“People are losing money investing in Nigeria not necessarily because the economy is tough but because they are doing it in the wrong market.”
You may be in a race and be highly motivated, with pumped-up energy and ready to take on the world. Your eyes are set on the goal, your focus quite amazing and your body very fit to win. But if you are on someone else’s track, you will be disqualified. Many people get to lose out in investing in Nigeria because they are not focusing on the critical things that matter for return on investment.
1: FOCUS ON THE DATA
There are more renters than they are buyers
What are the datas saying about real estate and our population?
- The current population of Nigeria is 212,333,011 as of Monday, September 20, 2021, based on Worldometer elaboration of the latest United Nations data.
- Between 1965 and 2021, the number of people living in Nigeria regularly increased at a rate above two percent.
- In 2020, the population grew by 2.58 percent compared to the previous year 2019. In 2021, the population growth is said to be at 2.62%, so there is a steady rise in the growth as the year passes.
This data says something about real estate…
- There has been a steady rise in the housing deficit, from 7.0 million in 1991 to 14 million in 2010.
- From the report of the World Bank in 2018, Nigeria requires about 700,000 housing units annually, spanning through a 20-year period to accommodate the rising population.
- This is highly unattainable with current indices, coupled with the sluggish growth of the housing sector in Nigeria. With a population of approximately 200 million (World Bank, 2019), coupled with high demand in housing units, both in quantity and quality, there is a need to seriously address the issue of housing deficit in Nigeria.
- Nigeria produces less than 100,000 houses a year according to a recent report by Price Waters Cooper
- As at yesterday, Nigeria’s minimum wage is a whooping N30,000 (that’s $73 monthly, £54 monthly, these figures depends on who you are talking to sha)
Now, there is one of three things that is likely to happen to you reading this right now.
- You see a problem
- You see an opportunity.
- You are indifferent
But for those interested in the opportunity, this book is for you.
2: FOCUS ON THE MARKET:
Too many Diaspora investors are investing so much in luxury than the rental market. For example, there are more people renting than buying, so why not focus on investing in the rental space.
Of course you are going to make fast money doing luxury or single-family investment but it is not a guarantee. There are many empty houses in Victoria Island, but people don’t mind leaving and paying rent in the ghetto of Alimosho.
Sometimes, there is no space in the slum, overcrowded areas but in luxury areas, there are empty houses.
3: FOCUS ON USABILITY
The next point is that return on investment and return of investment in real estate is only guaranteed when the property you are investing into is use-able. The true value of a property is not just in its estimates but in the income it generates.
You really don’t want to own property that is just valuable on paper but not in real life. You need cash-flow and cash-flow is achievable through usage. “If people don’t use the property, they cannot pay and if they cannot pay, you won’t enjoy cash flow.”
So, focus on the usability of a property.
4: FOCUS ON NUMBER OF UNITS
The number should make sense. It is not enough to invest in real estate, it is important to invest with the right number of units.
“One property as an investor would not make you feel better as an investor.
You have to focus on the right number. The minimum number to invest in is 16 apartments. “
The reason I choose 16 units is because of vacancy issues, maintenance issues and management issues. It is easier to manage multiple units than to manage just a few. You will engage the service of a facility manager that would be paid.
5: FOCUS ON PREDICTABLE INCOME
Stop the cosmetics real estate investment, it holds no value. I have often said to people that the short-let market is not a sustainable market. The reasons are clearly based on the income of the very big market. It is risky to invest in real estate that people cannot afford. Be prepared to lose your dollars, your euros and pounds when investing in non-sustainable assets.
And if you are prepared, when the market gets ugly, there would be no need to scream. Invest in property assets that people can pay monthly and yearly rent for. Such that if one tenant leaves, the next hour another applies to be your tenant. I have seen people lose money because of cosmetics investment in real estate. They are not going deep with their investment but just doing camouflage investment.
6: USE LEVERAGE
Of course everything I have listed out requires huge investment, but in reality it is possible when you are using leverage. Sometimes the journey of cash-flow requires collaboration. Because it is not something you want to do once and abandon, it is something you want to do again and again.
The best time to get started investing on the right market is now. Your dollars and naira currently make more sense today than ever before. What your dollar and Euros would buy now, are just incredible compared to 2018.
So be smart… invest for cash flow and rental income.
Author: Coach Chudi, Chairman Middlechase Property Limited