There are seven options for an individual to get on the real estate investment ladder. These options are:
- Buy options: outright buy with cash, buying through mortgage loans, joint ownership, co-ownership, joint tenancy, and exchange through barter.
- Transfer through marriage
- Takeover (acquiescence, Government acquisition, adverse possession, squatting, and laches)
- Accretion (reliction, improving another land and alluvium)
This article will focus on the most popular option for real estate entry which is the buy option. It is the option that is available to most people and the one with the least resistance. It is also one that exposes many people to loss – loss of money, time, energy and sometimes, lives.
Only a few people get to inherit profitable real estate, get real estate as a gift, or receive a piece of real estate through marriage. A piece of real estate given as a gift, inheritance, or in marriage most likely was first obtained by purchase.
As a first-time, repeat, or serial investor in real estate, the chances of exposure to a loss per investment is high but experiencing loss while entering real estate by buy option can be prevented. You do not have to be held in the jaw of a lion to know or believe that it devours. Below, are seven tips to always keep in mind when buying real estate.
Check your real estate investing knowledge
Ask yourself this question: What do I know about investing in real estate in the location that I wish to invest in? This is a very important question to ask if you want to prevent losing money in real estate.
That you were born in a place or a family involved in the real estate business does not mean that real estate investing skills come to you by default. Preventing loss and succeeding at real estate investing requires intentional learning.
The sales pitch should at best get your attention and not your cash immediately
The real estate market throws hundreds of sales pitches per time. A sales pitch is not bad in itself but it can be a potential trap. What is bad is for you to get overexcited about an offer and throw caution to the wind. For instance, you must check how exactly and when these benefits apply to you.
Having a clear picture of your investment goals backed up by a plan and sitting down to count the cost of investing before starting helps a great deal. Even when you want to bite more than you can chew, let it be with understanding and a solid plan. Hope is not a strategy.
Watch out for too good to be true deals
Real estate can offer low to very high returns – sometimes over a 100% ROI per annum. The ROI is different from the appreciation value. Some factors must be in place for return on investment to be possible at a certain level and frequency. A few of those factors are strategic location, the type of investment, and the structure of the investment.
When an offer looks too good yet, it interests you, take some time to think about the offer. Ask questions about the offer and get answers. The quality of your questions depends on what you know about real estate investing. This is why investment literacy is as important. Don’t be in a rush and don’t also delay.
A payment plan can sometimes be a trap
Due to the high entry capital required for real estate in Nigeria for instance, structured payment creates some ease for the buyer. Think through a structured payment real estate offer before accepting one. Even when it appears cheap, it may not be the right plan for you at the time.
How much are you prepared to lose?
Think about what you stand to lose when you cannot meet up with a structured payment plan, putting in perspective the other terms associated with investing in a piece of real estate. Can you stomach the risk? Are you prepared to invest what you can afford to lose? What will be the effect of the loss on your wealth goal or wellbeing? What recovery options are available?
It is okay to set up recovery plans before investing. Recovering part of your investment is much better than losing it all.
Understand the terms
Most real estate products come with an attached guide or document. Read the terms and conditions and understand it. Ask for interpretation where necessary. If you find anything that is not clear, highlight and email the company or the representative giving you an offer. Send emails so that you can have records to visit in the future. Investing in real estate with minimal loss relies on understanding the rules and law.
Check on the status of the company giving you an offer from time to time. This is to ensure that your investment is existent and protected as you fulfil all financial obligations. Companies may exist today and fold up the next minute. The earlier you can make your purchase stand-alone to the extent to which it can be, the better. This may mean getting your allocation done or taking possession as soon as possible. Get appropriate documents and register them.
Most people buying real estate in Nigeria will do so through a development company. There are hundreds of companies with a thousand offers. Choosing the best-fit offer can be a tall order. Yet, it is wise to know how to sift through these offerings if you are a smart investor. This way, you eliminate confusion and reduce the chance of losses.
Conducting thorough due diligence before buying any real estate offering is a way to sift offers. However, in a situation where there are many mouth-watering offers, a cost-efficient and effective system will be ideal. A system that gives you confidence in the offer you chose to buy. A system that allows you some level of control and one that you can use, rinse and repeat.
We have created an easy to use real estate offer analysis system. A detailed video guide series on how to analyze real estate offers before you part with money. It is smarter to know what real estate product to buy than trying to recover money after paying for an offer. Send REPAS (Real Estate Purchase Analysis System) via chat to +2347062028677 to indicate your interest in the free guide series.
Plot vs Housing: Which should you buy? 8 Things to consider
Deciding on whether to purchase a plot of land or buy a house can be a tough decision for many.
