Real Estate Investment is one of the fastest ways to increase your portfolio and be financially independent. The obstacle to entry feels high, and this makes many potential investors run from it.
Just like in any other venture, what is required to become a Real Estate Investor is a piece of accurate information about it. In this article, you will understand the types of real estate investment and how to make money from Real Estate Investment.
What Is Real Estate Investing?
In simple terms, Real estate investment deals with making money through the use of land and the structures on the land. There are several ways Real Estate Investors do this, which includes residential or commercial real estate, REITs, and crowdfunding platforms.
A lot of people think that Real Estate Investment is limited to having a property for rent and being skillful in Landlord-Tenants Relationship. A lot of people also think that to become a Real Estate Investor, they need to have a huge fund to be able to finance the acquisition of land and the construction of it.
While both are types of Real Estate Investment, we can’t generalize their meaning. Depending on the type of Real Estate Investor you want to be, you don’t necessarily have to wait till you have a huge amount of money.
Real Estate Investment Opportunities
Investment opportunities in Real Estate can be divided into four categories: Land Opportunity,Residential Opportunity, Commercial Opportunity and Industrial Opportunity.
This article focuses more on the Residential and Commercial Real Estate Investment Opportunities because I want to encourage more people to go into it. Statistically, in Nigeria there are more people doing land investment than those engaging in Residential ,Commercial and Industrial.
Also, Land , Residential and Commercial Real Estate investments are the easiest to venture into for Beginners.
Investing In Residential Real Estate
This Real Estate Investment opportunity is the most prominent. This is where you invest in properties allocated for residential purposes. The most common form of Residential Real Estate Investment is the purchase of a single or multi-family house to be rented.
Investing In Commercial Real Estate
Shops or Apartments with more than four units are often categorized under Commercial Real Estate. For instance, if you want to invest in a property to be used as a restaurant, this would be classified as commercial real estate.
An apartment complex with fifty or just four units is classified as commercial real estate.
If you are investing in Residential Opportunity, you will worry less about the payment of taxes, compared to investing in Commercial Real Estate.
Investing In Industrial Real Estate
Industrial Real Estate Investment is similar to Commercial Real Estate Investment. Investing in Industrial Real Estate implies that you are investing in land and building properties allocated for activities that are industrial-like, like investing in large factories, power plants, and warehouses.
Industrial Real Estate Investment is probably not a good idea for start-up investors because it involves a whole lot of capital, and involves a lot more risk. It’s far simpler to invest in Residential Real Estate and Commercial Real Estate than Industrial Real Estate.
Investing in Land Real Estate
When you invest in Land Real Estate, you buy land in a remote area at a low cost, then, lease the land or hold it till the value of the land appreciates. Then, sell at a much high cost.
The downside of Land Investment is that it’s the least profitable, compared to the other Real Estate Investments. Also, it happens a lot of time in Nigeria where hoodlums resell already purchased but unused lands.
Investing In Residential Real Estate vs Investing In Commercial Real Estate
As a beginner, focus your efforts on learning as much as you can about a type of Real Estate Investment before combining another to avoid burning.
If you are much conversant with the rules and codes that suit Residential Real Estate Investment, you can delve into Commercial Real Estate Investment. If a very good amount of capital is available, then you may want to delve into Commercial properties.
I recommend that you get hold of one before adding another to it. It happens a lot of time that Real Estate Investors begin with investing in Residential Real Estate, because of its simple nature and minimal financing.
How To Make Your Profit Investing In Real Estate
There are three main ways to make your profit investing in real estate.
The most prominent way people make their profit by investing in Real Estate is Rent. You own property, and then people who need it pay you for borrowing the property.
To make a profit doing this, you need to rent your property out using the 1℅ strategy. This strategy would help you determine how much you should collect for rent, so as not to be at loss. The strategy puts into consideration your loan payment and other necessary amendments.
The ideal formula is buying a property that gives you 1℅ return on your investment monthly.
So, if you are buying a N50,000,000 house, you want to be able to rent at least N500,000 every month. It may not be always possible, but this guides you on how to be in profit with your investment. It is generally referred to as the 1% rule.
NOTE: This is global rule but in Nigeria average rent is between 5-12% yearly depending on the location
The 1℅ strategy says that to make a reasonable profit on your investment, you should have 1℅ ROI monthly.
Flipping vs Buy and Hold
Another common way people make profits in Real Estate Investment is by looking for deals(properties) and then sell these deals after some time for a profit.
If you buy explicitly to turn around and make quick profits, it is called flipping.
Flippers look to buy, repair, and sell purchased properties as soon as possible. They are usually not concerned about renting out the properties. It is a nice convenient way to make profits in Real Estate Investment because it gives some of the highest interest rates.
The upside of investing in a property that requires amendments is that they are usually cheap to get, compared to a property that is move-ready.
If you can do this work yourself or print it out for a low price, you can quickly earn a higher return.
Some people, rather than engage in flipping houses, buy and hold them.
While this is a common tactic, it is more than speculation and less like direct real estate investment. It also usually takes a lot of time for the housing market to go up enough for your holding time to be worth it.
Simply buying a home to sell in a few years is not a great idea unless you can rent it out in the meantime and have the patience to keep it until the market is right.
Collect Interest On Loans
A third way to make profits in Real Estate Investment is by earning interest on loans. In this situation, you invest your money, and a real estate developer takes care of the nuts and bolts of the operation.
You typically do not earn as much of a return doing this, but it is much less time-consuming.
For instance, let’s say a Real estate developer acquires a mansion for N150,000,000. In that case, you could lend them some or all of the N150,000,000 they need.
They would pay you a certain amount of interest each month, depending on the loan agreement.
Hence, knowing these three basic ways to make a profit in Real Estate Investment, you can choose the one which suits you most as you become a Real Estate Investors.
Real Estate Investment is a lucrative business in Nigeria, which can even be ventured into without your money. It’s important that before you invest in any property, conduct proper research about the property, negotiate intelligently and make sure you get the necessary documents for proof of ownership.