Anybody can get rich in real estate. Really? Yes. Like you, I had always thought that real estate business is an exclusive preserve of the ultra wealthy individuals until a casual experience changed my opinion.
In 2013, I bought a small parcel of land measuring 30 x 120 sq. m., somewhere around Ibeju Lekki where I had hoped to put up a small bungalow to live with my family. Then, sometime in February this year, I got a disturbing call that the family who sold the land to me were at the verge of reselling it because the land had remained undeveloped.
I have heard quite a lot unpleasant stories about land grabbing, omonile troubles and unscrupulous land dealing in Lagos and since I was not ready to build on it yet, I decided to sell rather than had it forcefully taken away from me.
It was then my eyes opened. The half plot of land I bought for N500,000 in 2013 was now selling for N2,000,000. That is 4 fold appreciation. Except perhaps, stocks, I cannot think of any other type of investment that will give you a return of 300% under 4 years.
My interest was kindled by this singular experience and I started researching the industry to find out how people really make money in real estate and this is what I found:
Opportunities in real estate are vast,
You need not have a tone of money to make money in real estate and,
There are different layers to operate in, something for every body.
Of course, the higher you go in the rung, the more investment you will need and the more money you will make.
While the top is reserved for the big boys with a lot of cash to spend, a lot of opportunities also exist for you who have a couple of hundreds of thousand bucks. In fact, I found that there are people who have made quite a fortune from real estate who did not start with a penny. You will learn how in this post, continue reading.
Different ways people make money and get rich in real estate:
- Open Space Rental: If you do not have the resources to develop a full property, you can start your real estate business by buying an empty land, clear it, get the necessary documentation effected and rent it out to artisans, block molders, car wash operators and other people who are always in of such spaces to rent or lease to ply their trad. The beauty of this business model is that while your property is being used, it is protected from encroachment pending when you are able to develop it fully; you are getting regular cash flow while the investment keep appreciating at the same time.
2. Rental Property – It is usual and normal for anyone who earn reasonable amount of income regularly to want to build and move into his personal accommodation. Having a house of your own is a worthy goal. It takes landlord wahala off your shoulders but your cash flow may not necessarily be better simply because you live in your own property and no longer have the rent burden. A house may soon become dilapidated over time in which case the cost of maintenance may hit the roof and you will discover that that property is a liability rather than an asset.
A wise approach especially, for those at the early stages of their careers, or those who have not fully achieved financial freedom, is to invest in rental property. Your goal is to earn a higher rent from your property than you pay on your rented accommodation. The difference between you receive your own rental property and the rent for your accommodation to a landlord is a positive cash flow. This way you are building long term asset rather than of liability.
- Property Management - Whether it is retail, commercial or residential real estate, many companies and individuals outsource the management of their properties. The work of a property manager is wide and varied. It may include securing tenants, collecting rent on behalf of the landlord, overseeing repairs and maintenance of the property, provision of utilities, cleaning and janitorial services.
For you to do well as a property manager, you will need to organize your business as a company and reach out to owners of office complexes, shopping malls, rental apartments, terrace buildings, hostels, the list goes on. You will have to seek and partner with real estate agents and property lawyers for business referrals. With the rise in the number of shopping malls, high rise office and apartment complexes in major cities, property or facility management has become high growth subsector within the real estate industry.
- Real Estate Agent - Many people are familiar with this group of service providers in the real estate sector. An estate agent is primarily concerned with sourcing tenants for a rental property as well as assisting to get buyers for property owners for a commission. If at any point in time, you had rented an accommodation, you probably had dealt with an agent. Real Estate Agents, often receive between 5 – 10 percent of the amount of rent collected on behalf the property owner. This means, the higher the rent, the higher the commission you earn.
Often, estate agency and property management are used interchangeably but they are distinct business areas in the real estate industry. While the estate agent list and sell properties on behalf of the property owner, the property manager is concerned with ensuring that the property is always in good condition, is well used, secured and maintained. Well established estate agencies offer property management in their service bouquet.
- Property flipping - This involves buying property usually at bargain prices and selling shortly afterwards at a profit. This business model work in opposite direction of a classic real estate investment principle which holds that real estate asset is held for a long term. The land flipper is a speculator. I see quite a number of people who are making a lot of money flipping property. The property can be an empty land, an uncompleted building or even a finished building.