“Real Estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, and managed with reasonable care, it is about the safest investment in the world.” – Franklin D. Roosevelt.
Deciding on whether to purchase a plot of land or buy a house is an excellent investment opportunity but it can be a tough decision for many, and both options come with their inherent advantages and disadvantages.
There are various issues to be considered which include: safety, security, proximity to family and friends, proximity to amenities and offices, good schools for children, good road networks, hospital services, power and water supply, 24 hours facility management services, and other obligations.
Once you are certain of what your minimum requirements are, it makes it easier to take a decision.
1. Initial capital expenditure
Purchasing land to build typically involves lower initial capital expenditure when compared to purchasing a house. This option is usually attractive to buyers who have limited access to funds but who are desirous of getting a foot into the property market or owning their first home.
However, due diligence is advised to ensure that the land being purchased has the required title documents and is free of encumbrances. Other considerations such as the geotechnical properties of the soil can add to the cost of the foundation and overall development cost. Master planning restrictions can determine if the land being considered is along a drainage path or road expansion zone.
In contrast, the initial capital expenditure for home buyers may be higher due to the development costs involved at inception which includes construction costs, design and building permits requirements.
2. Burden of responsibilities
When buying land to build, the buyer takes up the burden of various responsibilities which include, the cost of the land, design fees for consultants (architecture, structures, mechanical & electrical), planning approval, soil test and EIA reports (if applicable), certified true copy of title documents, various taxes, and other requirements which may vary from one region or country to another.
On the other hand, the burden of all these responsibilities is transferred to the Developer if the buyer decides to purchase a home. This translates to less stress and burden on the buyer.
3. Access to funds
One of the differences between buying land versus a home is how the loans are structured. Mortgages come in a range of options to suit your needs and budget, but there are much fewer options for purchasing land. Many land loans must be fully paid within two to five years.
Interest rates and down payments are also usually higher on land loans than on mortgages. A typical down payment can range from 30-50%. Securing a lower interest rate is a lot tougher, as land only loans are riskier for the lender since there really isn’t any collateral, such as a home. Therefore, lenders are less inclined to offer lower interest rates.
4. Limit of control
Purchasing a home usually constrains buyers to the choice of design, finishes and quality standards delivered by the developer. This can be a source of frustration if quality standards fall below expectation. As a result, the purchaser may need to spend additional finances to correct defects and retrofit the development to satisfy his or her required quality and design standards.
In contrast, land purchase offers the buyer more control over the entire building cycle and final product outcome. Buying land and having your own home built according to your specifications may be a much more viable option if you are particular about selection and quality of the finish, design features, cost control and timely delivery.
As a response to bridge this gap, innovative developers such as Mixta Africa have taken the initiative to deliver homes as shell only or a hybrid finish which give the buyer the flexibility of finishing the property to their required taste.
5. Cost of development
For residential estates, developers can take advantage of economies of scale to lower building costs. The cost savings realized can subsequently be passed on to the buyers, reducing the cost of purchase. Shared costs typically include power, stand-by power system, water supply, sewage, infrastructure, security, and overall maintenance.
In contrast, individuals who purchase land directly are solely responsible for the developmental costs for utilities and infrastructure which can be high.
At Mixta Africa, our serviced estates are delivered equipped with good roads and infrastructure, 24-hours power and security services and recreation facilities.
6. Opportunity for secured communal living
Rapid urbanization being experienced in most countries and Nigeria in particular is predominantly fueled by our large vibrant population. The country’s housing deficit as of December 2018 was estimated at a staggering 20 million units which is about 15% increase from the figures in January 2019. About N21 trillion will be required to finance the deficit. This housing gap has resulted in competition for limited resources, over-crowding in urban areas, and a strong need for a sense of security.
‘Custom-built’ residential estates offer a sense of security for potential homeowners when compared with individual land developments. These shared spaces can provide unique access to shared recreational spaces that include swimming pools, gyms, outdoor recreation and congregation areas, well-landscaped areas, neighbourhood shops, shared IT infrastructure amongst others.
In estates that are well maintained and secured, this sense of community has a positive impact on mental health and wellness which is an important consideration in the current clime.
At the Lakowe Lakes Golf and Country Estate, residents have the unique opportunity of living in a serene environment that boasts of an 18-hole golf course, beautiful lakes, and manicured lawns, with a selection of hospitality hubs.
7. Appreciation over time
Both buying options have the potential to appreciate over time. A property’s physical structure tends to depreciate over time, while the land it sits on typically appreciates in value because it is in limited supply.
