schools already gives an idea of what you should do with the land. Such lands can be used for student hostels, malls, restaurants, to mention but a few.
- Negative cash flow: Cash flow is a real estate term that means an increase or decrease in the amount of money a business or an institution has. when the money coming in is less than the money going out, then negative cash flow occurs. Some reasons for this include; high vacancy in the location where the property is situated, not charging enough rent i.e low rental income, high financial cost, and so on. The solution to this is to ensure that the property is strategically located in a good location.
- Joining a real estate investment group: Real estate investment groups involve when many people buy property from a company. The beautiful thing about this is that whether the group buys apartments or condominiums from the company, the company is still in charge of the management and repairs, tenant issues e.t.c. The potential risk of this is that the company that handles the management and maintenance do take certain percentages which might affect your cash flow. If you are looking forward to this, it’s better you research companies that offer real estate investment Clubs or groups in Nigeria to know their charges before you make a final decision. Also read: What to look out for when buying a house in Lagos.
- Real estate investment trust: This is similar to stocks and it involves a corporation that purchases properties with funds from individual investors. If you are an investor looking to diversify your portfolio, REITs can be a good option for you since the values of real estate are better than stock. Although, most REITs are traded on the stock exchange. The thing about REITs is that they are more liquid than other types of real estate investment because you can sell your profit quicker. Despite the benefit of REITs, its disadvantages are not far-fetched because it is not immune to some of the risk of buying real estate generally.