The idea is to buy, improve if possible, hold for a little while, see price go up and then sell at a profit. The amount of profit you make will largely depend on the amount of capital available to you. The more money you have, the better you are able to take advantage of emerging opportunities.
6. Property Broker - This simply describes someone who brings buyers and sellers of property together. You really do not need any special skill, no money to do this business but you must have good relationship with property owners and conduct yourself in a manner that will earn you their trust. You will need to identify and build relationship with property developers and real estate companies, that way you will always have portfolio of properties to sell. I have come across people who have built very profitable businesses in real estate brokerage services.
7. Property Developer - A developer gather resources from within and outside to construct a property from the scratch, rebuild, refurbish or renovate existing property then rent or sell. This real estate model requires huge investment in hundreds of millions and it is an area the millionaires and billionaires play. The luxury apartments you see in Lagos, Abuja and other major cities, the shopping malls, large complexes and private gated estates, are all products of property development companies. Individual also play in this segment, usually at the low to mid tier market. An individual can buy an existing bungalow, reconstruct or remodel it and thereafter sell.
- Real Information Provider - If you love writing and researching, you can make money by writing focused articles, news and information on the real estate market and opportunities. People are always looking for information on bargain deals, hot developing areas, land and property for sale as well as investment opportunities. You can focus on different aspect of real estate such as home improvement tips, land acquisition, legal aspect of buying property, registration and documentation, tips on how to deal with land grabbers, family owners and a motley of other tips.
You can organize your publication in form of magazine, blogs, newsletters and online publication or ebooks. If well prepared with unique well researched unique content, money will flow through advert placement and other monetization channels.
What if you are not cut out for the rigours of business? Running around chasing potential buyers, securing contracts, developing relationship with sellers or even taking the pain to develop and manage your own property is not your idea of business. May be you are someone who prefers to invest your money and let others do the hard work, grow your money and give you regular return. You can still get rich real estate by:
9. Investing in the shares of established real estate companies that are quoted on the floors of the Nigerian Stock Exchange. You can invest as little as N5,000 in the shares of companies quoted and traded in the stock market. You get return in the form of dividend when declared, capital gains (appreciation in share prices) and bonus shares (additional shares that companies give their shareholders in place of cash dividend). Successful real estate companies that are listed in Nigeria include UACN Properties Plc. Investing in REIT - REIT stands for Real Estate Investment Trust. They are mutual funds created around real estate assets or mortgages under the management of a professional fund manager. Like a mutual fund, REITs pools funds from a diverse group of people who contribute to the pool and share returns in proportion to their individual investment. Many REITs are closed funds and are traded on the floors of the stock exchange which ensures liquidity for the investor. As at the time of writing this post, there are four REITs traded on NSE. These
10. Investing in REIT - REIT stands for Real Estate Investment Trust. They are mutual funds created around real estate assets or mortgages under the management of a professional fund manager. Like a mutual fund, REITs pools funds from a diverse group of people who contribute to the pool and share returns in proportion to their individual investment. Many REITs are closed funds and are traded on the floors of the stock exchange which ensures liquidity for the investor. As at the time of writing this post, there are four REITs traded on NSE. These include: Skye Shelter Fund, Union Homes REIT, UPDC REIT and TSL REIT.
A note of warning! It is not all rosy. No endeavour is. There are risks associated with real estate business or investment. Perhaps, that is why it so profitable. The higher the risk, the higher the return is a known principle of investment. In this clime, some of the risks that can make you lose your shirt include the unwholesome activities of land grabbers, local urchins (omonile in Lagos). The activities of these people have become so unbearable that the Lagos State Government had to make a law criminalizing their activities. Fraudsters are also prevalent in the real estate business such that if you are not careful, you may end up buying property that does not exist or one that is encumbered.
It is for these reasons that you are advised to seek the services of professionals like real estate lawyers, land surveyors as well as ensure you deal with credible families and land owners. A lawyer will help verify titles and confirm that a property is not encumbered or under government acquisition area while the surveyor will assist in registering your land and verifying existing survey plans.
As with all business efforts, your level of success will largely depend on how well you are prepared before you delve in. According to Josh Atman, someone who wants to make money in real estate should follow these tips: start part time (another way of saying start small), get enough knowledge, have a master-selling skill, develop a proven strategy and keep it simple while taking measured actions.
This is to your success.