Everyone at some point in time in their lives will start to think about wealth creation and preservation and one of the many ways will include a Real Estate investment portfolio.
To properly understand and appraise any investment decision, some key basics have to be properly understood and evaluated.
- What is the reason behind the investment?
- Capital appreciation: In this instance, the investor is looking at ways in which the asset will hold capital and in the not distant future also increase in price.
- Generation of additional income/cash flow: The investor is more interested in how much (s)he can generate in the short to mid-term in form of rental income which could be used to offset loans, advances, and also serve as an additional income stream.
- Creation of security: Here the investor is looking for an asset that can serve as a security to unlock capital with, an asset that is not liquid as such will value in the face of inflation.
- What are the different sectors in the real estate market in Nigeria;
- Commercial: Office spaces, supermarkets, car parks, malls, etc
- Mixed-Use: Combination of commercial and residential real estate.
- Residential: Living spaces.
- What are the different segments in the real estate market in terms of entry points?
- Low income;
- Mid income;
- High income otherwise referred to as Luxury real estate.
- What kind of competitive advantage/niche can be created to raise the clients’ willingness to pay?
In trying to address this point, it becomes necessary to first understand the following;
- What the basic requirements are for each entry point in the real estate market are? By this, we mean what is that minimum benchmark required, be it commercial, mixed-use or residential must have to make it sell-able.
- What can be done to improve and surpass the basic benchmark and yet keep the product (real estate project) affordable to the market segment of choice for that product. These should include the quality of build, amenities and access.
- How can we structure the payment plan to ensure that the product is fully subscribed in line with all projection timelines? This is to ensure we do not have project overruns, funding gaps etc.
- How to identify real estate firms with operational effectiveness and client-oriented work programs.
5. In choosing who to partner with, you must understand the objective(s) of whom you are considering as the partner. This is also important for the buyer, in this case, the partner will be the developer; whereas, in the case of the developer the builder will be the partner.
We must in all cases research track records in terms of previous developments carried out and ask the following fundamental questions;
- What was the quality of the build?
- Where is the location of their project past and present? Is the project in a hostile environment?
- What experience does the company have in terms of staff, certification of personnel and processes/systems, equipment, funding/financing, utilization of technology etc?
- How long did it take them to complete the project, did they deliver the project on time if a delay occurred why?
- Did they deliver what was promised on the plans or did they cut corners?
- Was the project fully subscribed?
- The value of the product.
For any investment to make viable sense we must consider Willingness To Pay (WTP) against Price, Cost against Operational efficiency and the product.
6. Know where to start investing from.
You are to grow your investment over time and only at your pace. This means you start small and based on your financial standing never stress over things you can not afford. Investing should not be stressful but rather easy with planned setting aside of your income after due consideration of what your spending trends are at each point in time of your working life.
We will discuss this more in the subsequent parts of this topic.