The degree of depreciation and/or physical obsolescence varies from one property to another, but if left alone, properties continue to depreciate until they no longer add any value to the land.
It is therefore the responsibility of both the homeowner and Estate Managers to ensure that properties are well maintained over the years by adopting preventive, cyclical, and corrective maintenance strategies.
Mixta Africa is leading the transformation of cities in Africa by creating sustainable communities with high quality urban infrastructure and homes.
8. Risk of non or poor performance by Developer
Buying land means that the purchaser has the flexibility of developing the property at their own pace. In contrast, for those who choose to buy from developers, the decision carries the added risk of non-performance or poor performance by the Developer. As such, buyers are advised to take the time to enquire about the reputation and track record of the developer regarding timely delivery as well as the quality of delivery. This can save a lot of frustration and heartache down the line.
In summary, deciding to buy a home or to buy land for development is one of the most important decisions that we may have to make as individuals or families.
The risks involved are high and can impact positively or negatively on our finances, health, and wellbeing.
Prospective buyers are advised to look beyond the stylistic attributes of prospective home purchases and concentrate on a property’s potential for land appreciation. Focus on those locations that provide opportunities for improvement, which may enhance the value of the land.
The list of considerations highlighted in this article are not exhaustive but can act as initial considerations for decision making.
Careful deliberation, due diligence, research, wide-consultation and advise from suitably qualified industry professionals is advised.
Author: Titi Banjo – Project Development Manager, Mixta Nigeria
NSE fines Mortgage bank, Conoil, others over N1 billion for account filing default
No less than 40 companies have been fine by the NSE for failure to comply with minimum listing standards of the bourse.
The Nigerian Stock Exchange (NSE) has fined Conoil Plc; Deap Capital Management & Trust, a Mortgage banker; R.T. Briscoe Plc; FTN Cocoa Processors Plc; eTransact International; Royal Exchange Plc and 35 others over N1 billion for their failure to file their financial statements with the bourse.
This was found in the NSE’s X-Compliance report that was released on April 1 2021. In the report, the NSE fined Deap Capital the sum of N5.5 million for default in the filing of its 2019 audited account, R.T.Briscoe was also fined about N53.4 million over its failure to turn in its audited report since 2018 to the Exchange.
Conoil Plc was fined N800,000, FTN Cocoa Processors was fined N50.3 million, Juli Plc, Omatek Ventures, Royal Insurance, Union Dicon, and Niger Insurance were slapped with N151.2 million, N537.2 million, N22.3 million, N27.5 million, and N84.2 million fines respectively among others for similar defaults.
What it means
The companies have failed to comply with minimum listing standards of the bourse as some of them have consistently failed to file their audited financial statements since 2017.
For instance, NGC, DN Tyre, Union Homes Savings & Loans, and Aso Savings & Loans have not sent their 2014 – 2019 audited results to the exchange. While Omatek, Evans, Unic Diversified, Juli, Anino, Multi-Trex failed to file their results since 2015. Roads, Staco Insurance, Goldlink, FTN Cocoa, Capital Oil, Guinea Insurance, Resort Savings, Standard Alliance Insurance, International Energy Insurance fall in the category of firms that have not submitted their 2017 and 2018 reports, respectively.
A regulatory report obtained at the weekend flagged the deficient companies with warning codes that indicated various degrees of corporate governance weaknesses, susceptibility to illiquidity, and price manipulation due to inadequate price discovery.
Some of the companies’ stocks were also on the delisting watchlist of the NSE.
What you should know
- The X-Compliance Report is a transparency initiative of the Nigerian Stock Exchange (The Exchange), which is designed to maintain market integrity and protect investors by providing compliance-related information on all listed companies.
- Companies that are listed on The Exchange are required to adhere to high disclosure standards which are prescribed in the Rulebook of The Exchange, 2015 (Issuers’ Rules), and other Rules of The Exchange, from time to time.
- Financial information which is periodic disclosure, as well as ongoing material information disclosure should be released to The Exchange in a timely manner to enable it efficiently perform its function of maintaining an orderly market.
- The X-Compliance Report is updated every Friday at the close of the market.
Nairametrics | Company Earnings
Access our Live Feed portal for the latest company earnings as they drop.
- PZ Cussons Nigeria Plc appoints Ifueko Okauru as Independent Non-Executive Director.
- Chams Plc announces the appointment of Patricia Duru as new CFO
- NPF Microfinance Bank reports a profit after tax of N614.42 million in FY 2020.
- UACN Property Development Company Plc appoints Ojo Odunayo as new CEO.
- Unilever Nigeria Plc reports a loss of N492 million in Q1 2021.