It is a satisfying and lucrative investment strategy to buy and own real estate. It is quite unlike bond and stock investors. The prospective real estate owners may use leverage for buying a property by only paying a part of the complete cost upfront. They pay the balance amount and interest later over a while.

One of the better ways for investors to make money in real estate is by becoming a landlord of a rental property. Then there are house flippers who buy some undervalued real estate, fix it, and sell it for a higher price. Here are more details about ways of investing in real estate.

Owning rental properties

Having rental properties is a terrific opportunity for people that have DIY and renovation skills together with the patience to manage different tenants. But, this strategy needs you to possess a good deal of capital for covering the upfront maintenance costs and the maintenance costs during the vacant period.

However, this provides a regular income and you will have properties that appreciate. It also raises the capital via leverage and there are several tax-deductible expenses associated with the business. But, keep in mind that it can become tedious to manage tenants because there is a possibility of property damage caused by tenants and less income due to possible vacancies.

House flipping

This line of business is for people having a great deal of experience in the field of real estate valuation, renovation, and marketing. It also needs large capital and the capability to perform and oversee repair as required. House flipping is considered to be the wild side of real estate investing. The house flippers are different from the buy and rent landlords.

The flippers are mostly looking to sell undervalued properties they have purchased within six months. Pure house flippers do not invest in the rebuilding of the property. So, their investment needs to have an intrinsic value required for achieving profits without any modification required. Otherwise, they will just eliminate the house from contention.

The house flippers that are unable to unload a property quickly may find themselves in trouble because generally, they do not have sufficient available cash at hand that will take care of mortgages on the property over the long term. This leads to snowballing losses. Another type of house flipper buys reasonably priced properties and increases the value by performing the renovation. It can be a long-term investment and allows investors to take on a couple of properties at the same time.

Investing in New York real estate

The real estate business in New York City is renowned for its investment opportunities. New York is one of the significant cities in the world and buying a property in New York can be a unique investment opportunity. But real estate in the city is expensive. It is probably the most expensive city in the world in terms of rent and one of the more expensive ones to own residential properties. You can find turnkey properties where you can buy a house, fix it, and rent it out immediately. There are NYC property management companies out there that specialize in the sale of these kinds of properties.

You can also invest in NYC real estate by using REIT or Real Estate Investment Trust. The REIT allows the investors to buy residential and commercial properties together with mortgage loans. But the unique thing about REIT is its singular focus on retail or commercial buildings such as Union Square. Another possibly cost-prohibitive NYC investment opportunity is via buying the property directly. It is a difficult proposition though because of the inherent demand in the city. The investors are faced with stringent requirements if they are looking to invest in NYC real estate.

Conclusion

Because of the huge popularity of real estate investments, there are just a few things to remember while you are planning to invest. The first important thing to realize is that you are competing with several other investors. But that is not the only thing to worry about and you are required to consider many things while investing in NYC real estate. However, it is a lucrative line of business if you can act quickly and have a proper plan in place.

Nigeria’s unattractive mortgage system has been a key theme in its residential market for decades. With a housing deficit running into tens of millions, homeownership rate at 25% and a mortgage financing requirement conservatively estimated between 15-20 trillion naira, there is a great deal of work to be done.

Housing is typically capital intensive in Nigeria due to the high cost of construction, surging land prices and excessive financing costs. The high capital requirement of housing has made long-term financing critical in driving affordability; particularly for lower and middle-income groups.

Interest rates for mortgage products from commercial institutions are typically between 15%-25% per annum for a tenor up to 20 years. A model mortgage transaction would assume an interest rate of 20% on a ₦50million mortgage over 15 years. Using the loan amortization calculator by Aso Savings, the borrower would have made total payments amounting to 3x the principal at ₦158,066,685.

Paying 3x the principal on a mortgage transaction appears like daylight robbery. However, it is critical to note that the time value of money would play a major role as we expect ₦158 million today to have lost a significant percentage of its value over 15 years. Nevertheless, I reckon the question on your mind would be…

READ: National Housing Fund: FG inaugurates scheme’s first estate in Lagos

Why is mortgage in Nigeria this expensive?

The simple answer is interest rates are outrageous and here’s why;

There is a direct relationship between inflation and interest rates on mortgages. When inflation rates are high, the naira loses its purchasing power and mortgage lenders tend to increase interest rates above inflation to compensate for loss in purchasing power. Observe how Nigeria’s mortgage sits in comparison with other key economies:

Nigeria’s average mortgage rate is close to 9x that of the United Kingdom (UK) and United States of America (USA). The high mortgage rates in Nigeria discourages prospective borrowers since they have to pay so much to repay their interest and principal. Therefore, potential homeowners rather opt for personal savings, subsidized public sector housing and other sources of funding.

READ: Federal Mortgage Bank disburses additional 8,700 homes, N112 billion in three years

What is being done in making Nigeria’s mortgage market work efficiently?

Private Sector Led:

Some mortgage banks including Cooperative Mortgage Bank have gotten creative in reducing their interest rates by taking the burden of building residential properties and placing those properties on mortgages at single-digit interest rates of about 9% per annum. Mortgage banks have also executed partnerships with cooperatives to design a system where their members can make convenient monthly contributions to the mortgage bank to qualify them for affordable and quality homes over time.

The Future Africa-backed startup; Bongalow serves as a mortgage marketplace for well-curated properties, connecting banks and property developers with people that require financing to purchase homes. You can start a mortgage application on Bongalow by providing information on your income, desired property, credit profile among others. Bongalow then recommends the best mortgage rates and solutions based on the criteria of its lending partners.

READ: Thinking Of Getting A Mortgage In Nigeria? 10 Important Things You Must Know

Public Sector Led:

The government-owned institution; Federal Mortgage Bank of Nigeria (FMBN) lends mortgage at 6% to National Housing Fund (NHF) contributors over a maximum tenor of 30 years. While mortgages from the government may appear more affordable, NHF contributors can only access up to ₦15million from the fund through an accredited and licensed Primary Mortgage Bank.

The government is also encouraging financial institutions to participate in mortgages through the World Bank-backed institution; Nigerian Mortgage Refinance Company (NMRC). The NMRC issues long-term bonds in the capital market to provide refinancing facilities to eligible loan portfolios of financial institutions extending mortgages. This is done to increase the maturity structure of mortgage loans & reduce mortgage rates.

READ: NMRC signs N3bn mortgage agreement with Kaduna govt 

What then?

Real Estate as an asset class would need more reforms to drive mortgage participation. Aside from the issues in titling and discouraging bureaucracies in land documentation, the non-existence of an effective foreclosure law serves as a major disincentive to mortgage financiers.

A foreclosure law basically helps the lender repossess and sell the property in the case of default by the borrower. The National Assembly has not been keen on expediting the foreclosure law and only a few states have passed the law. Without the foreclosure law, cases of repossession of properties after default by borrowers spend a long period of time in court.

Fundamentals of Nigeria’s macroeconomy may be harsh on its mortgage market, however, there are a few positives. It has taken too long for inflation and mortgage rates to function effectively and I believe the public and private sector would need to intervene through the introduction of more specific policies and creative financing facilities to drive affordability.